Question: Mr. and Mrs. Boltono, ages 64 and

> 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

> Which of the following statements regarding the tax research process is FALSE? a. A tax researcher should be as precise as possible in formulating tax research questions. b. Judicial decisions resulting from conflicts between taxpayers and the IRS repres

> Corporation ABC invested in a project that will generate $60,000 annual after-tax cash flow in years 0 and 1 and $40,000 annual after tax cash flow in years 2, 3, and 4. Compute the NPV of these cash flows assuming that: a. ABC uses a 10 percent discount

> MG is an accrual basis corporation. In 2017, it wrote off a $65,000 account receivable as uncollectible. In 2018, it received a $65,000 check from the creditor in full payment of this receivable. a. What was the effect of the write-off on MG’s 2017 finan

> Following are the six steps of the tax research process, in random order. Please rearrange these steps into the correct order. a. Locate authority. b. Identify the issues. c. Get the facts. d. Communicate conclusions. e. Repeat steps 1 through 4. f. Anal

> Indicate whether each of the following items of IRS administrative guidance should be cited and relied on in researching a tax issue for a taxpayer to whom the item was not directly issued. a. Revenue ruling. b. IRS Publication. c. Technical advice memor

> Which of the following statements regarding secondary authorities is FALSE? a. Secondary authorities are an excellent starting point in the tax research process. b. Secondary authorities attempt to explain and interpret primary authorities. c. Secondary

> Ms. SP, who lives in California, traveled to Oregon to purchase gold jewelry for $20,000. California has a 7.5 percent sales and use tax, while Oregon has no sales and use tax. a. Compute the use tax that Ms. SP owes to California on the jewelry purchase

> Use the legend provided to identify the court issuing the decision in each of the following judicial citations. a. James E. Zurcher Jr. v. Commissioner, T.C. Memo 1997-203. b. Walter v. United States, 148 F.3d 1027 (CA-8, 1996). c. Thor Power Tool Co.

> Firm A has a 21 percent marginal tax rate, and Firm Z has a 28 percent marginal tax rate. Firm A owns a controlling interest in Firm Z. The owners of Firm A decide to incur a $9,500 deductible expense that will benefit both firms. Compute the after-tax c

> Company P must choose between two alternate transactions. The cash generated by Transaction 1 is taxable, and the cash generated by Transaction 2 is nontaxable. Determine the marginal tax rate at which the after-tax cash flows from the two transactions a

> Refer to the income tax rate structure in the preceding problem. Company K incurs a $22,000 deductible expense. Compute the current year tax savings from the deduction assuming that: a. Company K’s taxable income before considering the additional deducti

> Business J operates in a jurisdiction that levies an income tax with the following rate structure: Percentage Rate ………………………………….Bracket 7% ……………………………….Income from –0– to $75,000 10 …………………………..Income from $75,001 to $150,000 15 ………………………………….Income i

> The city of Springvale levies a tax on the value of real property located within its city limits. The tax equals 2 percent of the property’s assessed value up to $500,000 plus 4 percent of the value in excess of $500,000. a. Compute the tax on real prope

> Acme is an accrual basis corporation. Mrs. T, Acme’s chief financial officer, is a cash basis individual. In December 2017, Acme’s board of directors decided that Mrs. T should receive a $20,000 bonus as additional compensation. Acme paid the $20,000 bon

> Using the 2018 corporate tax rate: a. What are the tax liability, the marginal tax rate, and the average tax rate for a corporation with $248,300 taxable income? b. What are the tax liability, the marginal tax rate, and the average tax rate for a corpora

> Use the present value table in Appendix A and Appendix B to compute the NPV of each of the following cash outflows: a. $22,000 paid at the end of 4 years. The discount rate is 5 percent. b. $2,000 paid at the end of 3 years and $5,000 paid at the end of

> Use the present value tables in Appendix A and Appendix B to compute the NPV of each of the following cash inflows: a. $89,000 received at the end of 6 years. The discount rate is 4 percent. b. $3,400 received annually at the end of each of the next 15 y

> Use the present value tables in Appendix A and Appendix B to compute the NPV of each of the following cash inflows: a. $18,300 received at the end of 15 years. The discount rate is 5 percent. b. $5,800 received at the end of 4 years and $11,600 received

> Cameron owns an antique car that she inherited from her father. She is planning to sell it over the Internet and is wondering about the tax consequences of such a sale. If you were to research this question using a keyword search in an electronic library

> Find and provide a citation for the IRC section that defines a capital asset. Be precise in your reference [e.g., Section 61(a)(1), not Section 61].

> Find and provide a citation for the IRC section that provides an exclusion from gross income for interest earned on investments in state and local bonds. Be precise in your reference [e.g., Section 61(a) (1), not Section 61].

> Find and provide a citation for the IRC section that defines taxable income. Be precise in your reference [e.g., Section 61(a)(1), not Section 61]

> Jurisdiction B’s tax system consists of a 6.5 percent general sales tax on retail goods and selected services. Over the past decade, the average annual volume of sales subject to this tax was $500 million. The jurisdiction needs to increase its tax reven

> KTR Company earns a $10 profit on each unit of manufactured goods, and it sells 20 million units each year. KTR’s income tax rate is 20 percent. However, the jurisdiction in which KTR operates just increased the tax rate to 22 percent for next year. KTR’

> Company N, an accrual basis taxpayer, owes $90,000 to Creditor K. At the end of 2017, Company N accrued $7,740 interest payable on this debt. It didn’t pay this liability until March 3, 2018. Both Company N and Creditor K are calendar year taxpayers. For

> Mr. and Mrs. J own a dry cleaning business that generates $125,000 taxable income each year. For the past few years, the couple’s federal tax rate on this income has been 32 percent. Congress recently increased the tax rate for next year to 40 percent. a

> The management of WP Company must decide between locating a new branch office in foreign Jurisdiction F or foreign Jurisdiction G. Regardless of location, the branch operation will use tangible property (plant and equipment) worth $10 million and should

> Ms. Barstow purchased a limited interest in Quinnel Partnership in 2018. Her share of the partnership’s 2018 business loss was $5,000. Unfortunately, Ms. Barstow couldn’t deduct this loss because she had no passive activity income, so she is carrying it

> Mr. and Mrs. Prinze are evaluating an investment in undeveloped land. The year 0 cost is $100,000, and they can borrow $60,000 of the purchase price at 8 percent. They will pay interest only in years 1 through 5. The annual property tax on the land will

> As of November 30, Ms. Brett had $12,000 capital losses and no capital gains. She owns 4,900 shares of GG stock with a $15 basis and a $45 FMV per share. Ms. Brett plans to hold her stock for three more years before selling it and using the proceeds to b

> Ms. Kaspari, who has a 24 percent marginal tax rate on ordinary income, acquired the following blocks of stock in KDS, a closely held corporation. July 12, 2003 …………………….1,400 shares at $41 per share December 3, 2007 ………………800 shares at $46 per share Se

> Ms. Echols is the owner and beneficiary of a $150,000 insurance policy on her mother’s life. Ms. Echols has paid $46,000 premiums, and the policy is fully paid up (no more premiums are due). She needs money and is considering cashing in the policy for it

> Ms. Price, age 51, plans to save $5,000 this year toward her retirement. She is considering three different investments. First, she could make a nondeductible contribution to a traditional IRA earning 5 percent a year. Second, she could purchase a certif

> Mr. Remling is entitled to a $5,200 bonus this year (year 0). His employer gives him two options. He can either receive his $5,200 bonus in cash, or the employer will credit him with $4,500 deferred compensation. Under the deferral option, the employer w

> This year, Mr. Joss accepted a job with BL Inc. He intends to work for only eight years and then start his own business. He has two options for accumulating the money he will need for this business. Option 1: He is eligible to participate in BL’s Section

> Extronic, a calendar year, accrual basis corporation, reported a $41,900 liability for accrued 2017 state income tax on its December 31, 2017, balance sheet. Extronic made the following state income tax payments during 2018. On December 27, Extronic&ac

> Assume that the tax law allows individuals to claim an itemized deduction for the cost of music lessons for the taxpayer or any member of his family. Instead of this deduction, individuals may claim the first $1,000 of the cost as a nonrefundable tax cre

> Mr. and Mrs. Wilson are married with one dependent child. They report the following information for 2018. Schedule C net profit ……………………………………………………$66,650 Interest income from certificate of deposit (CD) …………….…..2,100 Self-employment tax on Schedule C

> Echo Inc., which has a 21 percent U.S. tax rate, plans to expand its business into Country J. It could open a branch office, or it could create a foreign subsidiary in Country J. The branch office would generate $5,000,000 income in year 0. The foreign s

> Minden Corporation wants to open a branch operation in eastern Europe and must decide between locating the branch in either Country R or Country S. Labor costs are substantially lower in Country R than in Country S. For this reason, the Country R branch

> Lydell Corporation currently operates in two states, P and Q. State P has a 5 percent tax rate and uses an equally weighted three-factor apportionment formula. State Q has a 9 percent tax rate and uses an apportionment formula that double-weights the sal

> Mr. Young operates a photography studio as a sole proprietorship. His average annual income from the business is $100,000. Because Mr. Young does not need the entire cash flow for personal consumption, he is considering incorporating the business. He wil

> Agatha is planning to start a new business venture and must decide whether to operate as a sole proprietorship or incorporate. She projects that the business will generate annual cash flow and taxable income of $100,000. Agatha’s personal marginal tax ra

> Mr. and Mrs. Tinker own a sizeable investment portfolio of stock in publicly held corporations. The couple has four children—ages 20, 22, 25, and 27—with whom they want to share their wealth. Unfortunately, none of the children has demonstrated an abilit

> A&Z Inc. averages $4 million taxable income a year. Because it needs an infusion of cash, the board of directors is considering two options: selling a new issue of preferred stock to the public for a total offering price of $500,000 or borrowing $500,000

> Congress recently enacted a nonrefundable credit based on the cost of qualifying alcohol and drug abuse counseling programs provided by any corporate employer to its employees. The credit is limited to 50 percent of the total cost of the program. If a co

> In 2017, AS, an accrual basis corporation, contracted with a nationally prominent artist to paint a mural in the lobby of the new corporate headquarters under construction. The artist’s commission was $180,000, payable on completion of the mural. The art

> Marla recently inherited $50,000 and is considering two alternatives for investing these funds. Investment A is stock of a C corporation, expected to pay annual dividends of 8 percent. Investment B is stock of an S corporation. Based on income projection

> In the current year (year 0), Amisha became a shareholder in Sultan Inc., a calendar year S corporation, by contributing $15,000 cash in exchange for stock. Shortly before the end of the year, Sultan’s CFO notified Amisha that her pro rata share of ordin

> On March 1, 2018, Eve and Frank each contributed $30,000 cash to the newly formed EF Partnership in exchange for a 50 percent general interest. The partnership immediately borrowed $50,000 from an unrelated creditor, a debt that it does not have to repay

> Mr. and Mrs. Janus operate a restaurant business as a sole proprietorship. The couple has decided to purchase $85,000 of new kitchen equipment for the restaurant. They also want to buy two new automobiles—one for their personal use and one for their 19-y

> DM Inc. incurred a $25,000 net capital loss last year that has carried forward into the current year. During the current year, a hurricane destroyed business assets with a $120,000 basis. DM received a $150,000 insurance reimbursement, which it immediate

> Firm K, a non corporate taxpayer, has owned investment land with a $600,000 basis for four years. Two unrelated parties want to acquire the land from K. Party A has offered $770,000 cash, and Party B has offered another tract of land with a $725,000 FMV.

> Firm NS owns 90 percent of Corporation T’s outstanding stock. NS also owns business realty that T needs for use in its business. The FMV of the realty is $4 million, and NS’s adjusted basis is $5.6 million. Both NS and T are in the 35 percent marginal ta

> Rocky Corporation is experiencing cash flow problems. It needs to generate an additional $60,000 of working capital and is considering selling off assets to meet this need. Rocky’s marginal tax rate is 21 percent, and it has no prior year capital gains.

> Olno Inc. has a $52,100 capital loss carryforward into its current taxable year that will expire at the end of the year. During the year, Olno realized a $141,900 capital gain on sale of land. The purchaser paid 10 percent down and gave Olno an interest-

> For its first four years of operation, Corporation Y reported the following taxable income. In 2018, Corporation Y generated $900,000 ordinary income and recognized a $20,000 loss on the sale of a capital asset. It is considering selling a second capit

> Assuming a 21 percent marginal tax rate, compute the after-tax cost of the following business expenses: a. $5,600 premium on business property and casualty insurance. b. $1,200 fine paid for business entertainment. c. $3,700 premium on key-person life in

> Mr. RH purchased 30 acres of undeveloped ranch land 10 years ago for $935,000. He is considering subdividing the land into one-third acre lots and improving the land by adding streets, sidewalks, and utilities. He plans to advertise the 90 lots for sale

> Firm Z, a corporation with a 21 percent tax rate, has $100,000 to invest in year 0 and two investment choices. Investment 1 will generate $12,000 taxable cash flow annually for years 1 through 5. In year 5, the firm can sell the investment for $100,000.

> KP Inc. is negotiating a 10-year lease for three floors of space in a commercial office building. KP can’t use the space unless a security system is installed. The cost of the system is $50,000, and it will qualify as seven-year recovery property under M

> MG, a corporation in the 21 percent marginal tax bracket, owns equipment that is fully depreciated. This old equipment is still operating and should continue to do so for four years (years 0, 1, 2, and 3). MG’s chief financial officer estimates that repa

> Company C has a 21 percent marginal tax rate and uses an 8 percent discount rate to compute NPV. The company must decide whether to lease or purchase equipment to use for years 0 through 7. It could lease the equipment for $21,000 annual rent, or it coul

> MRT, a calendar year corporation, placed the following assets in service this year. a. Compute MRT’s MACRS depreciation with respect to the assets placed in service this year. Assume MRT does not elect to use first year bonus deprecia

> Corporation VB was formed in 2018. Immediately prior to year-end, VB is considering a $500,000 deductible expenditure. It can either make the expenditure before the end of 2018, or wait until 2019. However, if it waits, the cost of the expenditure will i

> Company Y began business in February 2018. By the end of the calendar year, it had billed its clients for $3.5 million of services and had incurred $800,000 of operating expenses. As of December 31, it had collected $2.9 million of its billings and had p

> Lucille is an avid boater living near Gotham City. Gotham has recently created a harbor improvement special assessment district to oversee renovations to the public boat docks and boardwalk area surrounding the city harbor. The special assessment distric

> Lance Strong arm, a recently retired professional athlete, is writing his memoirs. He intends to direct any royalties received on the book to his favorite charitable organization. He has not yet signed a contract with a publisher. Will the future royalti

> Parmco, a calendar year corporation, made the following accruals for 2018 financial statement purposes. In each case, determine how much of the accrued expense is deductible on Parmco’s 2018 federal tax return. a. $30,000 expense and $30,000 liability fo

> Art likes to invest his spare cash in the stock market. In the past, he has focused on growth stocks and long-term value to take advantage of the preferential tax rate on long-term capital gains. He recently learned that this rate is also available for d

> Ms. Z has decided to invest $75,000 in state bonds. She could invest in State A bonds paying 5 percent annual interest or in State R bonds paying 5.4 percent annual interest. The bonds have the same risk, and the interest from both is exempt from federal

> Mr. A, who has a 35 percent marginal tax rate, must decide between two investment opportunities, both of which require a $50,000 initial cash outlay in year 0. Investment 1 will yield $8,000 before-tax cash flow in years 1, 2, and 3. This cash represents

> Firm DFG plans to open a foreign subsidiary through which to sell its manufactured goods in the European market. It must decide between locating the subsidiary in Country X or Country Z. If the subsidiary operates in Country X, its gross receipts from sa

> Mrs. O is negotiating to purchase a tract of land from DC Company, a calendar year taxpayer. DC bought this land six years ago for $480,000. According to a recent appraisal, the land is worth $800,000 in the current real estate market. According to DC’s

> Firm D is considering investing $400,000 cash in a three-year project with the following cash flows: Under each of the following assumptions, determine if Firm D should make the investment. In each case, use a 10 percent discount rate to compute NPV. a

> Firm B wants to hire Mrs. X to manage its advertising department. The firm offered Mrs. X a three-year employment contract under which it will pay her an $80,000 annual salary in years 0, 1, and 2. Mrs. X projects that her salary will be taxed at a 25 pe

> As discussed in Chapter 3, the IRS carefully scrutinizes transactions between related parties. Several different Code sections define which taxpayers are considered related parties. Suppose that Marsha and Jan are sisters. Are they considered family memb

> One of your clients is planning to start a business. She has incurred costs to investigate potential locations for the business and hired a consultant to conduct a feasibility study. She wishes to know whether such costs will be currently deductible. Lis

> Visit the website for the Tax Foundation (www.taxfoundation.org). Select the link “About Us” to read the organization’s mission statement. Select the link “Tax Topics” to research the following: a. What and when was Tax Freedom Day in 2017? b. How many a

> BZD, a calendar year corporation, made the following year-end accruals for 2018 financial statement purposes. In each case, determine how much of the accrued expense is deductible on BZD’s 2018 federal tax return. a. $55,000 expense and $55,000 liability

> Visit the website for the Congressional Budget Office (www.cbo.gov), follow the link to Budget and Economic Information, and look up the most current Monthly Budget Review. What is the CBO’s estimate of the U.S. government’s total budget surplus or defic

> Rachel Sanchez is a limited partner in HN Partnership, which operates a souvenir shop, and a member in Jams-n-Jellies LLC, which makes specialty food items and sells them at retail. Rachel has no involvement in the partnership business, but she handles a

> Todd Zimler, who files a joint income tax return with his wife, Stella, owns 85 percent of the outstanding stock of Zimler Manufacturing. In January of last year, Todd transferred a tract of investment land to the corporation in exchange for 600 shares o