Question: PinkCo, Inc., operates in two states, both

> 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

> At the inception of a partnership, Black acquires a 50% interest in Decorators Partnership by contributing property with an adjusted basis of $250,000. Black recognizes a gain if: I. The fair market value of the contributed property exceeds its adjusted

> Sonja Bishop operates a small international firm named Tile, Inc. A new treaty between the United States and Spain conflicts with a Section of the Internal Revenue Code. Sonja asks you for advice. If she follows the treaty position, does she need to disc

> Adelyn has 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 credit for

> Determine the taxpayer's current-year (1) economic income and (2) gross income for tax purposes from the following events. a. San1's en1ployment contract as chief executive of a large corporation was terminated, and he was paid $500,000 not to work for

> Jang, a resident of Washington (which imposes a general sales tax), goes to Critical Thinking Oregon (which does not impose a general sales tax) to purchase his automobile. Will Jang successfully avoid the Washington sales tax? Explain.

> Repeat the computations of Problem 36, but now assume that State A is a sales-factor-only state and that State B uses the following weights: sales .70, payroll .15, and property .15. Data from Problem 36: PinkCo, Inc., operates in two states, both of w

> In the current year, Dylan earned taxable and tax-exempt interest from the following investments. Dylan purchased all of the bonds on their issuance date. In addition, Dylan borrowed funds with which to purchase the 2010 private activity bond and incur

> Wolfgang, who is age 33, records AGI of $125,000. He incurs the following itemized deductions for 2018. a. Calculate Wolfgang's itemized deductions for AMT purposes. b. What is the total amount of his AMT adjustments from these items? Medical expen

> Buford sells an apartn1ent building for $720,000. His adjusted basis is $500,000 for regular income tax purposes and $550,000 for AMT purposes. Calculate Buford's: a. Gain for regular income tax purposes. b. Gain for AMT purposes. c. AMT adjustment, if a

> Falcon has a sole proprietorship that owns a silver mine that she purchased several years ago for $925,000. The adjusted basis at the beginning of the year is $400,000. For the year, Falcon deducts depletion of $700,000 (greater of cost depletion of $290

> Blue Sky, Inc., a U.S. corporation, is a manufacturing concern that sells most of its products in the United States. It also conducts some business in the European Union through various branches. During the current year, Blue Sky reports taxable income o

> Sarah incorporates her small business but does not transfer the machinery and equipment used by the business to the corporation. Instead, the machinery and equipment are leased to the corporation for an annual rent. What tax reasons might Sarah have for

> Your ophthalmologist, Dr. Hunter Francis (55 Wheatland Drive, Hampton, CT 06247), has been very pleased with the growth of his practice in the 15 years he has been in business. This growth has resulted, at least in part, because he has aggressively marke

> Gray Chemical Company manufactured pesticides that were toxic. Over the course of several years, the toxic waste contaminated the air and water around the company's plant. Several employees suffered toxic poisoning, and the Environmental Protection Agenc

> Green Corporation hires six individuals on January 4, 2018, all of whom qualify for the work opportunity credit. Three of these individuals receive wages of $8,500 during 2018, and each individual works more than 400 hours during the year. The other thre

> Junie's share of her S corporation's net operating loss is $50,000, but her stock basis is only $30,000. Point out the Federal income tax consequences that Junie must face.

> In January 2017, Iris Corporation purchased and placed in service a certified historic structure building that houses retail businesses. The cost was $300,000, of which $25,000 applied to the land. In modernizing the facility, Iris Corporation incurred $

> Oak Corporation holds the following general business credit carryovers. If the general business credit generated by activities during 2018 equals $36,000 and the total credit allowed during the current year is $60,000 (based on tax liability), what amo

> On March 2, 2018, the two 50% shareholders of a calendar year corporation decide to elect S status. One of the shareholders, Terry, purchased her stock from a previous shareholder (a nonresident alien) on January 18, 2018. Identify any potential problems

> Continue with the facts of Problem 34. Using the format of compute state taxable income for HippCo, assuming also that the taxpayer recognized $225,000 of net rent income during the year from a warehouse building in Montana. Federal taxable income still

> Gull Corporation, a cash method, calendar year C corporation, was formed and began business on November 1, 2018. Gull incurred the following expenses during its first year of operations (November 1, 2018- Decen1ber 31, 2018): a. Assuming that Gull Corp

> Continue to consider the case of the taxpayer in Problem 32. Is it acceptable to you if Norris purposely shifts its sales force an1ong the states to reduce its tax liabilities' In your response, first explain the tax-related motivations of the taxpayer i

> In each of the following independent situations, determine how much, if Critical Thinking any, qualifies as a deduction for AG! under§ 222 (targeted tuition and related expenses). a. Lily is single and is employed as an architect. During 2018, she spent

> Tim is a real estate broker \Vho specializes in con1mercial real estate. Although he usually buys and sells on behalf of others, he also maintains a portfolio of property of his own. He holds this property, mainly unimproved land, either as an investment

> Elijah is employed as a full-rin1e high school teacher. The school district for which he works recently instituted a policy requiring all of its teachers to start working on a master's degree. Pursuant to this new rule, Elijah spent most of the summer of

> One of your clients, Texas, Inc., is considering electing S status. Both of Texas's equal shareholders paid $30,000 for their stock. As of the beginning of 2018, Texas's Subchapter C NOL carryforward is $110,000. Its taxable income projections for the ne

> Evaluate the following statement: Non-U.S. persons never are subject to U.S. taxation on U.S.-source investment income, so long as they are not engaged in a U.S. trade or business.

> Give a simple answer to Andre's question: "If I move to the United States, how will the Federal government tax my widget sales and capital gains?" Andre will be living in New York City, where state and local taxes are very high. Ignore the effects of tax

> Bill and Mary filed a joint Federal income tax return this year. Mary owns a 30%. interest in MAJIC Partnership, a women's dress boutique. Mary's share of the partnership's net income is $280,000. Her shares of the partnership's W-2 wages and unadjusted

> Hart Enterprises, a don1estic corporation, owns 100%. of OK, Ltd., an Irish corporation. OK's gross income for the year is $10 million. Determine whether any of the following transactions produce Subpart F gross income for the current year. a. OK earned

> Valence Corporation's Form 11205 shows ordinary income of $88,000 for the year. Daniel owns 40% of the Valence stock throughout the year. The following information is obtained from the corporate records. a. Compute Valence's book income or loss. b. Com

> Several of Egret Company's employees have asked the company to create a hiking trail that en1ployees 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 i

> Paul suffers from emphysema and severe allergies and, upon the recommendation of his physician, has a dust elimination system installed in his personal residence. In connection with the system, Paul incurs and pays the following amounts during 2018. Th

> The JM Partnership was formed to acquire land and subdivide it as residential housing lots. On March 1, 2018, Jessica contributed land valued at $600,000 to the partnership in exchange for a 500A. interest. She had purchased the land in 2010 for $420,000

> Aaron, a resident of Minnesota, has been a driver for Green Delivery Service for the past six years. For this purpose, he leases a truck from Green, and his compensation is based on a percentage of the income resulting from his pickup and delivery servic

> At die beginning of the year, Teal Corporation held accumulated E & P of $210,000. On March 30, Teal sold an asset at a loss of $200,000. For the calendar year, Teal incurred a deficit in current E & P of $305,000, which includes the loss on the sale of

> Luciana, Jon, and Clyde incorporate their respective businesses and form Starling Corporation. On March 1 of the current year, Luciana exchanges her property (basis of $50,000 and value of $150,000) for 150 shares in Starling Corporation. On April 15, Jo

> Tim is the vice president of western operations for J\1aroon Oil Company and is stationed in San Francisco. He is required to live in an employer-owned home, which is three blocks from his company off ice. The company-provided home is equipped with high-

> Foldlt, a U.S. business, paid income taxes to Mexico relative to profitable sales of shipping boxes it made in that country. Can it claim a deduction for these taxes in con1puting U.S. taxable income' A tax credit? Both? Explain.

> Compute current E & P for Sparrow Corporation (a calendar year, accrual basis taxpayer). Sparrow reported the following transactions during 2018, its second year of operation. • Sparrow uses the UFO inventory method, and its UFO r

> In late 2018, the Polks come to you for tax advice. They are considering selling son1e stock investments for a loss and making a contribution to a traditional IRA. In reviewing their situation, you note that they have large n1edical expenses and a casual

> Emerald Corporation, a calendar year and accrual method taxpayer, provides the following information and asks you to prepare Schedule M-1 for 2018: Net income per books (after-tax) Federal income tax per books $268,200 31,500 15,000 Tax-exempt inter

> Harvey is a self-employed accountant with earned incon1e from the business of $120,000 (after the deduction for one-half of his self-employment tax). He has a profit sharing plan (e.g., defined contribution Keogh plan). What is the maximum amount Harvey

> Assume in Problem 34 that Julio takes a capital loss carryover of $50,000 Decision Making into the current tax year. Julio records no other capital gain transactions during the year. What amount of the capital loss may Julio deduct in the current year in

> Egret Corporation, a calendar year C corporation, was forn1ed on March 6, 2018, and opened for business on July 1, 2018. After its formation but prior to opening for business, Egret incurred the following expenditures: What is the n1aximum amount of th

> Sean Moon is president, secretary, treasurer, sole director, and sole shareholder of Streetz, an S corporation real estate company. He n1anages all aspects of the con1pany's operations, and he is the only person working at the company that holds a real e

> In each of the following independent situations, determine the dividends received deduction for the calendar year C corporation. The corporate shareholders own less than 20% of the stock in the corporations paying the dividends. Almond Banana Cherry

> Orange, Inc., a calendar year corporation in Clemson, South Carolina, elects S corporation status for 2018. The con1pany generated a $74,000 NOL in 2017 and another NOL of $43,000 in 2018. Orange stock always is owned by the same four shareholders, each

> Kristen, an independent management consultant, is based in Atlanta. During March and April of 2018, she is contracted by a national hardware chain to help implement revised human resource policies in Jackson (Mississippi) temporarily. During this period,

> If the beginning balance in Swan, Inc.'s OAA is $6,700 and the following transactions occur, what is Swan's ending OAA balance? Depreciation recapture income $ 21,600 Payroll tax penalty (4,200) Tax-exempt interest income Nontaxable life insurance p

> Casey is in the 12% 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

> Which of the following items are exclusions from gross income? a. Alimony payments received from a divorce settlement in 2016. b. Damages award received by the taxpayer for personal physical injury-none were for punitive damages. c. A new golf cart won i

> In January of the current year, Wanda transferred machinery worth $200,000 (adjusted basis of $30,000) to a controlled corporation, Oriole, Inc. The transfer qualified under§ 351. Wanda had deducted $165,000 of depreciation on the machinery while it was

> Burgundy, Inc., and Violet Gomez are equal partners in the calendar year BV LLC. Burgundy uses a fiscal year ending April 30, and Violet uses a calendar year. Burgundy receives an annual guaranteed payment of $100,000 for use of capital contributed by Bu

> George is a U.S. citizen who is employed by Hawk Enterprises, a global company. Beginning on June 1, 2018, George began working in London. He worked there until January 31, 2019, when he transferred to Paris. He worked in Paris the remainder of 2019. His

> In 2018, Kathleen Tweardy incurs $30,000 of interest expense related to her investments. Her investment income includes $7,500 of interest, $6,000 of qualified dividends, and a $12,000 net capital gain on the sale of securities. Kathleen asks you to con1

> Barney Chang and Aldrin, Inc., a don1estic C corporation, have Digging Deeper decided to form BA LLC. The new entity will produce a product that Barney recently developed and patented. Barney and Aldrin each will own a 50%. capital and profits interest i

> Sam and Drew are equal n1en1bers of the SD LLC, formed on June 1 of the current year. Sam contributed land that he inherited from his uncle Garza in 2009. Garza had purchased the land in 1984 for $30,000. The land was worth $100,000 when Garza died. The

> Ramon had AG! of $180,000 in 2018. He is considering making a charitable contribution this year to the American Heart Association, a qualified charitable organization. Determine the current allowable charitable contribution deduction in each of the follo

> During the current year, Paul, the vice president of a bank, made gift5 in the following amounts. In addition, on professional assistants' day, Paul takes Sarah to lunch at a cost of $82. Presuming that Paul has adequate substantiation and is not reimb

> Wesley and Camilla (ages 90 and 88, respectively) live in an assisted care facility and for 2017 and 2018 received their support from the following sources: a. Which persons are eligible to treat Wesley and Camilla as dependents under a n1ultiple suppo

> In determining Blue Corporation's current E & P for the current tax year, how should taxable income be adjusted as a result of the following transactions? a. A capital loss carryover from one year ago, fully used this year. b. Nondeductible business mea

> Mason performs various home repair services for Isabella. In determining whether Mason is an employee or an independent contractor, comment on the relevance of each of the factors listed below. a. Mason perforn1s services only for Isabella and does not

> a. 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. b. Using Microsoft Excel (or a similar softw

> Linda, age 37 who files as a single taxpayer, had AG! of $280,000 for 2018. She incurred the following expenses and losses during the year: Calculate Linda's allowable itemized deductions for the year. Medical expenses (before the 7.5%-of-AGI limit

> Rosa's employer has instituted a flexible benefits progran1. Rosa will use the plan to pay for her daughter's dental expenses and other medical expenses that are not covered by health insurance. Rosa is in the 24% n1arginal tax bracket and estimates that

> Rex, age 55, is an officer of Blue Company, which provides him with the following nondiscriminatory fringe benefits in 2018. • Hospitalization insurance premiums for Rex and his dependents. The cost of the coverage for Rex is $2,900 per year, and the ad

> A new client, John Dobson, recently formed John's Premium Steakhouse, Inc., to operate a new restaurant. The restaurant will be a first-time business venture for John, who recently retired after 30 years of military service. John transferred cash to the

> Compute the taxable incon1e for 2018 in each of the following independent situations: a. Drew and Meg, ages 40 and 41, respectively, are married and file a joint return. In addition to four dependent children, they have AG! of $125,000 and itemized deduc

> In 2018, Muhammad purchased a new computer for $16,000. The computer is used 100% for business. Muhammad did not make a § 179 election with respect to the computer. He does not claim any available additional first-year depreciation. If Muhammad uses the