William, Daniel, and Thomas are brothers who have decided to form an engineering firm. Although Thomas has an MBA degree and will function primarily as the firm’s financial expert, he has no formal tax knowledge. William and Daniel are bringing clients from their former firm, but Thomas anticipates that the new firm’s client base will not be large enough to avoid a tax loss for three years. After year 3, the firm’s profits should increase rapidly. By year 6, he anticipates, that the firm will generate a substantial profit and employ 25 people. Because Thomas is unsure whether the firm should operate as an S corporation, partnership, or corporation he has hired your accounting firm to guide him. Thomas is particularly concerned with how the form of organization would affect the: • Pension plan the firm will adopt • Firm’s ability to compensate current owners and employees and attract new owners or employees • Total tax liability of the owners • Firm’s ability to distribute cash and/or property Write a letter to Thomas explaining how the organizational form of the business affects each of the items he has mentioned.
> What does it mean when the IRS issues an acquiescence or nonacquiescence?
> How are a revenue ruling and a Treasury regulation different? a revenue ruling and a private letter ruling?
> Assume that the building in problem 68 is an apartment building held for investment. In addition to the sale of the building, Anton has the following capital gains and losses during 2017: Short-term capital loss………………………………………………….$ 4,000 Collectibles
> What are revenue rulings? revenue procedures?
> Differentiate a proposed regulation and a temporary regulation.
> Differentiate an interpretive regulation and a legislative regulation.
> What is a Treasury regulation? Is it binding on the courts?
> How are the Joint Conference Committee and the Joint Committee on Taxation different?
> What three reports are issued as part of the legislative process?
> Briefly describe the process by which a new tax law is passed.
> Give examples of how the Code is sometimes used to achieve economic and social objectives.
> What are some things to look out for when reading the Code?
> Name the types of secondary authorities.
> Anton purchases a building on May 4, 2000, at a cost of $270,000. The land is properly allocated $30,000 of the cost. Anton sells the building on October 18, 2017, for $270,000. What is the character of Anton's gain or loss on the sale if he uses the
> Briefly describe the three categories of primary authorities and the types of authorities within each category.
> Differentiate primary tax law authorities and secondary tax law authorities.
> Briefly describe the steps involved in tax research.
> What is the distinction between tax compliance and tax planning?
> Use any print or CATR service to find the following information about the Protecting Americans from Tax Hike Act of 2015: a. The public law number and enactment date b. A reference to the full text of the act c. A secondary authority that discusses the a
> Use any print or CATR service or the Internet to find the name of a 1995 Supreme Court decision involving the taxability of a settlement received as compensation for age discrimination. Find the name of the case, a standard legal citation, and the date t
> Use any print or CATR service or the Internet to find a Code section(s) on the following general tax concepts topics. For each item, indicate the Code section number(s) and the full title of the relevant Code section(s). a. Income tax rates for individu
> Use any print or CATR service or the Internet to find a Code section(s) on the following property and cost recovery topics. For each item, indicate the Code section number(s) and full title of the relevant Code section(s). a. Basis of player contracts on
> Use any print or CATR service or the Internet to find a Code section(s) on the following loss topics. For each item, indicate the Code section number(s) and full title of the relevant Code section(s). a. Bad debts b. Net operating loss deduction c. Passi
> Use any print or CATR service or the Internet to find a Code section(s) on the following deduction topics. For each item, indicate the Code section number(s) and full title of the relevant Code section(s). a. Charitable contributions b. Dividends-receive
> Manuel is negotiating the sale of two of his rental properties. He has an offer of $500,000 for each condo. Manuel bought one condo in 1986 for $400,000 and has deducted depreciation of $185,000 using ACRS (accelerated depreciation). Straight-line dep
> Use any print or CATR service or the Internet to find a Code section(s) on the following income topics. For each item, indicate the Code section number(s) and full title of the relevant Code section(s). a. Discharge of indebtedness b. Exclusion for emplo
> What are some advantages of CATR?
> Assume that you have found an excellent article in Tax Notes that provides a favorable interpretation of Sec. 469. Can you rely on that article as authority for your position? In general, what role do tax periodicals and newsletters play in tax research
> When can a researcher rely on an editorial opinion expressed in the tax services?
> Describe the two major categories of tax services.
> Provide the correct citations for the following: a. The fifteenth revenue procedure issued in 1993 and found on page 12 of the third Internal Revenue Bulletin issued in 1993. b. Subsection (a) of the first temporary income tax regulation interpreting Sec
> Interpret the following citations: a. Senate Finance Committee, S. Rep. No. 2, 97th Cong., 2d Sess. (April 15, 1982). b. LTR 8101067. c. Rev. Proc. 78-172, 1978-2 C.B. 22. d. Lacy v. Comm., 344 F.2d 123, 89-1 USTC ¶1221, 43 A.F.T.R. 89-2233 (9th Cir., 19
> Assume that the Supreme Court interprets a certain Code section in a manner that members of Congress believe is contrary to what they meant when they enacted that part of the Code. What (if anything) can Congress do?
> Do district courts have to follow the decisions of all circuit courts?
> What is meant by the Golsen rule?
> Nadia sells land for $4,000 and the buyer assumes her $13,000 mortgage. She pays $1,000 in real estate commissions on the sale. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you ident
> What are the three trial courts? Which is most important?
> Name the subdivisions of the Internal Revenue Code.
> The Internal Revenue Code is just one part of the U.S. Code. Explain.
> On what grounds have tax protesters challenged the income tax?
> Use any print or CATR service or the Internet to find the Revenue Ruling or Revenue Procedure that provides instructions on requesting a letter ruling. Indicate the number of the Revenue Ruling or Revenue Procedure, and the IRS reference.
> What is meant by the history of a cited case?
> Differentiate a cited case and a citing case.
> Why do some court decisions have two or three different citations?
> What does it mean when the Supreme Court issues a writ of certiorari?
> How many chapters are within Subtitle A?
> Bernadero Corporation sells a construction crane with an adjusted basis of $32,000 for $37,000. The corporation paid $50,000 for the crane. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue th
> What would be the general nature of Sec. 612? Sec. 6601?
> Fred, age 50, plans to retire when he reaches age 65. He is considering investing in either an IRA or a Roth IRA. He plans to contribute $6,500 per year until he retires. He expects his marginal tax rate to be 28% until he retires, when he expects the
> Assume the same facts as in problem 87. In the next year, TAG distributes $5,000 to Logo. What are the tax effects of the distribution? Data from Problem 87: Logo Corporation, a domestic corporation, owns 100% of TAG, a foreign corporation. TAG is Log
> Assume that in problem 77, Stan sells the machinery in 2023 for $28,500. Determine the effect of the sale on Stan's regular taxable income and his alternative minimum taxable income in 2023. Data from Problem 77: Stan purchases machinery costing $100,0
> Stan purchases machinery costing $100,000 for use in his business in 2017. The machinery is 7-year MACRS property and has an ADS life of 12 years. Prepare a depreciation schedule using the regular MACRS method and ADS depreciation assuming that Stan do
> Determine the total amount of tax due and the amount of the alternative minimum tax in each of the following situations: a. Wilbur Corporation's regular tax liability is $180,000, and its tentative alternative minimum tax is $150,000. b. Gene's regular t
> Willtem Corporation has total general business credits of $25,000. It has a net regular tax liability of $17,000 and its tentative alternative minimum tax is $13,000. What can Willtem deduct as its general business credit?
> Hurst Corporation wants to provide child care for its employees. Because Hurst does not have a suitable facility on its own premises, it rents a building for the center. The rent for the year totals $61,000. In addition, Hurst hires a qualified direct
> Return to the facts of problem 72. Assume that Lavinia sells the building in April 2020. a. How much of the older buildings tax credit must Lavinia recapture? b. Assuming the building qualified for both credits, how much of the historic structures credi
> Jammer, Inc., sells a building for $180,000. The company paid $135,000 for the building four years earlier and had taken $12,000 in depreciation on it up to the date of the sale. Identify the tax issue(s) posed by the facts presented. Determine the pos
> Lavinia owns an advertising agency. In February 2017, Lavinia purchases for $32,000 a building that was originally placed in service in 1922. Lavinia spends $65,000 rehabilitating the building for use as her advertising agency office. The rehabilitation
> Clinton Corporation spent $800,000 on qualified research activities during the current year. Clinton's fixed base percentage is 10%, and its annual average gross receipts for the four preceding years is $2,000,000. a. What is Clinton's allowable increme
> Sonya owns 60% and her sister Karen owns 40% of the Tanglewood Group. They inherited their ownership from their mother who died in 2016. Sonya is the president and CFO of the corporation and receives a salary of $140,000, which is reasonable given her
> On July 1, 2017, Howard is granted the right to acquire 500 shares of the Matoney Corporation for $15 per share. The option qualifies under the company’s incentive stock option plan. The current fair market value of the stock is $12. On August 18, 20
> Return to the facts of problem 67. Assume that Louise sells the stock on October 31, 2018 for $35 per share. Determine the tax consequences for Louise and Somerton on the date of sale. Data from Problem 66 and 67 On May 10, 2017, Somerton Inc., grants
> Return to the facts of problem 66. If the stock is subject to substantial restrictions, what are the tax consequences for both Louise and Somerton on the date Louise is granted the stock option and the date she exercises the stock assuming she does not
> On May 10, 2017, Somerton Inc., grants Louise a nonqualified stock option to acquire 700 shares of the company’s stock for $11 per share. The fair market value of the stock on the date of grant is $13. The option does not have a readily ascertainable f
> Return to the facts of problem 64. On November 30, 2018, when the fair market value of the stock is $30 he sells the stock. Determine the tax consequences to both Albert and the Beaconsfield Corporation in each situation presented in problem 64. Data
> On September 1, 2017, Beaconsfield Corporation grants Albert a nonqualified stock option to acquire 500 shares of the company’s stock for $8 per share. The fair market value of the stock on the date of grant is $14. Determine the tax consequences to bo
> Juan and Angel, ages 56 and 54, respectively, decide to establish Roth IRAs. Juan and Angel are married, and both are covered by pension plans where they work. Their adjusted gross income is $125,000. They want to make the maximum contribution to the
> Bostian Company reports a net Section 1231 gain of $31,000 during the current year. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify.
> Glenna is retired from the Cherry Hills Corporation. When she retired at 68, she decided to take her pension as a lump-sum distribution and roll over the proceeds tax free into her IRA. On January 1, 2015, she began to receive the required $22,000 dist
> During the current year, Kyung purchases a boat for $70,000. Because she has only $7,000 of the necessary $14,000 down payment, Kyung makes a $7,000 withdrawal from her IRA account. Immediately before the withdrawal, the balance in her account consists
> Ross is single and maintains an IRA. During a trip to Las Vegas in 2017, he wins $14,000 at the roulette wheel. He decides to put half his earnings in his IRA account and spend the other half on a trip to Europe. At the end of 2017, the total assets i
> Hector is a single taxpayer with adjusted gross income of $123,000. What is the maximum contribution that he can make to a Roth IRA for the current year?
> Suresh is sales representative for Swinley Manufacturing. The corporation maintains a defined contribution profit sharing plan on behalf of its employees. The company contributes 15% of each employee’s salary. Suresh’s salary for the year is $200,000.
> Felicia is a single taxpayer who retired from her job as a sales executive with Waynesville Associates, LLC. During 2016, she turns 70 ½ and decides to begin withdrawing the $320,000 in assets (balance as of December 31, 2015) in her pension account. H
> Ghon is a married taxpayer who retired from his job at Smithfield Printing in 2016. During 2017, he turns 70 1/2 and begins withdrawing the $215,000 (balance December 31, 2016) in assets in his pension account. Smithfield maintains a noncontributory pe
> In October 2016, the Clark Corporation decides to establish a SIMPLE-401(k) retirement plan for its employees. Clark meets all requirements for establishing a SIMPLE. The company has notified its employees that in 2017, it will fund the SIMPLE-401(k) by
> Lenore, a single taxpayer with adjusted gross income of $66,000, is covered by her employer's pension plan. She makes a $5,500 contribution to her IRA during the current year. a. How much of the contribution can Lenore deduct? b. Assume the same facts
> Zorica and Pierre are married and file a joint return. Zorica earns $59,500 and Pierre $45,000. Their adjusted gross income is $106,000. Determine the maximum IRA contribution and deduction in each of the following cases: a. Neither Zorica nor Pierre i
> Deskjet Corporation sells equipment with an adjusted basis of $22,000 for $3,000. The corporation paid $43,000 for the equipment three years ago. Identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each is
> Ferris and Jody are married and file a joint return. During the current year, Ferris had a salary of $45,000. Neither Ferris nor Jody is covered by an employer-sponsored pension plan. Determine the maximum IRA contribution and deduction amounts in eac
> Warren is a partner in Baines Brothers, a consulting firm specializing in the design of Intranets. Baines maintains a profit-sharing Keogh plan for its partners and employees. Warren owns a 10% partnership interest in Baines Brothers. Determine the ma
> Sarah is vice president of production for Fenner Inc., a corporation, which maintains a money purchase pension plan for its employees. She owns 8% of Fenner’s stock. Determine the maximum deductible contribution the company can make to the pension plan
> Manuel is an employee of the Etowah Corporation and has worked for the company for 22 years. Employees are not required to make contributions to the company’s defined benefit plan. Based on the plan, Manuel can retire at 40% of the average of his three
> Salvadore, 35, is an employee of the Malthouse Corporation. Henrique, 40, is an employee of the Sheedy Corporation. Both belong to a contributory pension plan that requires them to match their employers’ contributions of $70 per month. Each plans to re
> Conrad is a citizen and resident of Trinidad. He receives an $8,000 dividend from Sturino Industries, a U. S. domestic corporation. a. What is the tax treatment of the dividend? b. Under what circumstances would the dividend not be taxable?
> Taverez is a foreign corporation that operates a manufacturing plant in Lubbock, Texas. Taverez sells its products to customers outside the U. S. In the current year, Taverez’s gross revenue is $4.0 million. Cost of goods sold and other operating expe
> Readyhough Industries, a U.S. corporation with a 34% marginal tax rate, forms Brandon, Inc., a wholly-owned foreign corporation that operates in Ireland. In exchange for 100% of Brandon’s stock, Readyhough transfers $250,000 cash and property with a bas
> Flagler Corporation paid $75,000 in foreign taxes on $250,000 in foreign income during the current year. Flagler's total taxable income is $800,000. a. What is Flagler's foreign tax credit? b. Assume that Flagler paid $112,500 on its foreign income. Wh
> Petro Corporation is a U.S. corporation with operations in several foreign countries as well as in the United States. During the current year, Petro’s worldwide taxable income is $600,000. Petro’s foreign source income is $180,000, on which it pays $45
> Martina purchases 10,000 shares of Monrovia Corporation stock for $90,000 on November 14, 2016. On June 18, 2017, Monrovia declares bankruptcy. Because the corporation’s assets are less than its liabilities, the stock is determined to be worthless on O
> As a gift for her granddaughter Ella's 13th birthday, Melanie bought 500 shares of Soft'n Sales Corporation stock on September 25, 2012. Melanie bought the stock directly from the underwriter for $20,000. Soft'n Sales had just gone public, and Melanie
> Norman, a U.S. corporation, owns 100% of Monterio, a foreign corporation operating in Barbados, which has no income tax. Norman ships goods directly to its foreign customers from its Atlanta manufacturing operations. Monterio processes all sales invoic
> Logo Corporation, a domestic corporation, owns 100% of TAG, a foreign corporation. TAG is Logo’s only source of income. During the current year, TAG receives $80,000 of dividends and interest from its foreign investments. TAG pays $6,000 in foreign tax
> Assume the same facts as in problem 85, except that Irehoe’s income consists solely of commissions from selling farm equipment manufactured and distributed by Smile Corporation to foreign buyers. Data from Problem 85: Smile Corporation invests $2.0 mill
> Smile Corporation invests $2.0 million for a 49% interest in Irehoe Inc., a newly formed Irish corporation that manufactures farm equipment. Jim, a U. S. resident, owns 10% of Irehoe. Jim owns no stock in Smile Corporation. An Irish corporation owns t
> Stanton Technology owns 100% of Goldman Corporation, a controlled foreign corporation. Goldman’s taxable income from its manufacturing operations is $3.0 million and it does not pay a dividend during the year. Goldman pays foreign taxes on its income a
> Bivona Corporation forms Jarvis Corporation in the country of Simants. Bivona owns 90% of Jarvis’ voting stock and 30% of its preferred stock. The remaining Jarvis stock is owned by citizens of Simants. The preferred shares represent 20% of the fair m
> Determine the AMT exemption amount for each of the following taxpayers: a. Nominal Corporation has an alternative minimum taxable income of $140,000. b. Janine is a single individual with an alternative minimum taxable income of $165,000. c. Jagged Corpo
> Pauline is considering investing in bonds. Her broker has given her several options to consider. The first option is to invest in city bonds with an interest rate of 6%. The second option involves the purchase of private activity bonds (subject to the
> Joan and Matthew are married, have two children, and report the following items on their current year’s tax return: Determine Joan and Matthew's regular tax liability and, if applicable, the amount of their alternative minimum tax. W
