For the following problems, assume the taxable year is 2019. Mr. and Mrs. Ohlson file a joint income tax return. Determine if each of the following unmarried individuals is either a qualifying child or a qualifying relative. a. Son Jack, age 20, lives in his parents’ home and works full-time as an auto mechanic. Jack is self-supporting except for the fact that he does not pay rent to his parents. b. Daughter Brenda, age 22, is a full-time college student. Brenda lives in a dormitory during the school year, but her parents’ home is her permanent residence, and her parents provide 100 percent of her financial support. c. Nephew Eddie, age 16, has lived in Mr. and Mrs. Ohlson’s home since 2014. Eddie is a high school student who earned $6,690 this summer working for a plumber. Because his aunt and uncle provide 100 percent of his financial support, Eddie is saving his earnings for college. d. Mr. Ohlson’s mother, Mildred, age 64, lives in a retirement community. Mr. and Mrs. Ohlson provide about 65 percent of her financial support. Mildred earned $4,650 this year as a part-time librarian. e. Mrs. Ohlson’s father, Richard, age 76, has lived in Mr. and Mrs. Ohlson’s home since 2016. Mr. and Mrs. Ohlson provide about 30 percent of his financial support. The rest of his support comes from Social Security.
> Ms. Cross didn’t request an extension of time to file her 2018 income tax return and didn’t mail the completed return to the IRS until August 8, 2019. She enclosed a check for $2,380, the correct balance of tax due with the return. a. Assuming that Ms. C
> Firm F is a cash basis legal firm. In 2018, it performed services for a client, mailed the client a bill for $6,150, and recorded a $6,150 receivable. In 2019, Firm F discovered that the client was under criminal indictment and had fled the country. Afte
> Mr. and Mrs. Wickham did not apply for an extension of time to file their 2018 Form 1040. Because they were vacationing outside the United States, they neglected to file their Form 1040 until July 14, 2019. Compute the Wickhams’ late filing and late paym
> Mr. and Mrs. Pratt failed to apply for an extension of time to file their 2018 Form 1040 and didn’t mail the return to the IRS until May 29, 2019. Assuming the Pratts had no excuse for filing a delinquent return, compute their late-filing and late-paymen
> Zucker Inc. uses a fiscal year as the taxable year for filing its Form 1120. a. If Zucker’s fiscal year ends on March 31, what is the filing date and the extended filing date for Zucker’s Form 1120 for the fiscal year ending March 31, 2019? b. If Zucker’
> Mr. Leon filed his 2017 Form 1040 on March 29, 2018. In 2020, the IRS issued a notice of deficiency to Mr. Leon, in which it assessed $7,700 of additional 2017 income tax. Compute the total amount that Mr. Leon owes to the federal government assuming: a.
> Mr. and Mrs. Lear filed their 2017 Form 1040 on April 1, 2018. In November 2019, they received a notice of deficiency in which the IRS assessed $19,044 of additional 2017 income tax. Compute the total amount that the Lears owe the federal government assu
> Mr. and Mrs. Boyd Knevel use a fiscal year ending July 31 as the taxable year for filing their joint Form 1040. a. What is the last date on which the Knevels can apply for an automatic extension of time to file their return for fiscal year ending July 31
> During the audit of Mr. and Mrs. Jessel’s 2016 and 2017 tax returns, the revenue agent learned that they kept two sets of books for their sole proprietorship. A comparison of the two revealed that Mr. and Mrs. Jessel earned more than $80,000 unreported i
> Upon audit of Mr. Tom Staton’s 2017 Form 1040, the revenue agent determined that he understated his tax liability by $4,300. Compute Mr. Staton’s penalty for substantial understatement if his correct tax liability for 2017 was: a. $40,800. b. $69,700.
> Upon audit of Ms. Evlyn Carlyle’s 2017 Form 1040, the revenue agent determined that she understated her tax liability by $17,000. Compute Ms. Carlyle’s penalty for substantial understatement if her correct tax liability for 2017 was: a. $218,500. b. $142
> Egolf Corporation failed to include $300,000 of taxable interest income on its 2018 calendar year Form 1120. The gross income reported on the return was $4.7 million, and the return was filed on February 20, 2019. a. What is the last day on which the IRS
> Mr. Williams is employed by BDF Inc. Compute BDF’s 2019 employer payroll tax with respect to Mr. Williams assuming that: a. His annual compensation is $60,000. b. His annual compensation is $200,000.
> Mrs. Fugate failed to include $28,000 lottery winnings on her 2018 Form 1040. The only gross income she reported was her $78,000 salary. She filed her return on January 19, 2019. a. What is the last date on which the IRS can assess additional tax for 201
> LZ Corporation uses a fiscal year ending September 30. The controller filed LZ’s Form 1120 for the year ending September 30, 2019, on October 23, 2019. a. What is the last day on which the IRS may assess additional tax for this fiscal year? b. How would
> Percy Wilson is a calendar year taxpayer. What is the un-extended filing date of Percy Wilson’s 2019 federal income tax return if: a. Percy Wilson Inc. is a corporation? b. Mr. Percy Wilson is an individual?
> Mr. Dunn, who has a 32 percent marginal rate on ordinary income and a 15 percent marginal rate on adjusted net capital gain, recognized a $15,000 capital loss in 2019. Compute the tax savings from this loss assuming that: a. He also recognized an $18,000
> For the following problem, assume the taxable year is 2019. Mr. Ballard retired in 2019 at age 69 and made his first withdrawal of $35,000 from his traditional IRA. At year-end, the IRA balance was $441,000. In 2020, he withdrew $60,000 from the IRA. At
> For the following problem, assume the taxable year is 2019. Mrs. Shin retired in 2018 at age 63 and made her first withdrawal of $20,000 from her traditional IRA. At year-end, the IRA balance was $89,200. In 2019, she withdrew $22,000 from the IRA. At ye
> For the following problem, assume the taxable year is 2019. In 2012 (year 0), Mrs. Linsey exercised a stock option by paying $100 per share for 225 shares of ABC stock. The market price at date of exercise was $312 per share. In 2019, she sold the 225 sh
> For the following problem, assume the taxable year is 2019. In 2010, BB granted an incentive stock option (ISO) to Mr. Yarnell to buy 8,000 shares of BB stock at $7 per share for 10 years. At date of grant, BB stock was trading on the AMEX for $6.23 per
> For the following problem, assume the taxable year is 2019. In 2014, BT granted a nonqualified stock option to Ms. Pearl to buy 500 shares of BT stock at $20 per share for five years. At date of grant, BT stock was trading on Nasdaq for $18.62 per share.
> For the following problems, assume the taxable year is 2019. Mr. and Mrs. Brown report taxable income of $130,000 in 2019. In addition, they report the following. Excess Social Security withholding credit …………………… $ 2,200 Estimate tax payments ………………………
> For the following problems, assume the taxable year is 2019. Determine Ms. Arnout’s filing status in each of the following independent cases. a. Ms. Arnout and Mr. Eckes have been living together since 2017. They were married on December 13, 2019. b. Ms.
> For the following problems, assume the taxable year is 2019. In January, Ms. Northcut projects that her employer will withhold $25,000 from her 2020 salary. However, she has income from several other sources and must make quarterly estimated tax payments
> For the following problems, assume the taxable year is 2019. Jaclyn Biggs, who files as a head of household, never paid AMT before 2019. In 2019, her regular tax liability was $102,220 which included $39,900 capital gain taxed at 20 percent, and her AMTI
> Refer to the facts in the preceding problem. In 2020, the CFC’s income was $600,000, none of which was subpart F income or GILTI, and it distributed a $300,000 dividend to its shareholders ($120,000 to Jumper). How much of this actual dividend is taxable
> Jumper Inc., which has a 21 percent tax rate, owns 40 percent of the stock of a CFC. At the beginning of 2019, Jumper’s basis in its stock was $660,000. The CFC’s 2019 income was $1 million, $800,000 of which was subpart F income. The CFC paid no foreign
> In 2018, NB Inc.’s federal taxable income was $242,000. Compute the required installment payments of 2019 tax in each of the following cases: a. NB’s 2019 taxable income is $593,000. b. NB’s 2019 taxable income is $950,000. c. NB’s 2019 taxable income is
> In 2018, Bartley Corporation’s federal income tax due was $147,000. Compute the required installment payments of 2019 tax in each of the following cases: a. Bartley’s 2019 taxable income is $440,000. b. Bartley’s 2019 taxable income is $975,000. c. Bartl
> Refer to the facts in part (c) of the preceding problem. In 2020, BLS repaid its $8,000 debt to Leo before he restored any basis in the debt. How much gain or loss, if any, will Leo recognize as a result of the debt repayment? Problem 30: Refer to the
> Refer to the facts in the preceding problem. BLS generated $408,000 ordinary business income in 2019. a. How much of Leo’s share of this income is included in his 2019 taxable income? b. Compute Leo’s basis in his BLS stock and his BLS note at the end
> On January 1, 2018, Leo paid $15,000 for 5 percent of the stock in BLS, an S corporation. In November, he loaned $8,000 to BLS in return for a promissory note. BLS generated a $600,000 operating loss in 2018. a. How much of his share of the loss can Leo
> At the beginning of 2019, Ms. P purchased a 20 percent interest in PPY Partnership for $20,000. Ms. P’s Schedule K-1 reported that her share of PPY’s debt at year-end was $12,000, and her share of ordinary loss was $28,000. On January 1, 2020, Ms. P sold
> Evan, a single individual, operates a service business that earned $110,000 in 2018. The business has no tangible property and paid no W-2 wages. a. Compute Evan’s QBI deduction, assuming his overall taxable income before QBI is $125,000. b. Compute Evan
> Refer to the facts in the preceding problem. In 2019, YZ generated $7,000 ordinary business income and $18,000 dividend and interest income. The partnership made no distributions. At the end of the year, YZ had $21,000 debt. a. How much partnership inco
> Zelda owns a 60 percent general interest in YZ Partnership. At the beginning of 2018, the adjusted basis in her YZ interest was $95,000. For 2018, YZ generated a $210,000 business loss, earned $14,600 dividend and interest income on its investments, and
> TRW Inc. began business in 2019 and incurred net operating losses for its first two years. In 2021, it became profitable. The following table shows TRW’s taxable income before consideration of these NOLs. Recompute TRWâ€
> MG is an accrual basis corporation. In 2018, it wrote off a $65,000 account receivable as uncollectible. In 2019, it received a $65,000 check from the creditor in full payment of this receivable. a. What was the effect of the write-off on MG’s 2018 finan
> In April 2019, Lenape Corporation completed security, fire, and heating system improvements to existing nonresidential real property with a total cost of $1,275,000. Assuming these improvements are 39-year recovery property and qualify for the Section 17
> At the beginning of its 2019 tax year, Hiram owned the following business assets. On July 8, Hiram sold its equipment. On August 18, it purchased and placed in service new tools costing $589,000; these tools are three-year recovery property. These were
> Acme is an accrual basis corporation. Mrs. T, Acme’s chief financial officer, is a cash basis individual. In December 2018, Acme’s board of directors decided that Mrs. T should receive a $20,000 bonus as additional compensation. Acme paid the $20,000 bon
> Company N, an accrual basis taxpayer, owes $90,000 to Creditor K. At the end of 2018, Company N accrued $7,740 interest payable on this debt. It didn’t pay this liability until March 3, 2019. Both Company N and Creditor K are calendar year taxpayers. For
> Extronic, a calendar year, accrual basis corporation, reported a $41,900 liability for accrued 2018 state income tax on its December 31, 2018, balance sheet. Extronic made the following state income tax payments during 2019. On December 27, Extronic&ac
> In 2018, AS, an accrual basis corporation, contracted with a nationally prominent artist to paint a mural in the lobby of the new corporate headquarters under construction. The artist’s commission was $180,000, payable on completion of the mural. The art
> Marcia, a single individual, has qualified trade or business income of $240,000. Her business paid $80,000 of W-2 wages this year and has $50,000 of tangible business property. a. Compute Marcia’s QBI deduction, assuming her overall taxable income before
> Corporation Q, a calendar year taxpayer, has incurred the following Section 1231 net gains and losses since its formation in 2016. a. In 2019, Corporation Q sold only one asset and recognized a $4,000 Section 1231 gain. How much of this gain is treated
> On January 12, 2017, Mr. and Mrs. Nixon moved out of their old residence (where they had lived for 22 years) and into a new residence purchased nine days earlier on January 3. They finally sold their old residence on June 7, 2017, for a $278,000 realized
> Zeno Inc. sold two capital assets in 2019. The first sale resulted in a $53,000 capital loss, and the second sale resulted in a $25,600 capital gain. Zeno was incorporated in 2015, and its tax records provide the following information. a. Compute Zeno&
> Parmco, a calendar year corporation, made the following accruals for 2019 financial statement purposes. In each case, determine how much of the accrued expense is deductible on Parmco’s 2019 federal tax return. a. $30,000 expense and $30,000 liability fo
> Ms. Barstow purchased a limited interest in Quinnel Partnership in 2019. Her share of the partnership’s 2019 business loss was $5,000. Unfortunately, Ms. Barstow couldn’t deduct this loss because she had no passive activity income, so she is carrying it
> For the following problems, assume the taxable year is 2019. Ms. Noteboom, a single taxpayer, projects that she will incur about $13,500 of expenses qualifying as itemized deductions in both 2019 and 2020. Assuming that her standard deduction is $12,200
> For the following problems, assume the taxable year is 2019. Determine Mr. Jenkins’s 2019 filing status in each of the following independent cases. a. Mr. Jenkins and Mrs. Jenkins were divorced on November 18. Mr. Jenkins has not remarried and has no dep
> Ms. Kaspari, who has a 24 percent marginal rate on ordinary income and a 15 percent marginal rate on adjusted net capital gain, acquired the following blocks of stock in KDS, a closely held corporation. July 12, 2003 ……………………………. 1,400 shares at $41 per
> JKL Partnership uses the calendar year for tax purposes. For the current calendar year, the partnership generated $1 million ordinary business income. Corporation L, a 10 percent limited partner in JKL, uses a fiscal year ending June 30 as its tax year.
> BR Inc. owns a 20 percent interest in a limited partnership. All the other partners are individual shareholders in BR. This year, BR sold land to page 10-45 the partnership for use in the partnership’s business activity. BR’s basis in the land was $400,0
> The 100 shares of NS’s outstanding stock are owned by seven unrelated individuals. NS has an S corporation election in effect. Late in the year, one individual announces to his fellow shareholders that he intends to give his NS shares to his son-in-law,
> Mr. and Mrs. West are the only shareholders in WW, an S corporation. This year, WW paid $21,000 to the caterers who provided food for the couple’s silver wedding anniversary celebration.
> David’s Schedule K-1 from DES, an S corporation, reported $8,900 taxexempt interest and $4,700 ordinary loss. David’s adjusted basis in his stock before consideration of these items was $2,000.
> Marcus, a cash basis individual, is a general partner in MNOP Partnership. Both Marcus and MNOP use a calendar year for tax purposes. According to the partnership agreement, MNOP pays a $10,000 guaranteed payment to Marcus on the last day of every calend
> BZD, a calendar year corporation, made the following year-end accruals for 2019 financial statement purposes. In each case, determine how much of the accrued expense is deductible on BZD’s 2019 federal tax return. a. $55,000 expense and $55,000 liability
> Paula’s Schedule K-1 from an LLC reported a $12,000 share of ordinary loss and a $1,900 share of capital loss. Paula’s adjusted basis in her LLC interest before consideration of these losses was $6,200.
> Ellie has operated a sole proprietorship for six years during which net profit has been stable and Ellie’s marginal tax rate has been a constant 24 percent. Ellie projects that her profit next year will be the same as this year. Consequently, she estimat
> Mr. P, a professional architect, entered into an agreement with Partnership M under which he designed three buildings for the partnership and transferred a copyright for design software to the partnership. Mr. P had no tax basis in this software. In exch
> In 2018, transportation equipment owned by Corporation ABC was stolen. The adjusted basis in the equipment was $105,000, and ABC received a $400,000 insurance reimbursement. It immediately paid $440,000 for replacement transportation equipment. On its 20
> In 2017, an industrial plant owned by Company C, a calendar year taxpayer, was destroyed in a flood. C’s adjusted basis in the plant was $1.65 million, and the company received a $2 million insurance reimbursement. On its 2017 tax return, C elected to de
> In 2017, an office building owned by Firm F was completely destroyed by fire. F’s adjusted basis in the building was $485,000, and its insurance reimbursement was $550,000. On its 2017 tax return, F elected to defer the $65,000 gain realized on the invol
> Company T operated a drive-in movie theater for over a decade. Three years ago, the company ceased operations because so few people were attending the outdoor facility. This year, the entire facility (movie screen, projection building, snack bar, 15 picn
> FM Inc. operates a dairy farm. The local government required the corporation to destroy 150 head of cattle because the herd had been exposed to mad cow disease. None of the cattle displayed any symptoms of the disease before they were destroyed. The loca
> NBV, a California corporation, exchanged commercial real estate located in San Francisco for commercial real estate located in Tokyo, Japan. NBV’s gain realized was $16.3 million.
> Company JK disposed of the following items of business realty in a likekind exchange. In exchange for the two items, JK received like-kind realty worth $50,000 and $5,000 cash.
> HomeSafe, an accrual basis, calendar year corporation, sells and installs home alarm systems. The contract price of a system includes four free service calls. HomeSafe’s cost of each call is $75. At the end of 2019, HomeSafe accrued a $48,900 expense and
> On May 19, WJ realized a $48,000 loss on the sale of 10,000 shares of voting common stock in XZY Corporation. On May 30, WJ purchased 3,200 shares of XZY nonvoting preferred stock.
> ST Inc. and Firm WX are negotiating an exchange of the following business properties. ST agrees to pay $150,000 cash to WX to equalize the value of the exchange. ST’s adjusted basis in the office building is $700,000, and WXâ
> Mr. V sold his sole proprietorship to an unrelated party for a lump-sum price of $900,000. The contract of sale specifies that $100,000 is for a page 8-40 covenant not to compete—Mr. V’s promise not to operate a similar business anywhere in the state for
> Corporation AD operates four antique dealerships. Last year, it sold a 200-year-old desk to its sole shareholder, Mr. C, for $35,000. AD reported its $2,700 gain as ordinary income from the sale of inventory. This year, Mr. C sold the desk to an unrelate
> Firm WD sold depreciable realty for $225,000. The firm purchased the realty 12 years earlier for $350,000 and deducted $155,000 MACRS depreciation through date of sale. During an audit of the tax return on which the sale was reported, the IRS determined
> In its first taxable year, Corporation NM generated a $25,000 net operating loss and recognized an $8,000 net capital loss. The corporation’s tax return for its second year reported $15,000 taxable income, $10,000 of which was capital gain.
> Two years ago, Corporation M loaned $80,000 to its employee Mr. E. The corporation received Mr. E’s properly executed note in which he promised to repay the loan at the end of seven years and to pay annual interest of 9 percent (the market interest rate
> Company LR owns a commercial office building. Four years ago, LR entered into a long-term lease with Lessee M for 2,400 square feet of office space. LR spent $13,600 to finish out the space to meet Lessee M’s requirements. The leasehold improvements incl
> A fire damaged industrial equipment used by Firm L in its manufacturing process. Immediately before the fire, the equipment was worth $40,000. After the fire, the equipment was worth only $15,000. Firm L’s adjusted basis in the equipment was $14,000, and
> Firm LD, a calendar year taxpayer, owns 20,000 shares of MXP stock with a $160,000 basis. In November, LD’s chief financial officer learned that MXP had just declared bankruptcy. The CFO was unable to determine if MXP’s board of directors intend to try t
> Ernlo is an accrual basis corporation with a June 30 fiscal year-end. On June 2, 2019, Ernlo entered into a binding contract to purchase a sixmonth supply of heating oil from a local distributor at the current market price of $12,450. This price is guara
> At the beginning of the year, Firm GH owned 8,200 shares of common stock in LSR, a publicly held corporation. GH’s basis in these shares was $290,000. On a day when LSR stock was trading at $1.14 per share, GH delivered the 8,200 shares to its broker wit
> Corporation TJ ceased business operations and was dissolved under state law. On the last day of its existence, TJ’s balance sheet showed $2,200 unamortized organizational costs and $12,000 unamortized goodwill.
> On March 1, DS Company, a calendar year taxpayer, recognized a $15,000 loss on sale of marketable securities. On May 12, it recognized an $85,000 Section 1231 gain on sale of an office building. In forecasting current taxable income, DS’s chief financial
> TCJ bought a 10-acre tract of undeveloped land that it intends to improve and subdivide for sale to real estate customers. This year, TCJ paid $4,300 to a local company to clean up the land by hauling away trash, cutting down dead trees, and spraying for
> Company JJ, a calendar year corporation, bought an airplane for use in its oil and gas business in December. The manufacturer delivered the plane to the company’s hangar on December 19. Because of severe winter weather, JJ’s pilot was unable to fly the p
> In 2017, Firm Z elected to expense the $8,000 cost of a machine, which it reported as the only item of equipment placed in service that year. This year, the IRS audited Firm Z’s 2017 return and discovered that it had incorrectly deducted a $10,000 expend
> WRT owns a chain of retail bookstores. It recently decided to add coffee bars in each store to sell gourmet coffee drinks and pastries to the bookstore customers. WRT has not yet obtained the necessary licenses required under local law to serve food to t
> Firm PY purchased industrial equipment from a Canadian vendor. The firm paid $12,800 to transport the equipment to its manufacturing plant in Florida and a $1,700 premium for insurance against casualty or theft of the equipment while en route.
> ROJ Inc. purchased a 20-acre industrial complex consisting of three warehouses and two office buildings surrounded by parking lots. About 12 acres of the land is undeveloped. ROJ paid a lump-sum purchase price of $19.4 million.
> Mrs. K owns her own consulting firm, and her husband, Mr. K, owns a printing business. This year, Mrs. K’s consulting business generated $89,000 taxable income. Mr. K’s business operated at a loss. In July, Mr. K bought new office furniture for $16,000.
> In 2019, Firm L purchased machinery costing $21,300 and elected to expense the entire cost under Section 179. How much of the expense can Firm L deduct in each of the following cases? a. Its taxable income before the deduction was $58,000. b. Its taxable
> Mr. R lived in a two-bedroom, one-bath residence until August when he moved to a new home and converted his old residence into residential rent property. He had no trouble finding tenants who signed a one-year lease and moved in on September 1. As of thi
> Firm D paid a $500,000 lump-sum price for a commercial office building. A local consulting company approached Firm D with a proposal. For a $15,000 fee, the company would analyze the components of the building (shelving, lighting fixtures, floor covering
> Corporation J paid $500,000 for six acres of land on which it plans to build a new corporate headquarters. Four months after the purchase, Corporation J paid $20,000 to a demolition company to tear down an old warehouse located on the land and haul away
> ABC Partnership owns 100 percent of the stock of two corporations, HT (an advertising firm) and LT (a commercial real estate development firm). HT is in a 35 percent marginal tax bracket. LT has an NOL carryforward deduction and will pay no tax this year
> In 2018, Firm K paid $129,000 real property tax to Jurisdiction J and deducted the payment. In 2019, it successfully contested the property tax assessment. As a result, Jurisdiction J refunded $18,000 of the property tax.
> Every December, Maxo Inc., an accrual basis, calendar year corporation, purchases 3,500 calendars from a publisher and mails them to its customers as a holiday gift. This year, Maxo received a $14,420 bill from the publisher, which represented a sizeable
