Question: In each of the following cases, compute

> Mr. Zeplin wants to make a cash gift to each of his five children, to each of their five spouses, and to each of his 13 grandchildren. How much total wealth can he transfer to his descendants without making a taxable gift if: a. He is an unmarried indivi

> At the beginning of the year, Mr. Olsen paid $15 per share for 620 shares of Carmel common stock. He received cash distributions totaling $840. His Form 1099 reported that $700 was a dividend and $140 was a nontaxable distribution. Compute his basis in h

> Mrs. Beard recognized a $12,290 capital loss on the sale of corporate stock this year. How much loss can she deduct in each of the following cases? a. She had no other capital transactions this year. b. She recognized a $3,780 capital gain on the sale of

> Refer to the facts in problem 10. In its second year of operations, XYZ manufactured 2,000 units of product and incurred $410,000 direct material cost and $275,000 direct labor costs. For financial statement purposes, XYZ capitalized $139,000 indirect co

> Three years ago, Mrs. Gattis loaned $10,000 to Mr. Wren in return for his interest-bearing note. She made the loan to enable him to begin his own business. This year, Mr. Wren informed Mrs. Gattis that his business had failed and he was unable to repay t

> Ten years ago, Mr. Pott paid $8 per share for 1,800 shares of Drago stock. Mr. Pott learned that Drago is in bankruptcy and can pay only 30 percent of its debt. What are the tax consequences to Mr. Pott of Drago’s bankruptcy?

> Ira Munro owns a life insurance policy that will pay $750,000 to his granddaughter Ginnie upon Ira’s death. To date, Ira has paid $69,200 total premiums on the policy, which has a current cash surrender value of $82,500. a. Assume that Ira dies and Ginni

> Sixteen years ago, Ms. Cole purchased a $500,000 insurance policy on her own life and named her son as sole beneficiary. She has paid $31,280 total premiums to keep this policy in force. a. This year, she liquidates the policy for its $38,500 cash surren

> On February 13, Mr. Dega invested $75,000 in TIPS paying 3.5 percent yearly interest. During the year, Mr. Dega received two cash interest payments totaling $2,742. On December 31, the adjusted principal amount of the TIPS was $76,038. a. How much intere

> Ms. Shaver, who has a 32 percent marginal tax rate on ordinary income, owns Benbow Inc. preferred stock in her investment portfolio. Her Form 1099 reported that she earned $19,580 qualified dividend income on her Benbow investment. Compute her income tax

> Mrs. Flay, age 57, participates in the group term life insurance plan sponsored by her corporate employer. According to Treasury tables, the cost of $1,000 of life insurance for a 57-year-old person is 43 cents per month. Determine the taxable income tha

> Ms. Ray is age 46 and single. Her employer made a $2,895 contribution to her qualified profit-sharing plan account, and she made the maximum contribution to her traditional IRA. Compute her IRA deduction if: a. Ms. Ray’s $50,000 salary is her only income

> Ms. Calhoun is age 51 and single. What is the maximum contribution that she can make to a Roth IRA if: a. Her AGI consists of an $89,400 salary from her employer? b. Her AGI consists of an $89,400 salary plus $33,000 interest and dividends from a trust f

> MN’s compensation package for its PEO consisted of a $600,000 salary plus $200,000 unfunded deferred compensation. The PEO will receive the $200,000 when he retires in 2025. He is also a participant in MN’s qualified pension plan. MN contributed $21,000

> Company XYZ manufactures a tangible product and sells the product at wholesale. In its first year of operations, XYZ manufactured 1,000 units of product and incurred $200,000 direct material cost and $130,000 direct labor costs. For financial statement p

> This year, Company LI built a light industrial facility in County G. The assessed property tax value of the facility is $20 million. To convince Company LI to locate within its jurisdiction, the county abated its 4 percent property tax for the year. Beca

> Ms. Jost participates in her employer’s Section 401(k) plan, which obligates the employer to contribute 25 cents for every dollar that an employee elects to contribute to the plan. This year, Ms. Jost’s salary is $110,000, and she elects to contribute th

> Mrs. Vacco participates in her employer’s qualified profit-sharing plan. What is the maximum contribution to her retirement account, assuming that: a. Her annual compensation was $38,200? b. Her annual compensation was $180,000?

> Mr. Evon, who has participated in his employer’s qualified defined benefit plan for 38 years, retired in June. What is his maximum annual pension benefit assuming that: a. His average compensation for his three highest compensation years was $145,000? b.

> Two years ago, Mrs. Erb was granted a stock option from her corporate employer. At date of grant, the stock was selling at $14 per share, and the strike price was $18 per share. This year, Mrs. Erb sold the option to an unrelated party for $26,000. How m

> In 2009, 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 share. In 2018, Mr. Yarnell exercised the option when BB’s s

> This year, Gogo Inc. granted a nonqualified stock option to Mrs. Mill to buy 10,000 shares of Gogo stock for $8 per share for five years. At date of grant, Gogo stock was selling on a regional securities market for $7.87 per share. Gogo recorded $26,700

> Refer to the facts in the preceding problem. Stalling Inc. uses a fiscal year ending August 31 for tax purposes. Determine the amount of Stalling’s deduction and the taxable year in which Stalling is allowed the deduction with respect to the 2,000 shares

> In 2018, Faro Inc., a calendar year taxpayer, issued 500 shares of its publicly traded stock as a bonus to its employee, Mrs. Doyle. On the date of issuance, the stock’s fair market value was $16,750. What are the 2018 tax consequences to Mrs. Doyle and

> Determine Mr. Jenkins’s 2018 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 dependent children. b. Mr. Jenkins and the first Mrs. Jenkins we

> Refer to your computations for Ms. Barnes in the previous problem. For each case, identify Ms. Barnes’s statutory marginal rate and compute her average tax rate. Data from Problem 17: Ms. Barnes, an unmarried individual, has $196,400 taxable income. Co

> Assuming a 21 percent tax rate, compute the after-tax cost of the following business expenditures: a. $14,200 cost of a survey capitalized to land. b. $44,750 research and experimental expenditure. c. $23,000 advertising cost. d. $120,000 cost of grading

> Ms. Barnes, an unmarried individual, has $196,400 taxable income. Compute her income tax in each of the following cases. a. Ms. Barnes is a single taxpayer. b. Ms. Barnes is a head of household. c. Ms. Barnes is a surviving spouse.

> Ms. Ellis, a single individual, had $115,000 taxable income. Compute her income tax assuming that: a. Taxable income includes no capital gain. b. Taxable income includes $22,000 capital gain eligible for the 15 percent preferential rate.

> Determine Ms. Arnout’s filing status in each of the following independent cases. a. Ms. Arnout and Mr. Eckes have been living together since 2016. They were married on December 13, 2018. b. Ms. Arnout married Mr. Pritchett in 2011. They were divorced on

> Bianco Inc. is headquartered in Pennsylvania. Bianco produces custom stationary for sale to customers in stores located in Pennsylvania and New Jersey. It also sells its products online and ships to customers in other states. Last year, Bianco sold its p

> Refer to the facts in the preceding problem. In 2019, 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

> Refer to the facts in the preceding problem. Compute U.S. income tax if Jackson conducted its foreign operations through a foreign subsidiary that made no shareholder distributions during the current year and had no GILTI or subpart F income? Data from

> Refer to the facts in the preceding problem. How would your answer change if Zenon conducted its foreign operations through a foreign subsidiary that made no shareholder distributions during the current year and had no GILTI or subpart F income? Data fr

> Ms. Kona owns a 10 percent interest in Carlton LLC. This year, the LLC generated $72,400 ordinary income. Ms. Kona’s marginal tax rate is 32 percent, and she does not pay SE tax on her LLC income. a. Compute the tax cost on Ms. Kona’s share of Carlton’s

> Refer to the facts in the preceding problem. Briefly explain the payroll tax consequences of the revenue agent’s conclusions. Data from Problem 19: Graham is the sole shareholder of Logan Corporation. For the past five years, Logan has reported little

> Grant and Marvin organized a new business as a corporation in which they own equal interests. The new business generated a $65,000 operating loss for the year. a. Assume the corporation expects to generate $500,000 of income next year and has a 21 percen

> Firm B, a calendar year, cash basis taxpayer, leases lawn and garden equipment. During December, it received the following cash payments. To what extent does each payment represent current taxable income to Firm B? a. $522 repayment of a loan from an emp

> During a recent IRS audit, the revenue agent determined that Level Corporation meets the definition of a personal holding company. If Level’s undistributed after-tax income last year was $670,000, compute the amount of personal holding company tax it owe

> In its first year, Barsky Corporation made charitable contributions totaling $30,000. The corporation’s taxable income before any charitable contribution deduction was $250,000. In its second year, Barsky made charitable contributions of $15,000 and earn

> Shine Inc. manufactures laundry detergent and other cleaning products. This year, the government increased the corporate tax rate by 2 percent. The marketing department determined that Shine could not raise its prices and retain its market share. The pro

> Adams Corporation manufactures appliances. This year, the government increased the corporate tax rate by 5 percent. Adams responded by raising its prices. Customer demand remained steady; therefore, Adams’s before-tax profits increased and after-tax prof

> Leona, whose marginal tax rate on ordinary income is 37 percent, owns 100 percent of the stock of Henley Corporation. This year, Henley generates $1 million of taxable income. a. If Henley wants to pay all of its after-tax earnings to Leona as a dividend

> Hall Corporation plans to invest $5.5 million in rehabilitating a certified historic structure. Calculate the net present value of Hall’s allowable rehabilitation credit. Assume Hall has ample taxable income, places the building in service next year (yea

> Jackson Corporation has accumulated minimum tax credits of $475,000 from tax years prior to 2018. If 2018 regular tax before credits is $210,000 and Jackson qualifies for general business credits of $13,000, calculate its allowable minimum tax credit for

> The stock of Grommet Corporation, a U.S. company, is publicly traded, with no single shareholder owning more than 5 percent of its outstanding stock. Grommet owns 95 percent of the outstanding stock of Staple Inc., also a U.S. company. Staple owns 100 pe

> Perkin Corporation has determined that it qualifies for a tax credit in the amount of $120,000. For the current year, it has tax liability before credits of $75,000. It expects at least that amount of tax liability next year. a. If the excess credit is n

> Refer to the cases in the preceding problem. In each case, identify the corporation’s marginal tax rate, and compute its average tax rate. Data from Problem 17: In each of the following cases, compute the corporation’s regular tax: a. Allen Corporation

> FruAgro Company has average annual gross receipts of $30 million annually. This year, FruAgro earned $1 million of business interest income, incurred $7 million of business interest expense and has adjusted taxable income of $17 million. Compute FruAgro’

> Corporation AB’s marginal tax rate is 15 percent, and Corporation YZ’s marginal tax rate is 21 percent. a. If both corporations are entitled to an additional $5,000 deduction, how much tax savings will the deduction generate for each corporation? b. If b

> The stock of AB and YZ is publicly traded, and no shareholder owns more than a 1 percent interest in either corporation. AB owns 40 percent and YZ owns 60 percent of the stock of Alpha, which owns 90 percent of the stock of Beta. YZ and Beta each own 50

> For 2018, Ms. Deming earned wages totaling $225,000. Calculate any .9 percent additional Medicare tax owed, assuming that: a. Ms. Deming is single. b. Ms. Deming files a joint return with her husband who earned $100,000 of wages for 2018.

> Refer to the facts in the preceding problem. Assume that in the year 2019, the Social Security base amount increases to $131,000. Compute BDF’s 2019 employer payroll tax with respect to Mr. Williams assuming that: a. His annual compensation is $60,000. b

> Mr. Williams is employed by BDF Inc. Compute BDF’s 2018 employer payroll tax with respect to Mr. Williams assuming that: a. His annual compensation is $60,000. b. His annual compensation is $200,000.

> Refer to the facts in part c of the preceding problem. In 2019, 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? Data from part c from Proble

> Kari is a partner in Lizard Partnership. This year, Kari’s share of partnership ordinary income is $20,000, and she received a cash distribution of $30,000. Kari’s tax basis in her partnership interest at the beginning of the year was $50,000. Her margin

> Amit is a partner in Reynolds Partnership. This year, Amit’s Schedule K-1 from Reynolds reflected $50,000 of ordinary income, $1,000 of interest income, and a cash distribution of $35,000. Amit’s marginal tax rate is 37 percent. Amit qualifies for the Se

> Refer to the facts in the preceding problem. Three years after the exchange, Neil sold the investment asset for $1 million cash. a. Compute Neil’s book gain and tax gain on sale assuming Neil acquired the investment asset in a taxable exchange. b. Comput

> Northwest Company has average gross receipts of $50 million annually. This year, Northwest incurred $10.5 million of net business interest and has adjusted taxable income of $29 million. Compute Northwest’s current deduction for business interest and the

> Firm M exchanged an old asset with a $9,100 tax basis and a $21,000 FMV for a new asset worth $18,500 and $2,500 cash. a. If the exchange is nontaxable, compute Firm M’s realized and recognized gain and tax basis in the new asset. b. How would your answe

> Refer to the facts in the preceding problem, but assume that ML exchanged the residential rental property for the 20 acres of investment land plus $22,000 (i.e., ML received cash in the exchange). a. Assuming that ML’s exchange was negotiated at arm’s le

> Firm ML, a non corporate taxpayer, exchanged residential rental property plus $15,000 cash for 20 acres of investment land with a $200,000 FMV. ML used the straight-line method to compute depreciation on the rental property. a. Assuming that ML’s exchang

> OCD exchanged old realty for new like-kind realty. OCD’s adjusted basis in the old realty was $31,700 ($60,000 initial cost − $28,300 accumulated depreciation), and its FMV was $48,000. Because the new realty was worth only $45,000, OCD received $3,000 c

> XYZ exchanged an old building for a new like-kind building. XYZ’s adjusted basis in the old building was $13,000 ($30,000 initial cost − $17,000 accumulated depreciation), and its FMV was $20,000. Because the new building was worth $28,500, XYZ paid $8,5

> Change the facts in the preceding problem by assuming that the $120,000 mortgage on Lyle’s real estate is nonrecourse. Determine the tax consequence to Lyle if the mortgage holder forecloses on the real estate.

> Lyle Company owns commercial real estate with a $360,000 initial cost basis and $285,000 accumulated straight-line depreciation. The real estate is subject to a $120,000 recourse mortgage and has an appraised FMV of only $100,000. The mortgage holder is

> Firm L owns a commercial building that is divided into 23 offices. Several years ago, it leased an office to Company K. As part of the lease agreement, Firm L spent $29,000 to construct new interior walls to conform the office to Company K’s specificatio

> Company B disposed of obsolete computer equipment with a $32,000 initial cost basis and $27,000 accumulated depreciation. Determine the amount and character of Company B’s recognized gain or loss if: a. It sold the equipment for $7,000. b. It sold the eq

> Firm OCS sold business equipment with a $20,000 initial cost basis and $7,315 accumulated tax depreciation. In each of the following cases, compute OCS’s recaptured ordinary income and Section 1231 gain or loss on sale. a. Amount realized was $10,000. b.

> Refer to the facts in the preceding example. For its second taxable year, Rony Inc.’s accounting records showed the following. Net income before tax ……………………………………….…………$1,200,000 Reversal of year 1 book/tax difference  ……………….………….(90,000) Taxable inco

> A fire recently destroyed a warehouse owned by Company J. Its adjusted basis in the warehouse was $489,000. However, the warehouse’s replacement value (cost to rebuild) was $610,000. Determine the tax consequences of this property disposition assuming th

> On July 8, Divo Company sold office supplies for $13,000. Determine the amount and the character of Divo’s gain or loss on sale under each of the following assumptions: a. Divo is a retail store that sells office supplies to customers. Under the LIFO met

> Early this year, ZeZe Inc. paid a $52,000 legal fee in connection with a dispute over ZeZe’s title to investment land. ZeZe’s auditors required the corporation to expense the payment on this year’s financial statements. According to ZeZe’s tax adviser, t

> Jahlil is a 10 percent partner in a partnership that incurred a $4 million business loss this year. Jahlil has no other business activities. How much of Jahlil’s partnership loss can he deduct this year if he is single? What if he is married filing joint

> Margaret, a married taxpayer filing a joint return, engaged in two business activities this year. Business A earned $470,000 of profit. Business B incurred a loss of $(995,000). How much of Margaret’s net business loss is not currently deductible?

> ABC Company purchased business property several years ago, paying $25,000 cash and borrowing $80,000 to fund the acquisition. ABC also incurred $2,000 of freight costs for shipping the property to its business location. Over time, ABC has incurred $12,00

> Determine the tax basis of the business asset acquired in each of the following cases: a. Firm L paid $5,950 cash plus $416 sales tax plus a $500 installation charge for a satellite dish. b. TTP Inc. acquired inventory in exchange for 800 shares of TTP c

> RTY is a calendar year corporation. On December 12, RTY billed a client $17,800 for services rendered during October and November. It had not received payment by December 31. On December 10, RTY received a $4,000 check from a tenant that leases office sp

> Firm Q operates a cash basis consulting business. In October, Firm Q billed a client for $23,400 of consulting services. In November, the client settled the bill by paying $10,000 cash and transferring marketable securities worth $13,400 to Firm Q. How m

> ZEJ, a calendar year accrual basis taxpayer, made the following adjustments to its allowance for bad debts this year. January 1 allowance for bad debts ………………………….$895,000 Actual write-offs of accounts receivable …………………(840,000) Addition to allowance a

> For its first taxable year, Rony Inc.’s accounting records showed the following. Operating loss per books ………………………….…$(800,000) Temporary book/tax difference   …………………..90,000 Net operating loss for tax …………………………….$(710,000) a. Use a 21 percent rate

> GK Company, a calendar year accrual basis taxpayer, made the following adjustments to its allowance for bad debts this year. January 1 allowance for bad debts …………………….$86,100 Actual write-offs of accounts receivable ………….…(77,300) Addition to allowance

> Firm F is a cash basis legal firm. In 2017, it performed services for a client, mailed the client a bill for $6,150, and recorded a $6,150 receivable. In 2018, Firm F discovered that the client was under criminal indictment and had fled the country. Afte

> Green Up, a calendar year, accrual basis taxpayer, provides landscaping installation and maintenance services to its customers. In August 2018, Green Up contracted with a university to renovate its lawns and gardens. Green Up agreed to complete the entir

> GT Inc.’s net income before tax on its financial statements was $700,000, and its taxable income was $810,000. The $110,000 difference is the aggregate of temporary book/tax differences. GT’s tax rate is 21 percent. a. Compute GT’s tax expense for financ

> Using a 21 percent rate, compute the deferred tax asset or deferred tax liability (if any) resulting from the following: a. A transaction resulting in a $31,000 temporary excess of book income over taxable income. b. A transaction resulting in an $18,400

> Wahoo Inc., a calendar year taxpayer, leases equipment to a customer for $4,500 monthly rent. On November 27, 2018, Wahoo received a $36,000 rent payment for the eight-month period beginning on December 1. How much of the payment must Wahoo recognize as

> Firm F, a calendar year taxpayer, owes a $200,000 long-term debt to an unrelated creditor. In December, it paid $14,160 to the creditor as interest for the 12-month period from the prior September 1 through August 31 of the following year. Compute the de

> Malo Inc. uses a fiscal year ending June 30. On May 29, Malo received a check for $3,900 from a business that leases parking spaces in Malo’s parking garage. This payment was for the three month period beginning June 1. On June 15, Malo sent an invoice f

> Use the legend provided to identify the type of primary authority indicated by each of the following citations. a. §351. b. Rev. Rul. 86-55, 1986-1 C.B. 373. c. Rev. Proc. 2001-10, 2001-1 C.B. 272. d. Reg. §301.7701-2. e. &Acirc

> Indicate whether each of the following items is considered a primary authority or a secondary authority. a. Private letter ruling from the IRS. b. CCH Federal Tax Service. c. BNA Tax Management Portfolios. d. Treasury regulations. e. IRS revenue procedur

> TRW Inc. began business in 2018 and incurred net operating losses for its first two years. In 2020, it became profitable. The following table shows TRW’s taxable income before consideration of these NOLs. Re compute TRWâ€&#

> Indicate whether each of the following items is considered a primary authority or a secondary authority. a. Reg. §1.305-1(b). b. Rev. Rul. 67-225, 1967-2 C.B. 238. c. S.M. Jones, S.C. Rhoades-Catanach, and S. Callaghan, Principles of Taxation for Busines

> Assume that Congress amends the tax law to provide for a maximum 20 percent rate on royalty income. Calculate the annual tax savings from this new preferential rate to each of the following taxpayers. a. Ms. A, who is in a 37 percent marginal tax bracket

> For each of the following scenarios, indicate which of the four basic tax planning variables (entity, character, time period, jurisdiction) impacts after-tax value. Note that more than one variable may apply to any scenario; identify all that are relevan

> Indicate whether each of the following items is considered a primary authority or a secondary authority. a. Fin Hay Realty Co. v. U.S., 22 AFTR 2d 5004 (CA-3, 1968). b. §702(a). c. Rev. Proc. 77-37, 1977-2 C.B. 568. d. J. Erickson, B. O’Connor, and B. Ri

> At the beginning of the year, Mr. L put $50,000 cash into Investment X. At the end of the year, he received a check for $2,800, representing his annual return on the investment. Mr. L’s marginal tax rate on ordinary income is 37 percent. However, his ret

> Indicate whether each of the following statements regarding the tax research process is TRUE or FALSE. a. In performing step 2 of the tax research process, research questions should be stated as broadly as possible. b. Step 5 of the tax research process

> For each of the following actions, indicate in which of the six steps (1 through 6) of the tax research process the action would occur. a. Discuss the details of the transaction with the client to ascertain the client’s motivation. b. Obtain additional i

> For each of the following actions, indicate in which of the six steps (1 through 6) of the tax research process the action would occur. a. Write an email to the client, requesting additional information and clarification of information previously receive