Question: Jim and Mary Jean are married and

> Forrester owns a nonrental business with two separate departments. Department A generates net income of $70,000, and Department B generates a net loss of $58,000. Forrester participates 800 hours in the operations of Department A and 300 hours in the ope

> Tern Corporation, a calendar year C corporation, is solely owned by Jessica Ramirez. Tern’s only business since its incorporation in 2014 has been land surveying services. In Tern’s state of incorporation, land surveying can be performed only by a licens

> In the current year, Wilson Enterprises, a calendar year taxpayer, suffers a casualty loss of $90,000. How much of the casualty loss will be deductible by Wilson under the following circumstances? a. Wilson is an individual proprietor and has AGI of $225

> Heron Company purchases commercial realty on November 12, 1999, for $650,000. Straight-line depreciation of $287,492 is claimed before the property is sold on February 23, 2017, for $850,000. What are the tax consequences of the sale of realty if Heron i

> During 2017, Gorilla Corporation has net short-term capital gains of $15,000, net long-term capital losses of $105,000, and taxable income from other sources of $460,000. Prior years’ transactions included the following: 2013 net short-term capital gains

> Virginia owns 100% of Goshawk Company. In the current year, Goshawk Company sells a capital asset (held for three years) at a loss of $40,000. In addition, Goshawk has a short-term capital gain of $18,000 and net operating income of $90,000 during the ye

> Roberto has received various gifts over the years. He has decided to dispose of the following assets he received as gifts: a. In 1951, he received land worth $32,000. The donor’s adjusted basis was $35,000. Roberto sells the land for $95,000 in 2017. b.

> In the current year, Tanager Corporation (a C corporation) had operating income of $480,000 and operating expenses of $390,000. In addition, Tanager had a long-term capital gain of $55,000 and a short-term capital loss of $40,000. a. Compute Tanager’s ta

> In the current year, Roger pays a $3,000 premium for high-deductible medical insurance for him and his family. In addition, he contributed $2,600 to a Health Savings Account. a. How much may Roger deduct if he is self-employed? Is the deduction for AGI o

> Adelyn generated a tentative general business credit of $42,000 for the current year. Her net regular tax liability before the general business credit is $107,000, and her tentative minimum tax is $88,000. Compute Adelyn’s allowable general business cred

> Benton Company (BC) has one owner, who is in the 33% Federal income tax bracket. BC’s gross income is $395,000, and its ordinary trade or business deductions are $245,000. Compute the Federal income tax liability on BC’s income for the current year under

> In the current year, Azure Company has $350,000 of net operating income before deducting any compensation or other payment to its sole owner, Sasha. In addition, Azure has interest on municipal bonds of $25,000. Sasha has significant income from other so

> Ellie and Linda are equal owners in Otter Enterprises, a calendar year business. During the current year, Otter Enterprises has $320,000 of gross income and $210,000 of operating expenses. In addition, Otter has a long-term capital gain of $15,000 and ma

> In the current year, Riflebird Company had operating income of $220,000, operating expenses of $175,000, and a long-term capital loss of $10,000. How do Riflebird Company and Roger, the sole owner of Riflebird, report this information on their respective

> Jane suffers from a degenerative spinal disorder. Her physician said that swimming could help prevent the onset of permanent paralysis and recommended the installation of a swimming pool at her residence for her use. Jane’s residence had a market value o

> David, a sole proprietor of a bookstore, pays a $7,500 premium for medical insurance for him and his family. Joan, an employee of a small firm that doesn’t provide her with medical insurance, pays medical insurance premiums of $8,000 for herself. How doe

> In January 2017, Pelican, Inc., established an allowance for uncollectible accounts (bad debt reserve) of $70,000 on its books and increased the allowance by $120,000 during the year. As a result of a client’s bankruptcy, Pelican, Inc., decreased the all

> In the current year, Pelican, Inc., incurs $10,000 of meals and entertainment expenses that it deducts in computing net income per the corporation’s financial statements. All of the meals and entertainment expenditures are subject to the 50% cutback rule

> Rod Clooney purchases Agnes Mitchell’s sole proprietorship for $990,000 on August 15, 2017. The assets of the business are as follows: a. Calculate Agnes’s realized and recognized gain. b. Determine Rodâ€&

> Jerry and Ernie are comparing their tax situations. Both are paying all of the nursing home expenses of their parents. Jerry can include the expenses in computing his medical expense deduction, but Ernie cannot. What explanation can you offer for the dif

> During 2017, Susan incurred and paid the following expenses for Beth (her daughter), Ed (her father), and herself: Surgery for Beth………………………………………………….$4,500 Red River Academy charges for Beth: Tuition………………………………………………………………….5,100 Room, board, and oth

> Dove Corporation, a calendar year C corporation, had the following information for 2017: Net income per books (after-tax)……………………………………………………………$386,250 Taxable income……………………………………………………………………………………….120,000 Federal income tax per books…………………………………………

> The following information for 2017 relates to Sparrow Corporation, a calendar year, accrual method taxpayer. Net income per books (after-tax)…………………………………………….……….$174,100 Federal income tax expense per books……………………………………………….86,600 Tax-exempt interest

> Kathleen and Glenn decide that this is the year to begin getting serious about saving for their retirement by participating in their employers’ § 401(k) plans. As a result, they each have $3,000 of their salary set aside in their qualified plans. a. Calc

> Red Corporation and White Corporation, both calendar year C corporations, are members of a controlled group of corporations. For the current year, Red has taxable income of $130,000, and White has taxable income of $200,000. Assuming that the controlled

> In each of the following independent situations, determine the corporation’s income tax liability. Assume that all corporations use a calendar year for tax purposes and that the tax year involved is 2017.

> Egret Corporation, a calendar year C corporation, was formed on March 6, 2017, and opened for business on July 1, 2017. After its formation but prior to opening for business, Egret incurred the following expenditures: Accounting………………$ 7,000 Advertising

> Gull Corporation, a cash method, calendar year C corporation, was formed and began business on November 1, 2017. Gull incurred the following expenses during its first year of operations (November 1, 2017–December 31, 2017): Expenses of temporary directo

> In each of the following independent situations, determine the dividends received deduction. Assume that none of the corporate shareholders owns 20% or more of the stock in the corporations paying the dividends. Almond Blond Cherry Corporation Corp

> During the current year, Swallow Corporation, a calendar year C corporation, has the following transactions: Income from operations………………………………….$660,000 Expenses from operations………………………………....720,000 Dividends received from Brown Corporation………240,000

> Marcia, a shareholder in a corporation with stores in five states, donated stock with a basis of $10,000 to a qualified charitable organization in 2016. Although the stock of the corporation was not traded on a public stock exchange, many shares had been

> Keshara has the following net § 1231 results for each of the years shown. What would be the nature of the net gains in 2016 and 2017? Tax Year Net 5 1231 Loss Net 5 1231 Gain 2012 $18,000 2013 33,000 2014 42,000 2015 $41,000 2016 30,000 2

> Kevin purchases 1,000 shares of Bluebird Corporation stock on October 3, 2017, for $300,000. On December 12, 2017, Kevin purchases an additional 750 shares of Bluebird stock for $210,000. According to market quotations, Bluebird stock is selling for $285

> White Corporation, a calendar year C corporation, manufactures plumbing fixtures. For the current year, White has taxable income [before the domestic production activities deduction (DPAD)] of $900,000, qualified production activities income (QPAI) of $1

> Dan Simms is the president and sole shareholder of Simms Corporation, 1121 Madison Street, Seattle, WA 98121. Dan plans for the corporation to make a charitable contribution to the University of Washington, a qualified public charity. He will have the co

> In 2017, Gray Corporation, a calendar year C corporation, has a $75,000 charitable contribution carryover from a gift made in 2012. Gray is contemplating a gift of land to a qualified charity in either 2017 or 2018. Gray purchased the land as an investme

> Bernadette Rosen, a longtime client of yours, is an architect and the president of the local Rotary chapter. To keep up to date with the latest developments in her profession, she attends continuing education seminars offered by the architecture school a

> Joseph Thompson is president and sole shareholder of Jay Corporation. In December 2017, Joe asks your advice regarding a charitable contribution he plans to have the corporation make to the University of Maine, a qualified public charity. Joe is consider

> In the current year, Plum, Inc., a closely held C corporation, has $410,000 of net active income, $20,000 of portfolio income, and a $75,000 passive activity loss. What is Plum’s taxable income for the current year under the following circumstances? a. P

> Determine whether the following expenditures by Cuckoo Corporation are organizational expenditures, startup expenditures, or neither. a. Legal expenses incurred for drafting the corporate charter and bylaws. b. Accounting fees incurred in organization. c

> Define the terms temporary difference and permanent difference as they pertain to the financial reporting of income tax expenses. Describe how these two book-tax differences affect the gap between book and taxable income. How are permanent and temporary

> Janice is the sole owner of Catbird Company. In the current year, Catbird had operating income of $100,000, a long-term capital gain of $15,000, and a charitable contribution of $5,000. Janice withdrew $70,000 of profit from Catbird. How should Janice re

> A sculpture that Korliss Kane held for investment was destroyed in a flood. The sculpture was insured, and Korliss had a $60,000 gain from this casualty. He also had a $17,000 loss from an uninsured antique vase that was destroyed by the flood. The vase

> Art, an executive with Azure Corporation, plans to start a part-time business selling products on the internet. He will devote about 15 hours each week to running the business. Art’s salary from Azure places him in the 35% tax bracket. He projects substa

> Karen Samuels (Social Security number 123-45-6789) makes the following purchases and sales of stock: Assuming that Karen is unable to identify the particular lots that are sold with the original purchase, determine the recognized gain or loss on each t

> Barbara owns 40% of the stock of Cassowary Corporation (a C corporation) and 40% of the stock of Emu Corporation (an S corporation). In the current year, each corporation has operating income of $120,000 and tax-exempt interest income of $8,000. Neither

> Ken and Mary Jane Blough, your neighbors, have asked you for advice after receiving correspondence in the mail from the IRS. You learn that the IRS is asking for documentation in support of the itemized deductions the Bloughs claimed on a recent tax retu

> Jennifer and Jamie are starting a business and have asked you for advice about whether they should form a partnership, a corporation, or some other type of entity. Prepare a list of questions you would ask in helping them decide which type of entity they

> Marcellus Jackson, the CFO of Mac, Inc., notices that the tax liability reported on Mac’s tax return is less than the tax expense reported on Mac’s financial statements. Provide a letter to Jackson outlining why these two tax expense numbers differ. Mac’

> In the current year, Woodpecker, Inc., a C corporation with $8.5 million in assets, reported amortization of $40,000 on its financial statements and deducted amortization of $55,000 on its Federal tax return. Is Woodpecker required to file Schedule M–3?

> Schedule M–1 of Form 1120 is used to reconcile financial accounting net income with taxable income reported on the corporation’s income tax return as follows: Net income per books + Additions ─ Subtractions = Taxable income. Classify the following items

> When are C corporations required to make estimated tax payments? How are these payments calculated?

> Emily spent $135,000 to rehabilitate a building (adjusted basis of $90,000) that originally had been placed in service in 1935. a. Compute Emily’s credit for rehabilitation expenditures. b. How would your answer change if the building were a historic str

> Marmot Corporation pays a dividend of $100,000 in the current year. Otter Corporation, which is in the 25% marginal bracket, owns 15% of Marmot’s stock. Gerald, an individual taxpayer in the 25% marginal bracket, also owns 15% of Marmot’s stock. Compare

> Gold Corporation, a calendar year C corporation, was formed in 2011 and has been profitable until the current year. In 2017, Gold incurs a net operating loss. Identify the issues that Gold Corporation should consider regarding its NOL carryback and carry

> The city of Lawrence recently was hit by a tornado, leaving many families in need of food, clothing, shelter, and other necessities. Betty contributed $500 to a family whose home was completely destroyed by the tornado. Jack contributed $700 to the famil

> The board of directors of Orange Corporation, a calendar year taxpayer, is holding its year-end meeting on December 29, 2017. One topic on the board’s agenda is the approval of a $25,000 gift to a qualified charitable organization. Orange has a $20,000 c

> On December 22, 2017, the directors of Partridge Corporation, an accrual basis calendar year taxpayer, authorized a cash contribution of $10,000 to the American Cancer Association. The payment is made on April 13, 2018. Can Partridge deduct the charitabl

> Osprey Corporation, a closely held corporation, has $100,000 of net active income, $25,000 of portfolio income, and a $120,000 loss from a passive activity. a. How much of the passive activity loss can Osprey deduct in the current year if it is a PSC? b

> Paul and Donna Decker are married taxpayers, ages 44 and 42, respectively, who file a joint return for 2017. The Deckers live at 1121 College Avenue, Carmel, IN 46032. Paul is an assistant manager at Carmel Motor Inn, and Donna is a teacher at Carmel Ele

> A taxpayer sells a warehouse for a recognized gain. Depreciation had been properly claimed on the property, based on the straight-line method over a 39-year recovery period. Will the same amount of depreciation recapture result whether the taxpayer is an

> Paul and Karen Kent are married, and both are employed (Paul earned $44,000 and Karen earned $9,000 this year). Paul and Karen have two dependent children, Samuel and Joy, both under the age of 13. Paul and Karen pay $3,800 ($1,900 for each child) to Sun

> Leon sells his interest in a passive activity for $100,000. Determine the tax effect of the sale based on each of the following independent facts: a. Adjusted basis in this investment is $35,000. Losses from prior years that were not deductible due to th

> Harriet, who is single, is the owner of a sole proprietorship. Two years ago, Harriet developed a process for preserving doughnuts that gives the doughnuts a much longer shelf life. The process is not patented or copyrighted, and only Harriet knows how i

> John (a sole proprietor) and Eagle Corporation (a C corporation) each recognize a long-term capital gain of $10,000 and a short-term capital loss of$18,000 on the sale of capital assets. Neither taxpayer had any other property transactions during the yea

> In the current year, Jeanette, an individual in the 25%marginal tax bracket, recognized a $20,000 long-term capital gain. Also in the current year, Parrot Corporation, a C corporation in the 25% marginal tax bracket, recognized a $20,000 long-term capita

> In the current year, Juanita and Joseph form a two-member LLC and do not file Form 8832 (Entity Classification Election). As a result, the LLC will be treated as a partnership for Federal tax purposes. Assess the validity of this statement.

> Buddy Morgan is a real estate agent for Coastal Estates, a residential real estate development. Because of his outstanding sales performance, Buddy is permitted to buy a lot for $300,000 that normally would sell for $500,000. Buddy is the only real estat

> Joel is the sole shareholder of Manatee Corporation, a C corporation. Because Manatee’s sales have increased significantly over the last several years, Joel has determined that the corporation needs a new distribution warehouse. Joel has asked your advic

> Using the facts of Problem 28, determine the 2016 end-of-year balance in Prance’s deferred tax asset and deferred tax liability balance sheet accounts. Facts of Problem 28 Prance, Inc., earns pretax book net income of $800,000 in 2016. Prance acquires a

> Hummingbird Corporation, a closely held C corporation that is not a PSC, has $40,000 of net active income, $15,000 of portfolio income, and a $45,000 loss from a passive activity. Compute Hummingbird’s taxable income for the year.

> Aqua Corporation purchases nonresidential real property on May 9, 2014, for $1 million. Straight-line cost recovery is taken in the amount of $89,765 before the property is sold on November 30, 2017, for $1.5 million. a. Compute the amount of Aqua’s reco

> Goose Corporation, a C corporation, incurs a net capital loss of $12,000 for 2017. It also has ordinary income of $10,000 in 2017. Goose had net capital gains of $2,500 in 2013 and $5,000 in 2016. a. Determine the amount, if any, of the net capital loss

> Prance, Inc., earns pretax book net income of $800,000 in 2016. Prance acquires a depreciable asset that year, and first-year tax depreciation exceeds book depreciation by $80,000. Prance reported no other temporary or permanent book-tax differences. The

> Asok’s AGI for 2017 is $133,050. Included in this AGI is a $45,000 25% long-term capital gain and a $13,000 0%/15%/20% long-term capital gain. Asok is single, uses the standard deduction, and has only his personal exemption. Compute his taxable income, t

> Alice J. and Bruce M. Byrd are married taxpayers who file a joint return. Their Social Security numbers are 123-45-6789 and 111-11-1112, respectively. Alice’s birthday is September 21, 1969, and Bruce’s is June 27, 196

> Durell and Earline are married, file a joint return, and claim dependency exemptions for their two children, ages 5 years and 6 months. They also claim Earline’s 18-year-old son from a previous marriage as a dependent. Durell and Earline’s combined AGI i

> Compute the income tax liability for each of the following unrelated C corporations. a. Darter Corporation has taxable income of $68,000. b. Owl Corporation has taxable income of $10,800,000. c. Toucan Corporation, a personal service corporation, has tax

> Cherry Corporation, a calendar year C corporation, is formed and begins business on April 1, 2017. In connection with its formation, Cherry incurs organizational expenditures of $54,000. Determine Cherry Corporation’s deduction for organizational expendi

> Yancy’s personal residence is condemned as part of an urban renewal project. His adjusted basis for the residence is $480,000. He receives condemnation proceeds of $460,000 and invests the proceeds in stocks and bonds. a. Calculate Yancy’s realized and r

> Crane and Loon Corporations, two unrelated C corporations, have the following transactions for the current year: a. Compute the dividends received deduction for Crane Corporation. b. Compute the dividends received deduction for Loon Corporation. Cr

> Compute the charitable contribution deduction (ignoring the percentage limitation) for each of the following C corporations. a. Amber Corporation donated inventory of clothing (basis of $24,000, fair market value of $30,000) to a qualified charitable org

> Your client supplies water to a housing development. The company requires new customers to pay for the extension of the water lines to their homes. The water lines are the company’s property. The company has consistently treated the amounts received from

> Your client is not permitted to deduct a year-end accrual for vacation pay earned but not paid. This result occurs because the tax law considers this to be deferred compensation that is ineligible for the recurring item exception, unless it is paid by Ma

> Why did the AICPA object to former Congressman Dave Camp’s tax reform proposal introduced in February 2014 (later officially introduced as H.R. 1 of the 113rd Congress) regarding the use of the cash method of accounting?

> Hakim’s rental building was not insured when it was destroyed by a hurricane. His adjusted basis for the building was substantial, but was less than he had paid for the building in 2013. The building was Hakim’s only asset that was damaged by the hurrica

> In 2017, your client, Clear Corporation, changed from the cash to the accrual method of accounting for its radio station. The company had a positive § 481 adjustment of $2.4 million as a result of the change and began amortizing the adjustment in 2017. I

> Your client is a manufacturer. For several years, the company buried empty paint cans on its property. The paint was used in the production process. Recently, a state environmental agency informed the company that it was required to dig up the paint cans

> Zorn conducted his professional practice through Zorn, Inc. The corporation uses a fiscal year ending September 30 even though the business purpose test for a fiscal year cannot be satisfied. For the year ending September 30, 2017, the corporation paid Z

> Ann and Bill were on the list of a local adoption agency for several years seeking to adopt a child. Finally, in 2016, good news comes their way and an adoption seems imminent. They pay qualified adoption expenses of $5,000 in 2016 and $11,000 in 2017. T

> Reba, who is single, does a lot of business entertaining at home. Lawrence, Reba’s 84-year-old dependent grandfather, lived with Reba until this year, when he moved to Lakeside Nursing Home because he needs medical and nursing care. During the year, Reba

> Which of the following results in a recognized gain or loss? a. Kay sells her vacation cabin (adjusted basis of $100,000) for $150,000. b. Adam sells his personal residence (adjusted basis of $150,000) for $100,000. c. Carl’s personal residence (adjusted

> How do the all events and economic performance requirements apply to the following transactions by an accrual basis taxpayer? a. The company guarantees its products for six months. At the end of 2017, customers had made valid claims for $600,000 that wer

> What accounting method (cash or accrual) would you recommend for the following businesses? a. A gift shop with average annual gross receipts of $900,000. b. An accounting partnership with annual gross receipts of $12 million. c. A drywall subcontractor w

> Compute Mary’s income or deductions for 2017 using (1) the cash basis and (2) the accrual basis for each of the following: a. In May 2017, Mary paid a license fee of $1,200 for the period June 1, 2017, through May 31, 2018. b. In December 2017, Mary coll

> Gold, Inc., is an accrual basis taxpayer. In 2017, an employee accidentally spilled hazardous chemicals on leased property. The chemicals destroyed trees on neighboring property, resulting in $30,000 of damages. In 2017, the owner of the property sued Go

> Ivanna, who has three children under age 13, worked full-time while her husband, Sergio, was attending college for nine months during the year. Ivanna earned $28,000 and incurred $9,100 of child care expenses. Determine the amount of Ivanna and Sergio’s

> Mauve Corporation began operations as a farm supplies business and used a fiscal year ending October 31. The company gradually went out of the farm supplies business and into the mail-order Christmas gifts business. The company has received permission fr

> Red, White, and Blue are unrelated corporations engaged in real estate development. The three corporations formed a joint venture (treated as a partnership) to develop a tract of land. Assuming that the venture does not have a natural business year, what

> Swallow Company is a large real estate construction company that has made a Subchapter S election. The company reports its income using the percentage of completion method. In 2018, the company completed a contract at a total cost of $4.8 million. The co