Gus, a football player who was renegotiating his contract with the Denver Broncos, paid his ex-girlfriend $50,000 to drop a sexual assault complaint against him and keep the matter confidential. The Broncos stated that if criminal charges were filed and made public, they would terminate his employment. What tax issues should Gus consider?
> Congressman Patrick indicates that he is opposed to tax proposals that call for a flat tax rate because the structure would not tax those individuals who have the ability to pay the tax. Discuss the position of the congressman, giving consideration to ta
> Why did Congress enact the wash sale provisions?
> Sally and Tom are married, have three dependent children, and file a joint return in 2017. If they have adjusted gross income (AGI) of $90,000 and itemized deductions of $10,000, what is their taxable income for 2017?
> Why are expenses related to tax-exempt income disallowed?
> Clay, who was single, died in 2017 and has a gross estate valued at $8,500,000. Six months after his death, the gross assets are valued at $9,000,000. The estate incurs funeral and administration expenses of $125,000. Clay had debts amounting to $150,000
> Betty, a married taxpayer, makes the following gifts during the current year (2017): $20,000 to her church, $50,000 to her daughter, and $40,000 to her husband.What is the amount of Betty’s taxable gifts for the current year (assuming that she does not e
> Jill and George are married and file a joint return. They expect to have $425,000 of taxable income in the next year and are considering whether to purchase a personal residence that would provide additional tax deductions of $80,000 for mortgage interes
> Based on the amounts of taxable income below, compute the federal income tax payable in 2017 on each amount assuming the taxpayers are married filing a joint return. Also, for each amount of taxable income, compute the average tax rate and the marginal t
> During November and December of last year, Tommy’s, Inc., incurred the following expenses ininvestigating the feasibility of opening a new restaurant in town: Expenses to do a market survey……………………………………..$3,800 Expenses to identify potentialsuppliers
> Danielle Anderson, your client and a cash method taxpayer, works full-time at a music store located in a mall. She assists the manager in buying decisions, serves customers on the sales floor, and plays music to draw in customers. On the weekends, she pl
> The governor of your state stated in a recent political speech that he has never supported any income tax increases as the tax rates have remained at the same level during his entire term of office. Yet, you believe that you are paying more tax this year
> On February 10, 2017, Gail purchases 20 calls on Red Corporation for $250 per call. Each call represents an option to buy 100 shares of Red stock at $42 per share any time before November 25, 2017. Compute the gain or loss recognized, and determine wheth
> a. The tax law refers to gross income, yet the term gross income is not found on Form 1040. Explain. b. Why is it important to understand the concept of gross income even though the term is not found on Form 1040?
> a. Explain the difference between income splitting and income shifting. b. Why are taxpayers interested in shifting income from one tax return to another within the same family or economic unit? c. Is there a relationship between the tax on unearned inco
> During the year, Sara sold a capital asset at a loss of $2,000. She had held the asset as an investment. This is the only capital asset she sold during the year. Is her deduction for this capital loss a deduction for or a deduction from AGI?
> In order for a business expense to be deductible it must be ordinary, necessary, and reasonable. Explain what these terms mean.
> The effective tax rate on gain of $1 million resulting from the sale of qualified small business stock obtained in 2005 in an initial public offering and held more than five years is 14%. Do you agree or disagree? Explain.
> Wayne is single and has no dependents. Without considering his $11,000 adjusted net capital gain (ANCG), his taxable income, which includes no investment income, in 2017 is as follows: a. What is Wayne’s tax liability without the ANCG?
> Sam owns a small house that he rents out to students attending the local university. Are the expenses associated with the rental unit deductions for or from AGI?
> A corporate taxpayer plans to build a $6 million office building during the next 18 months. How must the corporation treat the interest on debt paid or incurred during the production period?
> If Pam transfers an asset to Fred and the asset is subject to a liability that is assumed by Fred, how does Fred’s assumption of the liability affect the amount realized by Pam? How does Fred’s assumption of the liability affect his basis for the propert
> Under Sec. 280A, how are expenses allocated to the rental use of a vacation home? In what order must the expenses be deducted against the gross income of the property?
> Under Sec. 280A, what constitutes personal use of a vacation home by the taxpayer?
> If an activity does not generate a profit in three out of five consecutive years, is it automatically deemed to be a hobby? Why or why not?
> For 2017, Mario, a single individual with no dependents, receives income of $55,000 and incurs deductible expenses of $9,000. a. What is Mario’s taxable income assuming that the expenses are deductions for AGI? b. What is Mario’s taxable income assumin
> Is there any tax advantage for an individual who has held an appreciated capital asset for eleven months to delay the sale of the asset? Explain.
> Amy has LTCGs that are taxed at different tax rates, 15%, 25% and 28%. She also has NSTCLs that amount to less than her NLTCG. The procedure for offsetting the NSTCL against the LTCGs is favorable to her. Explain.
> Joe is a single, self-employed individual who owns his own business. During the current year, Joe reported $200,000 gross income and $60,000 of business expenses. He also paid $30,000 in alimony to his former spouse, $4,000 mortgage interest on his perso
> What types of taxpayers are more likely to be audited by the IRS?
> Many homeowners itemize deductions while many renters claim the standard deduction. Explain.
> Assume that Jill is engaged in painting as a hobby. During the year, she earns $1,000 from sales of her paintings and incurs $1,300 expenses for supplies and lessons. Jill’s salary from her job is $70,000. What is the tax treatment of the hobby income an
> How many dependency exemptions are the following taxpayers entitled to, assuming the people involved are U.S. citizens? Which dependents qualify for the child credit? a. Andrew supports his cousin Mary, who does not live with him. Mary has no income and
> Why is the distinction between deductions for AGI and deductions from AGI important for individuals?
> Is the principal goal of tax planning to absolutely minimize the amount of taxes that a taxpayer must pay?
> If a taxpayer files his or her tax return and receives a tax refund from the IRS, does this mean that the IRS feels that the return is correct and will not be subject to a future audit.
> Under Sec. 280A, how will a taxpayer report the income and expenses of a vacation home if it is rented out for only 12 days during the year?
> Holly inherited $10,000 of City of Atlanta bonds in February. In March, she received interest of $500, and in April she sold the bonds at a $200 gain. Holly redeemed Series EE U.S. savings bonds that she had purchased several years ago. The accumulated i
> Bryce, a bank official, is married and files a joint return. During 2017 he engages in the following activities and transactions: a. Being an avid fisherman, Bryce develops an expertise in tying flies. At times during the year, he is asked to conduct fl
> Discuss what is meant by the term “double taxation” of corporations. Develop an example of double taxation using a corporation and shareholder.
> Under what circumstances must a taxpayer use a rate schedule instead of a tax table?
> To better understand the rules for offsetting capital losses and how to treat capital losses carried forward, analyze the following data for an unmarried individual for the period 2014 through 2017. No capital loss carryforwards are included in the figur
> Judy just obtained a patent on a new product she has developed. Bell Corporation wishes to market the product and will pay 12% of all future sales of the product to Judy. How can she be sure that the payments received will be treated as a longterm capita
> Using the following facts, answer the questions below concerning Jaron’s 2017 tax liability. 1. Two years ago, in November 2015, when his wife died, Jaron left the CPA firm he was working for and started his own practice so he could have more time to sp
> Latesha, a single taxpayer, had the following income and deductions for the tax year 2017: INCOME: Salary$ 80,000 Business Income25,000 Interest income from bonds10,000 Tax-exempt bond interest5,000 TOTAL INCOME120,000 DEDUCTIONS:Business expenses$9,5
> John and Kathy Brown have just been audited and the IRS agent disallowed the business loss theyimed in 2015. The agent asserted that the activity was a hobby, not a business. John and Kathy live in Rochester, New York, near Lake Ontario. Kathy is a CPA,
> Dallas, whose tax rate is 35%, has recognized an STCL of $11,000 and an LTCG of $10,200 due to the sale of stock. In late December, he is considering the sale of an antique chair held for investment that would result in an LTCG of $5,000. If he sells the
> On December 20 of the current year, Winneld has decided to sell all of the stock that she owns and reinvest the proceeds in state of Minnesota bonds. Without considering the sales, her taxable income is expected to exceed $500,000 this year and in future
> In 2002, Florence purchased 30 acres of land. She has not used the land for business purposes or made any substantial improvements to the property. During the current year, she subdivides the land into 15 lots and advertises the lots for sale. She sells
> Calvin, whose tax rate is 35% is considering two alternative investments on January 1, 20Y1. He can purchase $100,000 of 10% bonds due in five years or purchase $100,000 of Hobbes, Inc. common stock. The bonds are issued at par, pay interest annually on
> On January 1, 2015, Swen paid $184,000 for $200,000 of the 8%, 20-year bonds of Penn Corporation, issued on January 1, 2011, at par. The bonds are held as an investment. Determine the gain and the character of the gain if the bonds are sold on January 1,
> Donna files as a head of household in 2017 and has taxable income of $90,000, including the sale of a stock held as an investment for two years at a gain of $20,000. Only one asset was sold during the year and Donna does not have any capital loss carryov
> Many tax professionals have moved into the field of financial planning for their clients. a. How do taxes impact financial planning for a client? b. Why do tax professionals have a perfect opportunity to perform financial planning for their clients?
> Dan owns 500 shares of Rocket Corporation common stock. The stock was acquired two years ago for $30 per share. On October 2, 2017, Dan writes five calls on the stock, which represent options to buy the 500 shares of Rocket at $75 per share. For each cal
> Dale purchased Blue Corporation stock four years ago for $1,000 as an investment. He intended to hold the stock until funds were needed to help pay for his daughter’s college education. Today the stock has a $6,500 FMV and Dale decides to sell the stock
> Under Sec. 267, current deductions may not be taken for certain transactions between related parties. a. Who is considered a member of a taxpayer’s family under the related party transaction rules of Sec. 267? b. Identify some of the other relationship
> The timing of when the economic performance test is satisfied depends on the type of transaction and whether the transaction is recurring. a. When does economic performance occur for a taxpayer who must provide property or services to another person? b
> Because expenses incurred both in a business and for the production of investment income are deductible, why is it important to determine in which category a particular activity falls?
> The Michigan Corporation owns 20% of the Wolverine Corporation. The Wolverine stock was acquired eight years ago to ensure a steady supply of raw materials. Michigan also owns 30% of Spartan Corporation and 85% of Huron Corporation. Stock in both corpora
> What problem may exist in determining the amount realized for an investor who exchanges common stock of a publicly traded corporation for a used building? How is the problem likely to be resolved?
> Phil, a cash-basis taxpayer, sells the following marketable securities, which are capital assets during 2017. Determine whether the gains or losses are long-term or short-term. Also determine the net capital gain and adjusted net capital gain for 2017.
> Richard Penn lives in Harrisburg, Pennsylvania. Richard is the president of an architectural firm. Richard has become known throughout the community for excellent work and honesty in his business dealings. Richard believes his reputation is an integral p
> What is the primary service function provided by the National Office of the IRS?
> During 2017, Gary receives a $50,000 salary and has no deductions for AGI. In 2016, Gary had a $5,000 STCL and no other capital losses or capital gains. Consider the following sales and determine Gary’s AGI for 2017. • An automobile purchased in2012 for
> Trisha, whose tax rate is 35%, sells the following capital assets in 2017 with gains and losses as shown: a. Determine Trisha’s increase in tax liability as a result of the three sales. All assets are stock held for investment. Ignore t
> Today, Juanita purchases a 15-year, 7% bond of the Sunflower Corporation issued four years ago at par. She purchases the bond as an investment at a discount from the par value. If she sells the bonds two years from now, explain why some or all of the gai
> What is the normal due date for the tax return of calendar-year taxpayers? What happens to the due date if it falls on a Saturday, Sunday, or holiday?
> When is the gain on the sale or exchange of securities by a dealer in securities classified as capital gain?
> Mario owns 2,000 shares of Nevada Corporation common stock at the beginning of the year. His basis for the stock is $38,880. During the year, Nevada declares and pays a stock dividend. After the dividend, Mario’s basis for each share of stock owned is $1
> Jim inherits stock (a capital asset) from his brother, who died in March of 2017, when the property had a $6.9 million FMV. This property is the only property included in his brother’s gross estate and there is a taxable estate. The FMV of the property a
> Anna, age 65, who lives with her unmarried son, Mario, received $7,000, which was used for her support during the year. The sources of support were as follows: Social Security benefits ………………………. $1,500 Mario ……………………….………………………..2,600 Caroline, an un
> William owns a building that is leased to Lester’s Machine Shop. Lester requests that William rewire the building for new equipment Lester plans to purchase. The wiring would cost about $4,000, but would not increase the value of the building because its
> Bart and Kesha, who are in the 39.6% tax bracket, are interested in reducing their taxes. They are currently considering several alternatives. For each, indicate how much tax, if any, they would save. a. Make a gift of bonds valued at $5,000 that yield
> Tom Williams is an equal partner in a partnership with the Kansas Corporation. Williams, an inventor, produced a new process while working for the partnership, which has been patented by the partnership. Before making any use of the patent, the partnersh
> Jack, a tenured university professor, has been a malcontent for many years at Rockport University. The university has recently offered to pay $200,000 to Jack if he will relinquish his tenure position and resign. Jack is of the opinion that tenure is an
> Why is a thorough knowledge of sources of tax law so important for a professional person who works in the tax area?
> Why are the gift and estate taxes called wealth transfer taxes? What is the tax base for computing each of these taxes?
> On October 21 of the current year, David receives stock of Western Corporation as a gift from his grandfather, who acquired the stock on January 20, 1995. Under what conditions would David’s holding period start on? a. October 22 of the current year? b
> Under what circumstances would a taxpayer use both the cash method and the accrual method of accounting at the same time?
> How might the current treatment of capital losses discourage an individual investor from purchasing stock of a high-risk, start-up company?
> Betty incurs the following transactions during the current year. Without considering the transactions, her 2017 AGI is $40,000. Analyze the transactions and answer the following questions: • On March 10, 2017, she sellsa painting for $2,000.Bettyis the
> Juan helps support his mother Maria, his son Jose, and a niece Norma. How many dependency exemptions can Juan claim given these additional facts? Maria lives with Juan. She receives $12,000 of Social Security benefits which she uses to pay for food, clo
> Katie and Alan are avid boaters and water skiers. They also enjoy parasailing. This year, they started a new parasailing venture to give rides to patrons. Katie and Alan are bothemployed full-time in other pursuits, but they take patrons out during the s
> Your client, Apex Corporation, entered into an agreement with an executive to purchase his personal residence at its current FMV in the event that his employment is terminated by the company during a five-year period. The executive’s job was terminated b
> Why was pay-as-you-go withholding needed in 1943?
> Mr. and Mrs. Pickens purchased a used piano in Y1 for their young son who had started taking piano lessons. In Y8 while cleaning the piano, Mrs. Pickens discovered $4,800 of old currency. They exchanged the old currency for new currency.
> Explain the distinction between income and gross income.
> As a political consultant for an aspiring politician, you have been hired to evaluate the following statements that pertain to capital gains and losses. Evaluate the statement and provide at least a one-paragraph explanation of each statement. As you pre
> Larry and Sue separated at the end of the year. Larry has asked Sue to sign a joint income tax return for the year because he feels that the tax will be lower on a joint return. Larry and Sue both work. Sue received a salary of $25,000 and Larry’s salary
> Under what circumstances can prepaid expenses be deducted in the year of payment by a taxpayer using the cash method of accounting?
> Lynette, a famous basketball player, is considering the possibility of transferring the sole right to use her name to promote basketball shoes produced and sold by the NIK Corporation. NIK will pay $2 million to obtain the right to use Lynette’s name for
> Partnerships and S corporations are flow-through entities. In connection with filing annual taxreturns, these entities must include Form K-1 in the returns. What is Form K-1, what is its purpose, and who receives the form?
> Robert provides much of the support for his daughter, Jane, and her two children. Jane earned $20,000. Robert, whose AGI is $350,000, paid the rent of $11,000 on Jane’s apartment and provided an additional $15,000 support. Jane is age 30, and her childre
> David, a CPA for a large accounting firm, often works 10- to 12-hour days. As a requirement for his position, he must attend social events to recruit new clients. In addition to his job with the accounting firm, he also has private clients in his unincor
> On January 1, 2016, Sean purchased an 8%, $100,000 corporate bond for $92,277. The bond was issued on January 1, 2016, and matures on January 1, 2021. Interest is paid semiannually, and the effective yield to maturity is 10% compounded semiannually. On J
> Beth retires when she turns 65. She begins receiving a monthly pension of $300 from her employer’s qualified retirement plan. While employed, Beth contributed $13,000 to the plan. a. Beth uses the simplified method to compute her exclusion. Why? b. Com
> Web Baker was hired three years ago by the Berry Corporation to serve as CEO for the company. As part of his employment contract, the corporation had agreed to purchase his residence at FMV in the event the company decided to fire him. Last year, Berry,
> On January 1 of the current year, the Orange Corporation issues $500,000 of 11%, 20-year bonds for $480,000. Determine the amount of original issue discount, if any.
> Martha has $40,000 AGI without considering the following information. During the year, she incurs an LTCL of $10,000 and has a gain of $14,000 due to the sale of a capital asset held for more than a year. a. If the $14,000 gain is not properly classified
> On December 31, 2016, Phil purchased $20,000 of newly issued bonds of Texas Corporation for $16,568. The bonds are dated December 31, 2016. The bonds are 9%, 10-year bonds paying interest semiannually on June 30 and December 31. The bonds are priced to y
> In 2001, Ellen purchased a house for $60,000 to use as her personal residence. She paid $12,000 and borrowed $48,000 from the local savings and Loan Company. In 2005 she paid $10,000 to add a room to the house. In 2007 she paid $625 to have the house pai
