Question: Marlene, a cash basis taxpayer, invests in

> Tammy, a resident of Virginia, is considering purchasing a North Carolina bond that yields 4.6% before tax. She is in the 35% Federal marginal tax bracket and the 5% state marginal tax bracket. She is aware that State of Virginia bonds of comparable risk

> The Sage Company has the opportunity to purchase a building located next to its office. Sage would use the building as a day care center for the children of its employees and an exercise facility for the employees. Occasionally, portions of the building

> Several of Egret Company’s employees have asked the company to create a hiking trail that employees could use during their lunch hours. The company owns vacant land that is being held for future expansion but would have to spend approximately $50,000 if

> Eagle Life Insurance Company pays its employees $.30 per mile for driving their personal automobiles to and from work. The company reimburses each employee who rides the bus $100 a month for the cost of a pass. Tom collected $100 for his automobile milea

> Ted works for Azure Motors, an automobile dealership. All employees can buy a car at the company’s cost plus 2%. The company does not charge employees the $300 dealer preparation fee that nonemployees must pay. Ted purchased an automobile for $29,580 ($2

> What is the difference between a cafeteria plan and an employee flexible spending plan?

> Casey is in the 15% marginal tax bracket, and Jean is in the 35% marginal tax bracket. Their employer is experiencing financial difficulties and cannot continue to pay for the company’s health insurance plan. The annual premiums are approximately $8,000

> Wes was a major league baseball pitcher who earned $10 million for his 20 wins this year. Sam was also a major league baseball pitcher before a careerending injury caused by a negligent driver. Sam sued the driver and collected $6 million as compensation

> Sophia lives several blocks from her parents in the same residential subdivision. Sophia is surprised to learn that her ad valorem property taxes for the year were raised, while those of her parents were lowered. What is a possible explanation for the di

> Billy fell off a bar stool and hurt his back. As a result, he was unable to work for three months. He sued the bar owner and collected $100,000 for the physical injury and $50,000 for the loss of income. Billy also collected $15,000 from an income replac

> Lime Finance Company requires its customers to purchase a credit life insurance policy associated with the loans it makes. Lime is the beneficiary of the policy to the extent of the remaining balance on the loan at the time of the customer’s death. In 20

> Dolly is a college student who works as a part-time server in a restaurant. Her usual tip is 20% of the price of the meal. A customer ordered a piece of pie and said that he would appreciate prompt service. Dolly abided with the customer’s request. The c

> Leonard’s home was damaged by a fire. He also had to be absent from work for several days to make his home habitable. Leonard’s employer paid Leonard his regular salary, $2,500, while he was absent from work. In Leonard’s pay envelope was the following n

> Martin S. Albert (Social Security number 111-11-1111) is 39 years old and is married to Michele R. Albert (Social Security number 123-45-6789). The Alberts live at 512 Ferry Road, Newport News, VA 23601. They file a joint return and have two dependent ch

> Alfred E. Old and Beulah A. Crane, each age 42, married on September 7, 2014. Alfred and Beulah will file a joint return for 2016. Alfred’s Social Security number is 111-11-1112. Beulah’s Social Security number is 123-45-6789, and she adopted “Old” as he

> Myrna and Geoffrey filed a joint tax return in 2016. Their AGI was $85,000, and itemized deductions were $13,700, which included $4,000 in state income tax. In 2017, they received a $1,800 refund of the state income taxes they paid in 2016. The standard

> Jarrod receives a scholarship of $18,500 from Riggers University to be used to pursue a bachelor’s degree. He spends $12,000 on tuition, $1,500 on books and supplies, $4,000 for room and board, and $1,000 for personal expenses. How much may Jarrod exclud

> Leland pays premiums of $5,000 for an insurance policy in the face amount of $25,000 upon the life of Caleb and subsequently transfers the policy to Tyler for $7,500. Over the years, Tyler pays subsequent premiums of $1,500 on the policy. Upon Caleb’s de

> Alfred owned a term life insurance policy at the time he was diagnosed with a terminal illness. After paying $18,300 in premiums, he sold the policy to a company that is authorized by the state of South Carolina to purchase such policies. The company pai

> Dwain receives a 90-day letter after his discussion with an appeals officer. He is not satisfied with the $101,000 settlement offer. Identify the relevant tax research issues facing Dwain.

> Ellie purchases an insurance policy on her life and names her brother, Jason, as the beneficiary. Ellie pays $32,000 in premiums for the policy during her life. When she dies, Jason collects the insurance proceeds of $500,000. As a result, how much gross

> Mio was transferred from New York to Germany. He lived and worked in Germany for 340 days in 2017. Mio’s salary for 2017 is $190,000. In your computation, round any division to four decimal places before converting to a percentage. For example, .473938 w

> Valentino is a patient in a nursing home for 45 days of 2017. While in the nursing home, he incurs total costs of $13,500. Medicare pays $8,000 of the costs. Valentino receives $15,000 from his long-term care insurance policy, which pays while he is in t

> Your client was the beneficiary of an annuity contract purchased by her stepmother. When the stepmother died, the insurance company paid the client $400,000 and sent her a Form 1099 indicating that the taxable portion (i.e., the amount in excess of the i

> Tranquility Funeral Home, Inc., your client, is an accrual basis taxpayer that sells preneed funeral contracts. Under these contracts, the customer pays in advance for goods and services to be provided at the contract beneficiary’s death. These payments

> Your client owns a life insurance policy on his life. He has paid $6,800 in premiums, and the cash surrender value of the policy is $30,000. He borrowed $30,000 from the insurance company, using the cash surrender value as collateral. He is considering c

> Charles E. Bennett, age 64, will retire next year and is trying to decide whether to begin collecting his Social Security benefits at that time. His monthly benefits will increase if he defers his starting date for the benefits. He has asked you to estim

> Linda and Don are married and file a joint return. In 2017, they received $12,000 in Social Security benefits and $35,000 in taxable pension benefits and interest. a. Compute the couple’s adjusted gross income on a joint return. b. Don would like to know

> Herbert was employed for the first six months of 2017 and earned $90,000 in salary. During the next six months, he collected $8,800 of unemployment compensation, borrowed $12,000 (using his personal residence as collateral), and withdrew $2,000 from his

> The LMN Partnership has a group term life insurance plan. Each partner has $150,000 of protection, and each employee has protection equal to twice his or her annual salary. Employee Alice (age 32) has $90,000 of insurance under the plan, and partner Kay

> The commissioners for Walker County are actively negotiating with Falcon Industries regarding the location of a new manufacturing plant in the area. As Falcon is considering several other sites, a “generous tax holiday” may be needed to influence the fin

> In the following independent situations, is the tax position of the taxpayer likely to change? Explain why or why not. a. John started renting out a spare room in his home. b. Theresa quit her job as a staff accountant and has established her own practi

> For each of the following, determine the amount that should be included in gross income: a. Peyton was selected the most valuable player in the Super Bowl. In recognition of this, he was awarded an automobile with a value of $60,000. Peyton did not need

> Pam retires after 28 years of service with her employer. She is 66 years old and has contributed $42,000 to her employer’s qualified pension fund. She elects to receive her retirement benefits as an annuity of $3,000 per month for the remainder of her li

> Vito is the sole shareholder of Vito, Inc. He is also employed by the corporation. On June 30, 2017, Vito borrowed $8,000 from Vito, Inc., and on July 1, 2018, he borrowed an additional $10,000. Both loans were due on demand. No interest was charged on t

> Indicate whether the imputed interest rules should apply in the following situations. Assume that all of the loans were made at the beginning of the tax year unless otherwise indicated. a. Mike loaned his sister $90,000 to buy a new home. Mike did not ch

> Ridge is a generous individual. During the year, he made interest-free loans to various family members when the Federal rate was 3%. What are the tax consequences of the following loans by Ridge: a. On June 30, 2016, Ridge loaned $12,000 to his cousin, J

> Roy decides to buy a personal residence and goes to the bank for a $150,000 loan. The bank tells him that he can borrow the funds at 4% if his father will guarantee the debt. Roy’s father, Hal, owns a $150,000 CD currently yielding 3.5%. The Federal rate

> Alicia and Rafel are in the process of negotiating a divorce agreement. They both worked during the marriage and contributed an equal amount to the marital assets. They own a home with a fair market value of $400,000 (cost of $300,000) that is subject to

> Nell and Kirby are in the process of negotiating their divorce agreement. What should be the tax consequences to Nell and Kirby if the following, considered individually, became part of the agreement? a. In consideration for her one-half interest in thei

> Liz and Doug were divorced on December 31 of the current year after 10 years of marriage. Their current year’s income received before the divorce was as follows: Doug’s salary…………………………………………………………………………………………………$41,000 Liz’s salary………………………………………………………

> In 2017, Alva received dividends on her stocks as follows: Amur Corporation (a French corporation whose stock is traded on an established U.S. securities market)…………………………………………$60,000 Blaze, Inc., a Delaware corporation…………………………………………

> Where may private letter rulings be found?

> Faye, Gary, and Heidi each have a one-third interest in the capital and profits of the FGH Partnership. Each partner had a capital account of $50,000 at the beginning of the tax year. The partnership profits for the tax year were $270,000. Changes in the

> Troy, a cash basis taxpayer, is employed by Eagle Corporation, also a cash basis taxpayer. Troy is a full-time employee of the corporation and receives a salary of $60,000 per year. He also receives a bonus equal to 10% of all collections from clients he

> Rusty has been experiencing serious financial problems. His annual salary was $100,000, but a creditor garnished his salary for $20,000; so the employer paid the creditor (rather than Rusty) the $20,000. To prevent creditors from attaching his investment

> The Bluejay Apartments, a new development, is in the process of structuring its lease agreements. The company would like to set the damage deposits high enough that tenants will keep the apartments in good condition. The company is actually more concerne

> Freda is a cash basis taxpayer. In 2017, she negotiated her salary for 2018. Her employer offered to pay her $21,000 per month in 2018 for a total of $252,000. Freda countered that she would accept $10,000 each month for the 12 months in 2018 and the rem

> Drake Appliance Company, an accrual basis taxpayer, sells home appliances and service contracts. Determine the effect of each of the following transactions on the company’s 2017 gross income assuming that the company uses any available options to defer i

> Determine the effects of the following on a cash basis taxpayer’s gross income for 2017 and 2018. a. On the morning of December 31, 2017, the taxpayer received a $1,500 check from a customer. The taxpayer did not cash the check until January 3, 2018. b.

> Trip Garage, Inc. (459 Ellis Avenue, Harrisburg, PA 17111), is an accrual basis taxpayer that repairs automobiles. In late December 2017, the company repaired Samuel Mosley’s car and charged him $1,000. Samuel did not think the problem had been fixed and

> Your client is a partnership, ARP Associates, which is an engineering consulting firm. Generally, ARP bills clients for services at the end of each month. Client billings are about $50,000 each month. On average, it takes 45 days to collect the receivabl

> The Adams Independent School District wants to sell a parcel of unimproved land that it does not need. Its three best offers are as follows: from the state’s Department of Public Safety (DPS), $2.3 million; from the Second Baptist Church, $2.2 million; a

> Selma operates a contractor’s supply store. She maintains her books using the cash method. At the end of the year, her accountant computes her accrual basis income that is used on her tax return. For 2017, Selma had cash receipts of $1.4 million, which i

> Al is a medical doctor who conducts his practice as a sole proprietor. During 2017, he received cash of $280,000 for medical services. Of the amount collected, $40,000 was for services provided in 2016. At the end of 2017, Al had accounts receivable of $

> Determine Amos’s gross income in each of the following cases: a. In the current year, Amos purchased an automobile for $25,000. As part of the transaction, Amos received a $1,500 rebate from the manufacturer. b. Amos sold his business. In addition to the

> Determine the taxpayer’s gross income for tax purposes in each of the following situations: a. Deb, a cash basis taxpayer, traded a corporate bond with accrued interest of $300 for corporate stock with a fair market value of $12,000 at the time of the e

> Harper is considering three alternative investments of $10,000. Assume that the taxpayer is in the 25% marginal tax bracket for ordinary income and 15% for qualifying capital gains in all tax years. The selected investment will be liquidated at the end o

> Determine the taxpayer’s current-year (1) economic income and (2) gross income for tax purposes from the following events: a. Sam’s employment contract as chief executive of a large corporation was terminated, and he was paid $500,000 not to work for a c

> For a person who receives Social Security benefits, what effect, if any, can an increase in other income have on that person’s taxable income?

> The divorce agreement requires Alice to pay her former spouse $50,000 a year for the next ten years. Will the payments qualify as alimony? Why or why not?

> The taxpayer performs services with payment due from the customer within 30 days. All customers pay within the time limit. What would be the benefit to the taxpayer using the cash method of accounting rather than the accrual method?

> On December 29, 2017, an employee received a $5,000 check from her employer’s client. The check was payable to the employer. The employee did not remit the funds to the employer until December 30, 2017. The employer deposited the check on December 31, 20

> Sally Andrews calls you on the phone. She says that she has found a 2007 letter ruling that agrees with a position she wants to take on her tax return. She asks you about the precedential value of a letter ruling. Draft a memo for the tax files outlining

> Ben lost his job when his employer moved its plant. During the year, he collected unemployment benefits for three months, a total of $1,800. While he was waiting to hear from prospective employers, he painted his house. If Ben had paid someone else to pa

> Compare and contrast the economist’s concept used to recognize income with the concept employed in measuring taxable income.

> Connor purchased an annuity that was to pay him a fixed amount each month for the remainder of his life. He began receiving payments in 2001, when he was 65 years old. In 2017, Connor was killed in an automobile accident. What are the effects of the annu

> In the current year, the Rose Corporation made a $400,000 interest-free loan to John Rose, the corporation’s controlling shareholder. Mr. Rose is also the corporation’s chief executive officer and receives a salary of $300,000 a year. What are the tax co

> Patrick and Eva are planning to divorce. Patrick has offered to pay Eva $12,000 each year until their 11-year-old daughter reaches age 21. Alternatively, Patrick will transfer to Eva common stock that he owns with a fair market value of $100,000. What fa

> William and Abigail, who live in San Francisco, have been experiencing problems with their marriage. They have a 3-year-old daughter, April, who stays with William’s parents during the day because both William and Abigail are employed. Abigail worked to

> Rex became a partner with a 30% interest in the partnership profits when he invested $200,000. In 2017, the partnership generated $400,000 of taxable income, and Rex withdrew $100,000. In 2018, the partnership had $600,000 of taxable income, and Rex with

> Anita, a cash basis taxpayer, sued her former employer for wage discrimination. Her attorney agreed to pursue the case on a contingent fee basis—the attorney would receive one-third of any settlement or court award. The parties reached a settlement, and

> Wade paid $7,000 for an automobile that needed substantial repairs. He worked nights and weekends to restore the car and spent $2,400 on parts for it. He knows that he can sell the car for $13,000, but he is very wealthy and does not need the money. On t

> A Series EE U.S. government savings bond accrues 3.5% interest each year. The bond matures in three years, at which time the principal and interest will be paid. The bank will pay the taxpayer at a 3.5% interest rate each year if he agrees to leave money

> Several years ago Ethan purchased the former parsonage of St. James Church to use as a personal residence. To date, Ethan has not received any ad valorem property tax bills from either the city or the county tax authorities. a. What is a reasonable expla

> What is the purpose of the constructive receipt doctrine?

> Howard buys wrecked cars and stores them on his property. Recently, he purchased a 1990 Ford Taurus for $400. If he can sell all of the usable parts, his total proceeds from the Taurus will be over $2,500. As of the end of the year, he has sold only the

> Allen visits Reno, Nevada, once a year to gamble. This year his gambling loss was $25,000. He commented to you, “At least I didn’t have to pay for my airfare and hotel room. The casino paid that because I am such a good customer. That was worth at least

> According to the Supreme Court, would it be good tax policy to use income as computed by financial accounting principles as the correct measure of income for Federal income tax purposes? Explain.

> An employer provides all of his employees with life insurance protection equal to twice the employee’s annual salary. Melba, age 42, has an annual salary of $70,000. Is Melba required to recognize income even though she is still alive at the end of the y

> Daniel B. Butler and Freida C. Butler, husband and wife, file a joint return. The Butlers live at 625 Oak Street in Corbin, KY 40701. Dan’s Social Security number is 111-11-1112, and Freida’s is 123-45-6789. Dan was bo

> Cecil C. Seymour is a 64-year-old widower. He had income for 2017 as follows: Pension from former employer………………………………………………………………………..$39,850 Interest income from Alto National Bank……………………………………………………………5,500 Interest income on City of Alto bonds……………

> Compute the taxable Social Security benefits in each of the following situations: a. Erwin and Eleanor are married and file a joint tax return. They have adjusted gross income of $46,000, no tax-exempt interest, and $12,400 of Social Security benefits. b

> A taxpayer, age 64, purchases an annuity from an insurance company for $50,000. She is to receive $300 per month for life. Her life expectancy is 20.8 years from the annuity starting date. Assuming that she receives $3,600 this year, what is the exclusio

> Elizabeth made the following interest-free loans during the year. Assume that tax avoidance is not a principal purpose of any of the loans. Assume that the relevant Federal rate is 5% and that the loans were outstanding for the last six months of the yea

> Interpret each of the following citations: a. Temp.Reg. § 1.956–2T. b. Rev.Rul. 2012–15, 2012–23 I.R.B. 975. c. Ltr.Rul. 200204051.

> Casper and Cecile are divorced this year. 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

> Simba and Zola are married but file separate returns. Simba received $80,000 of salary and $1,200 of taxable dividends on stock he purchased in his name and paid from the salary that he earned since the marriage. Zola collected $900 in taxable interest o

> Bigham Corporation, an accrual basis calendar year taxpayer, sells its services under 12-month and 24-month contracts. The corporation provides services to each customer every month. On July 1, 2017, Bigham sold the following customer contracts: Length

> On January 1, 2017, Kunto, a cash basis taxpayer, pays $46,228 for a 24- month certificate. The certificate is priced to yield 4% (the effective interest rate) with interest compounded annually. No interest is paid until maturity, when Kunto receives $50

> Kathy and Brett Ouray married in 1999. They began to experience marital difficulties in 2013 and, in the current year, although they are not legally separated, the couple considers themselves completely estranged. They have contemplated getting a divorce

> John and Janet Baker are married and maintain a household in which the following persons live: Calvin and Florence Carter and Darin, Andrea, and Morgan Baker. • Calvin and Florence are Janet’s parents, who are retired. During the year, they receive $19,0

> Each year, Tom and Cindy Bates report itemized deductions of $10,000, including a $4,000 pledge payment to their church. Upon the advice of a friend, they do the following: in early January 2017, they pay their 2016 pledge; during 2017, they pay the 2017

> During the year, Chester incurred the following transactions involving capital assets. Gain on the sale of an arrowhead collection (acquired as an investment at different times but all pieces have been held for more than one year)…………………… $ 6,000 Loss o

> During the year, Inez recorded the following transactions involving capital assets. Gain on the sale of unimproved land (held as an investment for 3 years)……………$ 3,000 Loss on the sale of a camper (purchased 2 years ago and used for family vacations)………

> Terri, age 16, is claimed as a dependent on her parents’ 2017 Federal income tax return. During the year, Terri earned $5,000 in interest income and $3,000 from part-time jobs. a. What is Terri’s taxable income? b. How much of Terri’s income is taxed at

> Distinguish between taxes that are proportional and those that are progressive.

> Paige, age 17, is claimed as a dependent on her parents’ 2017 Federal income tax return, on which they report taxable income of $120,000 (no qualified dividends or capital gains). Paige earned $3,900 pet sitting and $4,100 in interest on a savings accoun

> Taylor, age 18, is claimed as a dependent by her parents. For 2017, she records the following income: $4,000 wages from a summer job, $1,800 interest from a money market account, and $2,000 interest from City of Boston bonds. a. What is Taylor’s taxable

> Roy and Brandi are engaged and plan to get married. Roy is a full-time student and earns $9,000 from a part-time job. With this income, student loans, savings, and nontaxable scholarships, he is self-supporting. For the year, Brandi is employed and repor