In its first year of operations, Bell Corporation paid its attorney $4,000 and its accountant $2,000 for services related to the organization of the corporation. In its second year of operations, Bell paid the attorney $700 to handle contract negotiations with a new customer. Which expenses are immediately deductible and which ones must Bell Corporation amortize?
> Your client, Barry Backache, suffers from a pain in the neck caused by arthritis. He installed a hot tub in his backyard. His doctor advised him that daily periods in the hot tub would relieve his pain in the neck.
> Ken is single and earns a salary of $60,000 per year. He also receives $4,000 a year in taxable interest and dividend income. Ken would like to contribute the maximum allowable to his company’s qualified pension plan.
> Sarah is single and earns $60,000 in salary. She wants to invest $2,500 per year in an IRA but is not sure which type she qualifies for and whether this would be a better investment than putting her money in preferred stock paying a 6 percent annual divi
> In February, Margaret’s employer asked her to move from the Miami office to the Atlanta office. In March, Margaret spent $900 on a house-hunting trip to Atlanta. She located a home and moved into it in April. Margaret’s employer reimbursed her for all di
> Victor has full-time use of a company-owned Jaguar automobile. This year Victor drove 24,000 miles for business and 10,000 personal miles. His employer does not require him to report his personal mileage but, instead, includes the lease value of the full
> George just accepted a job as an apartment manager and is paid a salary of $28,000 per year. In addition to the salary, he is offered the choice of rent-free use of an apartment or a $500 per month housing allowance. George accepts the rent-free apartmen
> Virginia is the president and founder of VT Corporation. She is extremely devoted to the business, frequently working 70-hour weeks. She did not take any salary from the business for its first two years of operations. She is now receiving a salary that i
> Susan is the second-highest-paid executive for Sanibel Corporation, a publicly traded corporation. Her salary is $1,600,000.
> Gillian and Paul are married and have a son who is a sophomore at the local university. In the current year, they paid $5,000 for tuition and $3,000 for room and board for him. Their adjusted gross income is $95,000, and they are in the 25 percent margin
> What are the four sections of a memo to the file? Explain what each section should include.
> Sabrina pays most of the cost for her Aunt Betty to live in a nursing home. Betty receives Social Security benefits of $8,200 a year (all paid to the nursing home). Betty has no other income so Sabrina pays the remaining nursing home cost of $36,800 a ye
> Jessica invites a 16-year-old foreign exchange student to live in her home for the academic school year. Jessica provides all of the student’s support for that period of time. The student is not related to Jessica.
> Jose is single and a U.S. citizen living in Texas. Jose provides all of the support for his parents who are citizens and residents of Argentina. Jose’s parents are considering moving to and becoming residents of Mexico.
> Carla is single and provides more than 50 percent of the support for her mother who lives in a nursing home. Her mother received $2,000 interest on her State of Florida bonds, $3,000 in dividend income, and $8,000 in Social Security benefits.
> In March, Helen purchased a new home for $140,000. She paid $28,000 cash down and financed the balance with a mortgage for which she also paid $1,800 in closing costs and $1,100 in points. Her interest on the mortgage for the year is $5,300.
> Megan and Sam have a 10-year-old daughter, who is autistic. Megan and Sam pay $16,000 annual tuition for their daughter to attend a special school for autistic children.
> Barry has a chronic back problem that requires that he receive regular therapy in a swimming pool. He purchased a new home with a larger backyard so that he could install a swimming pool. The purchase price of the home was $180,000. The cost of installin
> Liza pays $5,000 for extensive liposuction surgery. Her medical insurance does not cover this expense.
> Last year, after a very bad argument, Holly’s husband moved out and has not been seen since. Holly’s eight-year-old daughter lives with her.
> Anne operates a dog-training business out of her home. She started the business four years ago but has not yet made a profit. She gets all of her business by word-of-mouth and thinks that she might try running some ads in the newspaper to increase her bu
> Are the recipients of gifts and inheritances subject to double taxation? Explain.
> Scott is the CEO of a large corporation in Chicago. He spends the month of August in Wisconsin at his vacation home, where he has a separate structure furnished as an office. Scott uses the office each August for long-range corporate planning because he
> You rent your beach house to your friend, Sarah. Sarah rents her condo in Aspen to you. You each pay a fair rental price.
> In year 1, Sharon loaned her friend Christina $10,000 to start a new business. The loan was documented by a signed note, at market interest rate, and required repayment in two years. Christina appeared successful at first but her office manager embezzled
> Ken is a high school history teacher. Each summer he travels to a different location to further his knowledge of American history. This summer he plans to attend a four-day conference for high school history teachers in Philadelphia. Immediately followin
> Carl is the president of Carlton Corporation. He spends three days testifying before Congress on the impact that proposed legislation has on his industry. In his testimony he states that if the legislation passes, he will have to lay off 20 percent of hi
> Ken receives interest income from Province of Ontario (Canada) bonds.
> Sharp Corporation has $250,000 in assets and $300,000 in liabilities. Sharp negotiates a deal with one of its creditors to write off $20,000 of the $60,000 owed to the creditor.
> Bill and Susan are planning to divorce. Their daughter, Melissa, will live with Susan. Bill has offered to pay Susan $1,000 per month for eight years.
> While diving in the Florida Keys on vacation, Gillian finds a gold bar from a sunken ship.
> In December, year 1, Sid’s Body Shop (an accrual-basis taxpayer) repaired Lisa’s car and was to be paid $2,000 by her insurance company. Lisa was not satisfied with the repair job but finally agreed that her insurance company should pay $1,700 for the re
> What is the difference between proposed and temporary regulations? What weight do they carry?
> A landlord requires tenants to pay 3 months’ rent in advance at the beginning of a lease. He informs the tenants that this is for the first month’s rent, the last month’s rent, and a refundable security deposit equal to one month’s rent.
> Jason owns a computer repair shop. Jason needs some repair work done on his company car, so he agrees to repair the computer at Bob’s Auto Repairs in exchange for fixing the car.
> Sherry just received a big promotion at Barcardo Corporation. Last year her salary was $100,000, but due to her promotion she expects to earn $180,000 this year. She expects that she will be able to save about $60,000 of her pay raise and is interested i
> Tropical Patios Corporation manufactures patio furniture in a factory with 24 employees. The office staff consists of 4 employees who handle personnel, accounting, and other office responsibilities. The sales staff includes 6 employees who travel extensi
> Makai Corporation has a potential deduction of up to $1,000 that it would like to claim on its current-year tax return. Its tax position meets the recognition threshold of more likely than not, but the deduction cannot be measured by a single amount. The
> Denise files her 2017 tax return on February 4, 2018. If there is no material understatement of income on her return and the return is properly signed and filed, when does the statute of limitations expire for Denise’s 2017 tax return?
> In the current year, Melbourne Corporation pays the $2,000 annual premium for a life insurance policy on its president, for which Melbourne Corporation is the beneficiary. Melbourne also pays $20,000 in annual premiums for group term life insurance for i
> Luis, a self-employed individual, flies from New York to Rome. He spends seven days in Rome on business and stays in Rome for an additional three days to vacation. Transportation costs incurred were $1,400; his hotel cost $200 per day for a total of $2,0
> John is a teacher at a local high school. During 2017, he travels three days per week to a school in the next county to work with gifted children in an after-school program that does not end until 6:30 p.m. He normally eats dinner before driving home. If
> Dan’s employer assigned him to the New York office for 18 months. During this 18-month assignment, Dan spent $18,000 for apartment rent and $8,500 for meals, because his family remained in St. Louis. At the end of the 18-month assignment, Dan returns to
> What information is found in a citator?
> Martha lives with her husband in Los Angeles but works in San Diego. During the week she stays in a hotel in San Diego and eats in nearby restaurants. On weekends, she flies home to Los Angeles. During the year, Martha spent $5,000 for the hotel, and $2,
> Jim, a self-employed individual, takes an important customer to the hockey playoffs. Although the face value of a ticket is only $70, he pays a scalper $400 for each ticket. Assuming all other requirements are met, how much can Jim deduct for the two tic
> Elisa spends $1,000 on business lunches to entertain her customers at the local country club. The club charges an annual membership fee of $800. Elisa uses the facility 80 percent of the time for business. Her employer does not reimburse her for any of t
> On December 15, Simon Corporation (a cash-basis, calendar-year corporation) paid $5,000 for five months of supplies and $9,000 for an insurance policy covering its office building for the next three calendar years. How much can Simon deduct this year for
> Mary, a taxpayer in the 33 percent marginal tax bracket, borrows $500,000 at 10 percent interest to invest in 7 percent tax-exempt municipal bonds. The annual interest expense on the loan is $50,000. Mary earns $35,000 interest income on the bonds. What
> Randy gave one of his best customers a $150 bottle of wine. How much can he deduct for this business gift?
> Aloha Airlines is required by law to have its aircraft engines tested and recertified after 5,000 flight hours. Molokai Maintenance performs the engine tests and recertification for $2,200 per aircraft. For financial accounting purposes, Aloha accrues ma
> Marvin, an attorney, is a cash-basis, calendar-year taxpayer. Marvin’s two daughters each own 50 percent of the stock of Marvil Corporation, a calendar-year, accrual-basis corporation. During year 1, Marvin completes some legal work for Marvil Corporatio
> Which of the following costs must be included in inventory by a manufacturer under the UNICAP rules? a. Factory insurance b. Advertising c. Payroll taxes for factory employees d. Research and experimentation costs e. Repairs to factory equipment
> Explain the Golsen rule.
> Which itemized deductions must exceed a basic minimum (floor) before the taxpayer’s taxable income is reduced for the excess?
> How do alternative minimum tax itemized deductions differ from the regular income tax itemized deductions?
> How do alternative minimum tax rates compare to the regular income tax rates?
> What is the overall charitable contribution deduction limitation? How are charitable contributions in excess of the current year’s limit treated?
> Gabor Family Enterprises, a closely-held family corporation, plans to offer a stock option plan as an incentive to its employees, but it does not want its stock owned by anyone who is not a member of the Gabor family. What type of plan should Gabor consi
> In which of the following cases should the employees report income? a. The employer provides an annual picnic for employees and their families to celebrate Independence Day. b. Employees can use the company photocopier for small amounts of personal cop
> Murphy Company, a cash-basis, calendar-year taxpayer, received a call on December 28, year 1, from a client stating that a check for $9,000 as payment in full for their services can be picked up at their offices, two blocks away, any weekday between 1:
> Jabba Company uses the cash method of accounting. Jabba received a computer from a customer as payment for a $2,000 bill. Can Jabba avoid recognizing income because it received payment in a noncash form? Explain.
> Michelle (a calendar-year individual) begins a new business as a sole proprietorship. She would like to use an October 31 fiscal year-end for her business because the calendar year ends during her busy season. What must Michelle do to use a fiscal tax ye
> What are two major categories of differences between financial accounting income and taxable income?
> What is the difference between a legislative regulation and an interpretative regulation?
> What is the purpose of the United States establishing a tax treaty with a foreign country?
> While walking through the park, Jane finds a $100 bill. No one is around to claim it, so she keeps it. Does Jane have any gross income as a result of this?
> At the beginning of the current year, Martha, a cash-basis taxpayer, purchased a $10,000 three-year bond from Lauderhill Corporation at its issue price of $7,000. At the end of the year, $840 of interest had accrued. How much income does Martha report fo
> Why is interest income on state and local bonds tax exempt?
> Virginia gave her 14-year-old grandson, Tommy, $10,000 in common stock. One month later, Tommy receives a $100 dividend on the stock. How much income is taxed to Tommy and how much to Virginia?
> Explain how community property laws can affect the allocation of income between spouses.
> Ryan’s annual salary is $120,000 per year. He asked his employer to pay $20,000 of his salary to his elderly grandmother who is in a nursing home. The employer pays $20,000 directly to the grandmother and the balance to Ryan. What is Ryan’s gross income?
> Do taxpayers face only monetary fines or can they be sentenced to jail?
> What are the two documents that practitioners use to communicate the results of their tax research?
> What does it mean when a Tax Court decision says that the decision has been entered under Rule 155?
> What is the difference between a letter ruling and a revenue ruling?
> Explain the meaning of hazards of litigation.
> If the taxpayer does not agree with proposed adjustments, what are the alternatives available to a taxpayer who receives a 30-day letter?
> What signal does the IRS give taxpayers to indicate that a court decision will not be followed?
> What uniquely numbered part of the Internal Revenue Code does a tax researcher usually cite?
> Describe the basic steps in performing tax research.
> What is the difference between primary authority and secondary authority?
> In the citation Reg. §1.247-3, what do the 1 and the 247 indicate?
> What are the basic tax rates for an individual and a corporation?
> Identify three tax planning strategies.
> As a bill proceeds through Congress, various committee reports are generated. What three committee reports typically are generated as a result of this process?
> Compare a C corporation to an S corporation.
> Describe the various types of audits.
> Define gross income.
> Which three taxable persons pay all of the income taxes?
> Differentiate horizontal from vertical equity.
> Explain the business purpose doctrine.
> What tax rates apply to an individual’s capital gains and to which tax brackets do each of these rates apply?
> Maria is a single individual with taxable income of $75,000 in 2017. What marginal tax rate should she use to determine the tax savings from a $2,000 deductible expense?
> Beta Corporation anticipates $800,000 of taxable income for the year before considering additional projects. What marginal tax rate should it use in evaluating a project that may generate $200,000 of additional income?
> Name three sources of guidance for tax professionals.
> What is a use tax?
> Statement on Standards for Tax Services No. 4 states that a CPA may use estimates in completing a tax return. When would using estimates be appropriate in tax return preparation?
> What are three characteristics of a sole proprietorship? Do these characteristics differ from those of a partnership? What are three characteristics of a limited liability company that differ from those of a partnership?
> What is the difference between tax avoidance and tax evasion?
> What are the Statements on Standards for Tax Services? Who issues them?
