Last year Aleshia identified $15,000 as a nonbusiness bad debt. In that tax year, before considering the tax implications of the nonbusiness bad debt, Aleshia had $100,000 of taxable income, of which $12,000 consisted of short-term capital gains. This year Aleshia collected $8,000 of the amount she had previously identified as a bad debt. Determine Aleshia's tax treatment of the $8,000 received in the current tax year.
> How is the alternative minimum tax credit applied in the calculation of the tentative minin1um tax (TMT)? a. It is carried forward indefinitely and applied to regular tax only. b. It is carried back five years and applied to regular tax only. c. It is c
> Anthony entered into a long-tern1 construction contract in year 3. The total profit of the contract is $80,000 and does not change over the life of the contract. The contract will be completed in year 5. The contract is 20%. and 70% complete at the end
> Using the legend provided, indicate which form of business entity each of the following characteristics describes. Some of the characteristics may apply to more than one form of business entity. a. Basis for an ownership interest is increased by an inv
> In 2014, Jed James began planting a vineyard. The costs of the land preparation, labor, rootstock, and planting were capitalized. The land preparation costs do not include any non depreciable land costs. In 2018, when the plants became viable, Jed placed
> For many years, Saul's sole proprietorship and his related Form 1040 have had a number of AMT tax preferences and AMT adjustments. He has made the AMT calculation each year, but the calculated amount always has been SO. Saul's regular taxable income and
> Cooper Partnership, a calendar year partnership, made qualifying rehabilitation expenditures to a building that it has used in its business for eight years. These improvements were placed in service on January 5, 2017. The amount of the rehabilitation ex
> Balm, Inc., has a general business credit for 2018 of $90,000. Balm's regular income tax liability before credits is $140,000, and its tentative AMT is $132,000. Calculate the amount of general business credit Balm can use in 2018, and calculate its gene
> To what extent are the personal assets of a general partner, limited partner, or member of an LLC subject to (a) contractual liability claims, such as trade account5 payable, and (b) malpractice claims against the entity? Answer the question for partne
> Jim Dunn, Amy Lauersen, and Tony Packard have agreed to form a partnership. In return for a 30%. capital interest, Dunn transferred machinery (basis $268,000, fair market value $400,000) subject to a liability of $100,000. The liability was assumed by th
> What type of information-sharing agreements does the IRS have with the revenue agency of the Bahamas? Canada? Germany? Israel? Argentina?
> In a two-page paper, separately evaluate each of the following alternative pro- Digging Deeper posals for taxing the income from property. a. All assets would be valued at the end of the year, any increase in value that occurred during the year would be
> What is the function of a partner's capital account under the rules of generally accepted accounting principles (GAAP)' What is the partner's initial balance in the capital account? How and when does the capital account increase and decrease? What is the
> Identify whether the taxpayer's economic position has changed in the following exchanges such that they are subject to current taxation. That is, identify whether the following qualify as like-kind exchanges under § 1031. a. Improved for unimproved real
> On your review of the books and records of Ridge Corporation, you note the following information pertaining to its tax provision: a. Calculate Ridge's taxable income and Federal income tax liability for the year. b. Calculate Ridge's deferred income ta
> Owl is a closely held corporation owned by eight shareholders (each has 12.5% of the stock). Its taxable income for the most recent year was $6,250,000. Owl's financial records also provides the following information. a. Calculate Owl's Federal income
> Charles is planning to invest $10,000 in a venture whose management is undecided as to whether it should be structured as a regular corporation or as a partnership. Charles will hold a l()OA. interest in the entity. Determine the treatment to Charles if
> Carlson's general business credit for the current year is $84,000. His net income tax is $190,000, tentative minimum tax is $175,000, and net regular tax liability is $185,000. He has no other tax credits. Determine the amount of Carlson's general busine
> In 2018, Robert entertains four key clients and their spouses at a nightclub. Business discussions occurred over dinner and prior to the entertainment beginning. Expenses were $200 (limo charge), $120 (cover charge), $700 (drinks and dinner), and $140 (t
> Vogel Corporation owns two subsidiaries. Song, located in State A, generated $500,000 taxable income this year. Bird, located in State B, generated a $100,000 loss for the period. a. Determine Song's taxable income in States A and B, assuming that the su
> Brenda, who is self employed, travels from Chicago to Barcelona (Spain) on business. She is gone for 10 days (including 2 days of travel), during which time she spends 5 days conducting business and 3 days sightseeing. Her expenses are $1,500 (airfare),
> Filion operates n1anufacturing facilities in States A and B. Filion has neil."us with both states; apportionment factors are .70 for A and .30 for B. Taxable income for the year totaled $150,000, with a $200,000 A profit and a S50,000 Bloss. Calculate ta
> In 2018, Meghann Carlson, a single taxpayer, has QB! of $110,000 and modified taxable income of $78,000 (this is also her taxable income before the QB! deduction). Given this information, what is Meghann's QB! deduction?
> Mio was transferred from New York to Germany. He lived and worked in Germany for 340 days in 2018. Mio's salary for 2018 is $190,000. What is Mio's foreign earned income exclusion? (In your computation, round any division to four decimal places before co
> Cordero, Inc., is a calendar year taxpayer and a CFC for the entire tax year. Yancy Company, a U.S. corporation, owns 75% of Cordero's one class of stock for the entire year. Cordero's Subpart F income for the year is $450,000, and no distributions were
> Franco owns a 600Ai interest in the Dulera LLC. On Decen1ber 31 of the current tax year, his basis in the LLC interest is S 128,000. The fair market value of the interest is $140,000. Dulera then distributes to Franco $30,000 cash and equipment with an a
> J\1abel and Alan, who are in the 32% tax bracket, recently acquired a fast food franchise. Both of them will work in the business and receive a salary of $175,000. They anticipate that the annual profits of the business, after deducting salaries, will be
> Fred, who is self employed, travels from Denver to Miami primarily on business. He spends five days conducting business and two days sightseeing. His expenses are $400 (airfare), $150 per day (meals), and $300 per night (lodging). What are Fred's deducti
> Dion, an S shareholder, owned 20%. of Meadow Brook's stock for 292 days and 25% for the remaining 73 days in the year. Using the per-day allocation method, compute Dion's share of the following S corporation items. Schedule K Totals Dion's Schedule
> Valentino is a patient in a nursing home for 45 days in 2018. While in the nursing home, he incurs total costs of S 13,500. Medicare pays $8,000 of the cost5. Valentino receives $15,000 from his long-term care insurance policy, which pays while he is in
> Samantha recently was employed by an accounting firm. During the year, she spends $2,500 for a CPA exam review course and begins working on a law degree in night school. Her law school expenses were $4,200 for tuition and $450 for books (which are not a
> In 2018, Miranda records net earnings from self-employment of $146,000. She reports no other gross income. Determine the amount of Miranda's self-employment tax and her for AGI income tax deduction.
> In 2018, the CEO of Crin1son, Inc., entertains seven clients at a skybox in Memorial Stadium for an athletic event. Substantive business discussions occurred at various times during the event. The box costs $2,000 per event and seats 10 people. (The cost
> On April 5, 2018, Kinsey places in service a new automobile that cost $36,000. He does not elect § 179 expensing, and he elects not to take any available additional first-year depreciation. The car is used 70% for business and 30% for personal use in eac
> In 2018, McKenzie purchased qualifying equipment for his business that cost $212,000. The taxable incon1e of the business for the year is $5,600 before consideration of any§ 179 deduction. a. Calculate McKenzie's § 179 expense deduction for 2018 and any
> Donna donates stock in Chipper Corporation to die American Red Cross on September 10, 2018. She purchased the stock for $18,100 on December 28, 2017, and it had a fair market value of $27,000 when she made the donation. a. What is Donna's charitable cont
> In 2018, Simon, age 12, has interest income of $4,800 and no earned income. He has no investment expenses. Determine Simon's net unearned income and total tax liability.
> Plum Corporation will begin operations on January 1. Earnings for the next five years are projected to be relatively stable at about $80,000 per year. The shareholders of Plum are in the 32% tax bracket. Evaluate whether Plum should operate as a C corpor
> Troy's financial records for the year reflect the following: Calculate Troy's net investment income and his current investment interest deduction. How is any potential excess investment interest deduction treated? Interest income from bank savings
> Pierre, a cash basis, unn1arried taxpayer, had $1,400 of state income tax withheld during 2018. Also in 2018, Pierre paid $455 that was due when he filed his 2017 state incon1e tax return and made estimated payments of $975 toward his 2018 state income t
> Paul and Sonja, who are married, had itemized deductions of $13,200 and Issue ID $400, respectively, during 2018. Paul suggests that they file separately-he will itemize his deductions from AGI, and she will claim the standard deduction. a. Evaluate Paul
> Compute the 2018 standard deduction for the following taxpayers. a. Margie is 15 and claimed as a dependent by her parent5. She has $800 in dividend income and $1,400 in wages from a part-time job. b. Ruby and Woody are married and file a joint tax retur
> Elizabeth makes the following interest-free loans during the year. The relevant Federal interest rate is 5%, and none of the loans are motivated by tax avoidance. All of the loans were outstanding for the last six months of the tax year. Identify the Fed
> In late 2017, Randy and Rachel Erwin paid $7,000 in legal fees, adoption fees, and other expenses directly related to the adoption of an infant son, Jameson. In 2018, the year in which the adoption becon1es final, they pay an additional $8,000. Their AG!
> Casper and Cecile divorced in 2018. As part of the divorce settlement, Casper transferred stock to Cecile. Casper purchased the stock for $25,000, and it had a market value of $43,000 on the date of the transfer. Cecile sold the stock for $40,000 a month
> Camilo's property, with an adjusted basis of $155,000, is condemned by the state. Camilo receives property with a fair market value of S 180,000 as compensation for the property taken. a. What is Camilo's realized and recognized gain? b. What is the basi
> Before any debt cancellation, the insolvent KuhnCo holds business equipment, its only asset, with a fair market value of SI million and related liabilities of Sl.25 million. The lender agrees to cancel $400,000 of the liabilities. KuhnCo has no other lia
> Compute the 2018 tax liability and d1e n1arginal and average tax rates for die following taxpayers (use me 2018 tax rate schedules in Appendix A for d1is purpose). a. Chandler, who files as a single taxpayer, has taxable income of $94,800. b. Lazare, who
> Duke and Jacquie Coleman, married filing jointly, will establish a n1anufacturing business. The couple anticipates that the business will be profitable immediately due to a patent that Jacquie holds; prof its for the first year will be about $300,000 and
> Before any debt cancellation, PeppersCo holds business land with a $2.4 million fair market value, a SI million tax basis, and a related mortgage of $3 million. In lieu of foreclosure, the lender reduces the mortgage principal by $1.3 million. What are t
> Hamlet acquires a 7-year class asset on November 23, 2018, for $100,000. Hamlet does not elect immediate expensing under § 179. He does not claim any available additional first-year depreciation. Calculate Hamlet's cost recovery deductions for 2018 and 2
> Arianna's personal residence has an adjusted basis of $230,000 and a fair market value of $210,000. Arianna converts the personal residence to rental property. What is Arianna's gain basis' What is her loss basis?
> On May 9, 2016, Calvin acquired 250 shares of stock in Aero Corporation, a new startup company, for $68, 750. Calvin acquired the stock directly from Aero, and it is classified as§ 1244 stock (at the time Calvin acquired his stock, the corporation had $9
> Shanna, a calendar year and cash basis taxpayer, rents property from Janice. As part of the rental agreement, Shanna pays $8,400 rent on April 1, 2018, for the 12 months ending March 31, 2019. a. How, much is Shanna's deduction for rent expense in 2018?
> Lopez acquired a building on June 1, 2012, for $1 million. Calculate Lopez's cost recovery deduction for 2018 if the building is: a. Classified as residential rental real estate. b. Classified as nonresidential real estate.
> Noelle's diamond ring was stolen in 2017. She originally paid $8,000 for the ring, but it was worth considerably more at the tin1e of the theft. Noelle filed an insurance claim for the stolen ring, but the claim was denied. Because the insurance claim wa
> Sandstorm Corporation decides to develop a new, line of paints. The project begins in 2018. Sandstorm incurs the following expenses in 2018 in connection with the project: The benefits from the project will be realized starting in July 2019. If Sandsto
> Stanford owns and operates two dry cleaning businesses. He travels to Boston to discuss acquiring a restaurant. Later in the month, he travels to New York to discuss acquiring a bakery. Stanford does not acquire the restaurant but does purchase the baker
> Discuss the application of a general sales tax. a. Do all states impose a general sales tax? b. Does the Federal government impose a general sales tax?
> Meredith, who is single, would like to contribute $5,500 to her Roth IRA. What is the maximum amount that Meredith can contribute if her AGI is $121,000?
> Myers, who is single, reports compensation income of $70,000 in 2018. He is an active participant in his employer's qualified retirement plan. Myers contributes $5,500 to a traditional IRA. Of the $5,500 contribution, how much can Myers deduct? Phase out
> Compute the income tax liability for each of the following unrelated calendar year C corporations. a. In 2017, Darter Corporation has taxable income of $68,000. b. In 2017, owl Corporation has taxable income of $10,800,000. c. In 2018, Toucan Corporation
> Cherry Corporation, a calendar year C corporation, is formed and begins business on April 1, 2018. In connection with its formation, Cherry incurs organizational expenditures of $54,000. Determine Cherry Corporation's deduction for organizational expendi
> Pineview Company, a single member LLC, placed a $5,000 asset that is ineligible for full expensing in service on June 1, 2018. The asset has a three-year MACRS class life; no bonus depreciation was taken on this asset. Complete the table below by providi
> Brennen sold a machine used in his sole proprietorship for $180,000. The machine was purchased eight years ago for $340,000. Depreciation up to the date of the sale for regular income tax purposes was $210,000 and $190,000 for AMT purposes. What, if any,
> In March 2018, Serengeti exercised an ISO that had been granted by his employer, Thunder Corporation, in December 2015. Serengeti acquired 5,000 shares of Thunder stock for the exercise price of $65 per share. The fair market value of the stock at the da
> Alison incurs the following research expenditures. a. Determine the amount of qualified research expenditures. b. Assuming that the base amount is $50,000, determine Alison's incremental research activities credit. In-house wages In-house supplies
> During 2018, Lincoln Company hires seven individuals who are certified to be members of a qualifying targeted group. Each employee works in excess of 600 hours and is paid wages of $7,500 during the year. Determine the amount of Lincoln's work opportunit
> Emily spent $135,000 to rehabilitate a certified historic building (adjusted basis of $90,000) that originally had been placed in service in 1935. What is Emily's rehabilitation expenditures tax credit?
> In terms of Adam Smith's canon of economy in collection, how does the Digging Deeper Federal income tax fare?
> Roscoe contributes a personal use asset, adjusted basis $15,000 and fair market value $28,000, to a new business in which he is an owner. Determine Roscoe's recognized gain on the transfer, and the basis of the asset to the business, if the new operation
> The Code contains provisions that are "friendly" to specific groups of taxpayers. Among these are the following. • Senior citizens. • Married taxpayers. • Employed taxpayers. • Taxpayers with children. • Self-employed taxpayers. Provide justification f
> Justin performs services for Partridge, Inc., and receives compensation of $85,000 for the year. Determine the tax consequences of Social Security and Medicare on Justin's take-home pay if: a. Justin is classified as an employee of Partridge. b. Justin i
> Assun1e the san1e facts as in Problem 1, except that George is a C corporation rather than an individual and is in the 25% marginal tax bracket (combined Federal and state rate). Which investment strategy would maxin1ize George, Inc.'s annual return'
> George comes to you asking for your advice. He wants to invest $10,000 either in a debt security or in an equity investment. His choices are shown below. • Redbreast Corporation bond, annual coupon rate of 7.5%. • City of Philadelphia general obligation
> Refer to the facts in the preceding problem. Assume that Blue Corporation disposes of the manufacturing asset at the beginning of year 7 for $40,000. Compute the amount of gain or loss recognized for book and tax purposes. What is the book-tax difference
> Using an on line research service, find the audited financial staten1ents of a major U.S. corporation. a. List son1e of the items that the corporation reports as having different treatment for tax and financial accounting purposes. These items often are
> In April of the current year, Blue Corporation purchased an asset to be used in its manufacturing operations for $100,000. Blue's management expects the asset to ratably provide valuable services in the production process for eight years and have a salva
> Wayside Fruit Company is a sole proprietorship owned by Neil Stephenson. The company's records reflect the following: Compute the net income before tax for book purposes and the amount of taxable income for Wayside Fruit Company. Sales revenue $185
> Lark Corporation is considering the acquisition of an asset for use in its business over the next five years. However, Lark must decide whether it would be better served by leasing the asset or buying it. An appropriate asset could be purchased for $15,0
> With which of the two perspectives to business forms, conduit or entity, is each of the following most consistent' a. Limited liability for the entity's owners. b. Unlimited life for the entity. c. The ability of owners to participate directly in the ma
> Marketplace, Inc., has recognized over time that a certain percentage of its customer accounts receivable will not be collected. To ensure the appropriate matching of revenues and expenditures in its financial reports, Marketplace uses the reserve method
> Sparrow Corporation is considering the acquisition of an asset for use in it5 business over the next five years. However, Sparrow must decide whether it would be better served by leasing the asset or buying it. An appropriate asset could be purchased for
> The exclusion of state and local bond interest from Federal income tax often is criticized as creating a tax haven for the wealthy. Critics, however, often fail to take into account the effect of n1arket forces. In recent months, the long-term taxexen1pt
> Comn1ent on these statements. a. The tax law is created and administered in the same way as other Federal provisions. b. Most taxpayers find it too expensive and time-consuming to sue the government in a tax dispute.
> When taxes are "too high," taxpayers start to cheat on their taxes and dangerous consequences can result. Evaluate this statement. Give at least two examples to illustrate your conclusions.
> The trend in state income taxation is to move to an apportionment formula that places extra weight on the sales factor. Several states now use sales-factor-only apportionment. Explain why this development is attractive to the taxing states.
> Assume that Parchment in (1) is a general partnership rather than a corporation. Respond to parts (a), (b), and (c). Would your answer change if Parchment were an LLC that ''checked the box" to be taxed as a partnership? Explain.
> Assume that Parchment in (1) elects S corporation status at the time of its creation. Respond to parts (a), (b), and (c).
> Parchment, Inc., is created with the following asset and liability contributions. Jake and Fran each receive 100 shares of Parchment common stock. a. Prepare a financial accounting balance sheet for Parchment. Discuss the relevance of conduit theory an
> Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe, NM 87501. Lance works for the convention bureau of the local Chamber of Commerce, while Wanda is employed part-time as a paralegal for a law firm. During 2018, the Deans had th
> Rank the following items from the lowest to highest authority in the Federal tax law system. a. Interpretive Regulation. b. Legislative Regulation. c. Letter ruling. d. Revenue Ruling. e. Internal Revenue Code. f. Proposed Regulation.
> The Haas Corp., a calendar year S corporation, has two equal shareholders. For the year ended December 31, year 6, Haas had net income of $60,000, which included $50,000 from operations and $10,000 from investment interest income. There were no other tra
> An S corporation has 30,000 shares of voting common stock and 20,000 shares of nonvoting common stock issued and outstanding. The S election can be revoked voluntarily with the consent of the shareholders holding, on the day of the revocation, the follow
> In which of the following cases will Federal law prohibit a state from imposing a tax on net income? a. The business has a retail outlet store in the state. b. The business has its corporate headquarters in the state and generates sales from there. c. Or
> Olinto, Inc., reports taxable income (before special deductions and net operating loss deduction) of $92,000. Included in that amount is $12,000 interest and dividends income. Forty percent of Olinto's property, payroll, and sales are in its home state.
> Fox Corp., an S corporation, had an ordinary loss of $36,500 for the year ended December 31, year 2. At January 1, year 2, Duffy owned 500A. of Fox's stock. Duffy held the stock for 40 days in year 2 before selling the entire 500A. interest to an unrelat
> Village Corp., a calendar year corporation, began business in year 1. Village made a valid S corporation election on December 5, year 4, with the unanimous consent of its shareholders. The eligibility requirements for S status continued to be met through
> Peter, a 25% partner in Gold & Stein Partnership, received a $20,000 guaranteed payment in the current year for deductible services rendered to the partnership. Guaranteed payments were not made to any other partner. Gold & Stein's current-year p
> A reduction of a partner's share of partnership liabilities will have what effect on the partner's basis in the partnership interest? a. There is no effect on partnership basis. b. The same result (basis reduction and/ or gain recognition) as if the par
> When a partner's share of partnership liabilities increases, that partner's basis in the partnership interest: a. Increases by die partner's share of the liabilities b. Decreases by the partner's share of the liabilities. c. Decreases, but not to less t
