A client, Mal Manley, fills out his client questionnaire for the previous year and on it provides information for the preparation of his individual income tax return. The IRS has never audited Mal’s returns. Mal reports that he made over 100 relatively small cash contributions totaling $24,785 to charitable organizations. In the last few years, Mal’s charitable contributions have averaged about $15,000 per year. For the previous year, Mal’s adjusted gross income was roughly $350,000, about a 10% increase from the year before. Required: Applying Statements on Standards for Tax Services No. 3, determine whether you can accept at face value Mal’s information concerning his charitable contributions. Now assume that the IRS recently audited Mal’s tax return for two years ago and denied 75% of that year’s charitable contribution deduction because the deduction was not substantiated. Assume also that Mal indicates that, in the previous year, he contributed $25,000 (instead of $24,785). How do these changes of fact affect your earlier decision?
> On January 1, 2010, Drennen, Inc., issued $3 million face amount of 10-year, 14% stated rate bonds when market interest rates were 12%. The bonds pay semiannual interest each June 30 and December 31 and mature on December 31, 2019. Required: a. Using th
> Riley Co. has outstanding $40 million face amount of 15% bonds that were issued on January 1, 1998, for $39,000,000. The 20-year bonds mature on December 31, 2017, and are callable at 102 (that is, they can be paid off at any time by paying the bondholde
> O’Kelley Co. has outstanding $2 million face amount of 12% bonds that were issued on January 1, 2002, for $2 million. The 20-year bonds were issued in $1,000 denominations and mature on December 31, 2021. Each $1,000 bond is convertible at the bondholder
> The following summary data for the payroll period ended December 27, 2009, are available for Cayman Coating Co.: Gross pay . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . $53,000 FICA tax withholdings . . . . . . .
> Kohl Co. provides warranties for many of its products. The January 1, 2010, balance of the Estimated Warranty Liability account was $70,400. Based on an analysis of warranty claims during the past several years, this year’s warranty provision was establi
> A firm issues long-term debt with an effective interest rate of 10% and the proceeds of this debt issue can be invested to earn an ROI of 12%. What effect will this financial leverage have on the firm’s ROE relative to having the same amount of funds inv
> Prist Co. had not provided a warranty on its products, but competitive pressures forced management to add this feature at the beginning of 2010. Based on an analysis of customer complaints made over the past two years, the cost of a warranty program was
> During the month of April, Simpson Co. had cash receipts from customers of $170,000. Expenses totaled $156,000, and accrual basis net income was $42,000. There were no gains or losses during the month. Required: a. Calculate the revenues for Simpson Co.
> The transactions relating to the formation of Blue Co. Stores, Inc., and its first month of operations follow. Prepare an answer sheet with the columns shown. Record each transaction in the appropriate columns of your answer sheet. Show the amounts invol
> When is a final tax return due for an individual who uses a calendar year and who dies during the year?
> a. In what situations will a tax year cover a period of less than 12 months? b. Under what conditions is a taxpayer required to annualize income? c. Does annualizing income increase or decrease the taxpayer’s tax liability? Explain.
> Is there any instance in which a change in tax years is required? Explain.
> Does a similar restriction apply to S corporations? Explain.
> Most individuals use the calendar year as their tax year. What requirement, if any, in the tax law causes this?
> Dan turned age 65 and retired this year. He owned and operated a tugboat in the local harbor before his retirement. The boat cost $100,000 when he purchased it two years ago. A tugboat is 10-year property. Dan deducted $10,000 of depreciation on the boat
> Troy Tools manufactures over one hundred different hand tools used by mechanics, carpenters, and plumbers. Troy’s cost accounting system has always been very simple. The costs allocated to inventory have included only materials, direct labor, and factory
> Don owns equipment that he purchased several years ago for $400,000. Over the years he properly deducted $110,000 of depreciation. The depreciation will have to be recaptured as ordinary income on the sale. There is a $90,000 mortgage on the property. Do
> Lavonne just completed medical school and residency. She plans to open her medical practice soon. She is not familiar with the intricacies of accounting methods and periods. On advice of her attorney, she plans to form a professional corporation (a form
> Tina acquires an oil and gas property interest for $200,000 in the current year. The following information about current year operations is supplied for purposes of computing the amount of Tina’s depletion and intangible drilling and development cost (ID
> Why should tax researchers note the date on which a Treasury Regulation was adopted?
> Phillips Corporation, a construction company that specializes in home construction, uses special computer software to schedule jobs and keep track of job costs. It uses generic software for bookkeeping and spreadsheet analysis. During 2017, Phillips Corp
> In 2017, Phoenix Corporation acquires a new research facility and hires several scientists to develop new products. No new products are developed until 2018, although the following expenditures were incurred: Laboratory materials
> Park Corporation incurs the following costs in the initial year of doing business: Materials and supplies for research laboratory $ 80,000 Utilities and depreciation on research laboratory and equipment
> On January 1 of the current year, Palm Corporation purchases the net assets of Vicki’s unincorporated business for $600,000. The tangible net assets have a $300,000 book value and a $400,000 FMV. The purchase agreement states that Vicki will not compete
> Troy entered into a three-year lease of a luxury automobile on January 1, 2017, for use 80% in business and 20% for personal use. The FMV of the automobile at the inception of the lease was $40,500, and Troy made 12 monthly lease payments of $600 in 2017
> Tracy acquires an automobile (MACRS 5-year recovery) on March 1, 2017. He uses the automobile 70% of the time in his business and 30% of the time for personal use. The automobile cost $36,000. No amount is expensed under Sec. 179, and Tracy elects out of
> Luby Corporation acquires a 100% business-use automobile (MACRS 5-year recovery) on July 1, 2017 for $36,000. Luby does not elect Sec. 179 and elects out of bonus depreciation. What are depreciation deductions for 2017–2019?
> Lutz Corporation acquired a 100% business-use automobile (MACRS 5-year recovery) on July 1, 2017 for $32,000. The company did not elect Sec. 179 expensing and elects out of bonus depreciation. What is depreciation for 2017–2019, and any subsequent years?
> Tammy acquired an automobile for $20,000 on July 1, 2014. She used the automobile partially for business purposes during the 2014–2017 period. The percentage of business use is as follows: 2014, 70%, 2015, 70%; 2016, 40%; 2017, 35%. The automobile is 5-y
> Assume the same facts as in Problem I:10-35, except Trish is an employee who uses the automobile and personal computer for employment-related activities. While both assets are helpful to Trish in performing her job duties, her employer does not require e
> Refer to IRC Sec. 301. a. Which subsection discusses the general rule for the tax treatment of a property distribution? b. Where should one look for exceptions to the general rule? c. What type of Treasury Regulations would relate to subsection (e)?
> In 2017, Trish, a self-employed CPA and calendar year taxpayer, acquires and places in service an automobile and a personal computer. Pertinent data include the following: For each asset, calculate the MACRS current year depreciation deduction assuming
> Long Corporation has been unprofitable for several years and has substantial NOL carryovers. Therefore, the company has elected to use straightline MACRS for property acquisitions. Long acquires, holds, or sells the following assets in 2017: Long did no
> In 2017, Wabash Corporation purchases two assets and places them into service (both are used property and have a 7-year MACRS recovery period): • Asset #1: $1,300,000 cost; placed in service in February. • Asset #2: $600,000 cost; placed in service in
> In 2017, Richmond Corporation purchases and places into service a used machine. Richmond elects Sec. 179 expensing for $510,000 of its $610,000 cost. The machine has a 7-year MACRS recovery period. Assume the half-year convention applies. a. What is Ric
> Tampa Corporation sold the following assets in 2017: a. What is the depreciation deduction for each asset in 2017? b. Compute the gain or loss on each asset sold. Original Depreciation! Recovery Cost-Recovery Method Date Cost Period Sales Acquired
> In 2017, Tish acquires and places into service in her business 7-year MACRS property costing $40,000 and 5-year MACRS property costing $165,000. Tish elects Sec. 179 expensing for all of the properties’ cost. Tish’s taxable income (before the Sec. 179 an
> Turner Corporation uses the calendar year as its tax year. It purchases and places into service $1.97 million of property during 2017 to use in its business: What is Turnerâ€™s total depreciation deduction for 2017 in each of the followi
> Large Corporation acquired and placed in service the following 100% business-use assets. Large did not claim Sec. 179 or bonus depreciation expensing on any of these properties. • Truck (light-duty, modified non-personal use) costing $36,000: Placed i
> Small Corporation purchased and placed in service the following 100% business-use assets (all of the assets were purchased new). Assume that Small purchased these assets in Year 1, when 50% bonus depreciation was available on eligible property (as “eligi
> Sandy acquired business machinery (which qualified as 7-year MACRS property) on July 15, 2014, for $10,000. In 2014, Sandy claimed a $1,429 regular MACRS depreciation deduction and she elected not to claim Sec. 179 depreciation or bonus depreciation. Bec
> Does Title 26 contain statutory provisions dealing only with income taxation? Explain.
> Tony has owned an oil and gas property for a number of years. The following information is provided about the property’s operations in the current year: Gross income $500,000 M
> Sid purchased an automobile for personal use on January 18, 2013 for $10,000. On January 1, 2017, Sid starts a small business and begins to use the automobile exclusively in the business. The automobile’s FMV on this date is $6,000. MACRS depreciation de
> Your supervisor would like to set up a single Sec. 401(k) plan exclusively for the managers of your organization. Concerned that this arrangement might not meet the requirements for a qualified plan, he has asked you to request a determination letter fro
> Look up Summit Publishing Company, 1990 PH T.C. Memo ¶90,288 (T.C. Memo 1990-288), 59 TCM 833, and J.B.S. Enterprises, 1991 PH T.C. Memo ¶91,254 (T.C. Memo 1991-254), 61 TCM 2829, and answer the following questions: a. What was the principal issue in th
> Amy owns a vacation cottage in Maine. She predicts that the time during which the cottage will be used in the current year is as follows: By Amy, solely for vacation…………………………………………………..12 days By Amy, making repairs ten hours per day and vacationing th
> Josh contributes $5,000 toward the support of his widowed mother, aged 69, a U.S. citizen and resident. She earns gross income of $2,000 and spends it all for her own support. In addition, Medicare pays $3,200 of her medical expenses. She does not receiv
> The purpose of this problem is to enhance your skills in interpreting the authorities that you locate in your research. In answering the questions that follow, refer only to Thomas A. Curtis, M.D., Inc., 1994 RIA TC Memo ¶94,015 (T.C. Memo 1994-15), 67 T
> Your client, Home Products Universal (HPU), distributes home improvement products to independent retailers throughout the country. Its management wants to explore the possibility of opening its own home improvement centers. Accordingly, it commissions a
> Your client, a physician, recently purchased a yacht on which he flies a pennant with a medical emblem on it. He recently informed you that he purchased the yacht and flies the pennant to advertise his occupation and thus attract new patients. He has ask
> A friend notices that you are reading the Internal Revenue Code of 1986. Your friend inquires why you are consulting a 1986 publication, especially when tax laws change so frequently. What is your response?
> Access the Urban Institute and Brookings Institution Tax Policy Center at taxpolicycenter.org. On the home page, search for state individual income tax rates and locate the Tax Policy Center’s latest summary of each state’s rates. Researchers also can lo
> Access the Federation of Tax Administrators Internet site at www. taxadmin.org/state-tax-forms and indicate the titles of the following state tax forms and publications: a. Minnesota Form M-100 b. Illinois Individual Schedule CR c. North Carolina Form
> Access the IRS Internet site at www.irs.gov and indicate the titles of the following IRS forms: a. Form 4506 b. Form 973 c. Form 8725
> Access the IRS Internet site at www.irs.gov and answer the following questions: a. How does one file a tax return electronically? b. How can the taxpayer transmit funds electronically? c. What are the advantages of electronic filing?
> Using any tax service, refer to the Holden Fuel Oil Company, RIA T.C. Memo ¶72,045 (T.C. Memo 1972-45), 31 TCM 184. a. In which year was the case decided? b. What controversy was litigated? c. Who won the case? d. Was the decision reviewed at the low
> Trace Stephen Bolaris, 776 F.2d 1428, in the citator. a. According to the citator, how many times has the Ninth Circuit’s decision been cited? b. Did the decision address more than one issue? Explain. c. Was the decision ever cited unfavorably? Explai
> Trace Biltmore Homes, Inc., a 1960 Tax Court memo decision, in the citator. a. According to the citator, how many times has the Tax Court decision been cited by other courts? b. How many issues did the lower court address in its opinion? (Hint: Refer t
> Using a keyword search of editorial materials in any tax service, locate authorities dealing with the deductibility of the cost of work clothing by a firefighter. List a revenue ruling addressing this question.
> Using the BNA tax service, identify the number of the BNA portfolio for the following subjects. a. Innocent spouse relief. b. Accounting methods. c. Involuntary conversions. d. IRAs. e. Deductibility of legal and accounting fees, bribes, and illegal
> a. Using any tax service, locate Sec. 303. This section states that Sec. 303(a) applies only if the stock in question meets a certain percentage test. What is the applicable percentage? b. Locate Reg. Sec. 1.303-2(a) in the same service. Does this Treas
> Explain how committee reports can be used in tax research. What do they indicate?
> Using the index of any tax service, search the editorial materials to locate authorities addressing whether termite damage constitutes a casualty loss. a. Cite the authority you found. b. Cite at least two primary authorities.
> Using any tax service, locate Reg. Sec. 1.302-1. Does this Treasury Regulation reflect recent amendments to the IRC? Explain.
> Use the index of any tax service to locate authorities dealing with the deductibility of the cost of a facelift. a. Cite the authority you find. b. List the primary IRC section cited as authority. c. May a taxpayer deduct the cost of a facelift paid i
> Indicate which courts decided the cases cited below. Also indicate on which pages and in which publications the authority is reported. a. Lloyd M. Shumaker v. CIR, 648 F.2d 1198, 48 AFTR 2d 81-5353 (9th Cir., 1981) b. Xerox Corp. v. U.S., 14 Cl. Ct. 45
> Provide the proper citations (including both primary and secondary citations where applicable) for the authorities listed below. (For secondary citations, reference both the AFTR and USTC.) a. Rev. Rul. 99-7 b. Frank H. Sullivan, a Board of Tax Appeals
> Provide the proper citations (including both primary and secondary citations where applicable) for the authorities listed below. (For secondary citations, reference both the AFTR and USTC.) a. National Cash Register Co., a 6th Circuit Court decision b.
> Look up Bush Brothers & Co., 73 T.C. 424 (1979) and answer the questions below. a. Was the case reviewed by the court? If so, was the decision unanimous? Explain. b. Was the decision entered under Rule 155? c. Consult a citator. Was the case reviewed
> Look up James E. Threlkeld, 87 T.C. 1294 (1988) and answer the questions below. a. Was the case reviewed by the court? If so, was the decision unanimous? Explain. b. Was the decision entered under Rule 155? c. Consult a citator. Was the case reviewed
> a. What original action (acquiescence or nonacquiescence) did the IRS Commissioner take regarding the 1982 Tax Court decision in Doyle, Dane, Bernbach, Inc., 79 T.C. 101 (1982)? (Hint: Consult Actions on Decisions.) b. Did the IRS Commissioner subsequen
> a. What original action (acquiescence or nonacquiescence) did the IRS Commissioner take regarding the 1952 Tax Court decision in Streckfus Steamers, Inc., 19 T.C.1 (1952)? (Hint: Consult Actions on Decisions.) b. Was the action complete or partial? c.
> The U.S. Government Printing Office publishes both hearings on proposed legislation and committee reports. Distinguish between the two.
> a. What official action (acquiescence or nonacquiescence) did the IRS Commissioner take regarding the 1985 Tax Court decision in John McIntosh, 85 T.C. 31 (1985)? (Hint: Consult Actions on Decisions.) b. Did this action concern all issues in the case? I
> The objective is to locate a general overview of available home office deductions. You have previously researched the issue and know that Sec. 280A is the primary authority for this issue. In the Keyword Search box, enter 280A and check the IRS Rulings a
> The objective is to locate a general overview of available home office deductions. On the main research tab, select the United States Tax Reporter—Explanations database. How many results does the search return for each search term if the terms and connec
> Which IRC section(s) does Rev. Rul. 2001-29 interpret? (Hint: consult the official pronouncement of the IRS.)
> Locate PLR 8733007 and Rev. Rul. 81-219. a. Briefly summarize the tax issue and conclusion of each ruling. b. Under what circumstances can a researcher rely on the private letter ruling? c. Under what circumstances can a researcher rely on the revenue
> Refer to Sec. 385 and answer the questions below. a. Whenever Treasury Regulations are issued under this section, what type are they likely to be: legislative or interpretative? Explain. b. Assume Treasury Regulations under Sec. 385 have been finalized
> Jeff and Linda Foley are married and file a joint income tax return. Jeff is a lawyer and a partner in the firm of Foley & Looby, Attorneys at Law. Jeff is a 50% partner in the firm along with his partner, John Looby who is the other 50% partner. Foley &
> Lean Corporation was incorporated in 2011 by Bruce Smith, who has served as an officer and member of the Board of Directors. Carl Jones has served as the secretary-treasurer of the company as a convenience to his friend Bruce. Carl acted as a part-time b
> Anna does not make quarterly estimated tax payments even though she has substantial amounts of income that are not subject to withholding. In the previous year, Anna’s tax liability was $18,000 and her AGI was $ 135,000. In the current year, Anna’s actua
> Bart and Jane Lee are married, file a joint return and have two dependent children (twins, age 9). Bart begins a new job and is asked to fill out a Form W-4. His monthly gross earnings will be $3,200. Jane does not work outside their home. Bart can claim
> Barry is a college student who is employed as a waiter during the summer. He earns approximately $1,500 during the summer and estimates that he will not be required to file a tax return and will have no federal income tax liability. Last year, however, h
> Lake Corporation has severe cash-flow problems. You are the company’s financial and tax consultant. The treasurer of the company informed you that the company has failed to make FICA and federal income tax withholding payments to the IRS (both the employ
> Latisha is an unmarried taxpayer, filing head of household. She has two dependent children (7-year-old twins) who lived with her all year. Her 2017 earned income was $18,600, her AGI was $22,700, and she uses the standard deduction. Determine her: 1. Ta
> Under a divorce agreement executed in the current year, an ex-wife receives from her former husband cash of $25,000 per year for eight years. The agreement does not explicitly state that the payments are excludable from gross income. a. Does the ex-wife
> Jose is unmarried with no qualifying children. He has $8,300 of 2017 wages and is otherwise eligible for the earned income credit. Jose has $200 of interest income and no for AGI deductions. a. What is Jose’s tentative earned income credit before phaseo
> Carolyn is unmarried and has one dependent child, age 6, who lived with her for the entire year. In 2017, she has income of $16,000 in wages and $6,000 in alimony. Her AGI is $22,000. a. What is Carolyn’s tentative earned income credit (before phaseout)
> Pharm Inc. is a small pharmaceutical company (organized four years ago) that is heavily involved in drug research. During the current year, Pharm Inc. incurred the following expenditures related to the company’s research efforts: Salaries of research sc
> Bob acquired a certified historic structure and placed it in service August of the current year, as an office for his business. He paid $20,000 for the building (exclusive of the land) and spent $40,000 for renovation costs. a. What is the rehabilitatio
> Randall and Dianne Wall live in St. Louis, Missouri. Randall and Dianne are each 30 years old, neither smokes, and they have no children or other dependents. Randall is attending law school full time and working part time (2017 earnings = $9,000). Diann
> During the current year, Joule Company, a sole proprietorship, earned general business tax credits of $30,000 for energy conservation and rehabilitation expenditures. The owner, Mark Joule, knows that the overall credit will be limited. He provides you w
> Caroline, age 66 and filing single as a dependent of another, received the following income items for the current year: Social Security benefits (nontaxable) $ 3,000 Pension benefits (taxable) 6,450
> Lou and Stella North are married, file a joint return, and have two dependent children in college, Phil and Jaci. Phil attends a State University in a neighboring state, and Jaci attends a State University in their home state. Neither receives any type o
> Brad and Valerie decided to adopt a child and contacted an adoption agency in August 2016. After extensive interviews and other requirements (such as financial status, etc.), Brad and Valerie were approved as eligible parents to adopt a child. The agency
> In each of the following independent situations, determine the amount of the child and dependent care tax credit. (Assume that both taxpayers are employed and the year is 2017.) a. Brad and Bonnie are married and file a joint return, with earned income
> Explain how Treasury Department Circular 230 differs from the AICPA’s Statements on Standards for Tax Services.
> During the current year, Becky has personal credits (P) as well as business credits (B) related to her sole proprietorship. Her tentative tax credits for the current year include the following: Child tax credit………………………………..$ 2,000 P Disabled access cre