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 indicated that it might take up to two years to find a proper match. In March 2017, the adoption became final, and Brad and Valerie adopted an infant daughter (not a special needs child). Below is a list of expenses that they incurred:
Brad and Valerieâs AGI in 2016 was $70,000, and in 2017 was $90,000. a. Compute Brad and Valerieâs qualified adoption expenses for each year. b. Compute Brad and Valerieâs adoption credit. In which year(s) may the credit be taken? c. Would your answer to Part b change if the adopted child was a special needs child and if a grant covered all adoption cost except for legal fees?
2016: Agency fees (first installment) $5,000 1,500 300 Travel expenses for interviews, etc. Publications for prospective adoptive parents Legal fees connected with the adoption Kennel fees for dog while on adoption trips 1,000 250 2017: Agency fees (final installment) $4,000 400 Travel expenses Court costs for adoption Kennel fees Nursery furniture (baby's room) and supplies 1,500 100 2,000
> 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
> 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 s
> 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
> 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
> Anita, a single taxpayer, reports the following items for 2017: Salary……………………………………………………………………………………………….$20,000 Income for serving on the Board of Directors for XYZ Corporation………….11,000 Consulting gross income………………………………………………………………………..9,000 Expe
> Arnie and Angela are married and file a joint return in 2017. Arnie is a partner in a public accounting firm. His share of the partnership’s income in the current year is $40,000, and he receives guaranteed payments of $35,000. Angela receives wages of $
> Amelia has wages of $45,000 and net income from a small unincorporated business of $70,000 for 2017. a. What is the amount of Amelia’s self-employment (SE) tax and deduction for AGI for her SE tax? b. How would your answer to Part a change if Amelia’s
> Allen, an unmarried taxpayer filing single, has no dependents and reports the following items on his 2017 federal income tax return: Adjusted gross income……………………………………$82,450 Taxable income……………………………………………….,47,950 Regular tax liability………………………………………
> Harry and Mary Prodigious are married filing jointly and have 12 dependent children. Six of the children are under age 17. With the large number of children, they live in a very austere manner. Harry, in his spare time, works a large garden that provides
> Jose, an unmarried taxpayer filing single with no dependents, has AGI of $200,000 and reports the following items in 2017: Taxable income…………………………………………………………$160,000 Tax preferences……………………………………………………………10,000 AMT adjustments related to itemized dedu
> William and Maria Smith are a married couple filing jointly. They have no children and report the following items in 2017: Taxable income……………………………………………………………$70,000 Tax preferences……………………………………………………………20,000 AMT adjustments related to itemized dedu
> Jane’s estimated tax payments for the current year total $14,000, and federal income taxes withheld from her salary amount to $12,000. Jane’s actual tax liability for the current year is $30,000. Her income was earned evenly throughout the current year.
> Which of the following categories of individuals or income are exempt from the federal income tax withholding requirements? a. Household employees b. Independent contractors c. Newspaper carriers over age 18 d. Bonuses e. Commissions f. Vacation pa
> List three requirements that apply to written advice under Treasury Department Circular 230.
> Laser Corporation, a U.S. corporation, has a foreign office that conducts business in France. Laser pays foreign taxes of $74,000 on foreign-source taxable income of $185,000. Its U.S.-source taxable income is $320,000, total U.S. taxable income (worldwi
> Daryl is an executive who has an annual salary of $120,000. He is considering early retirement so he can pursue a career as a management consultant. Daryl estimates that he could earn approximately $80,000 annually from his consulting business. What tax
> Dale Eisen is saving as much as possible to fund a down payment on his first home. He is young (25 years old) and healthy, and has declined health insurance coverage offered by his employer because he would have to pay one-third of the $300 monthly cost
> Jennifer recently received a check for $30,000 and securities with a fair market value of $200,000 from her former husband pursuant to a divorce. The $30,000 represents a limony and the securities were transferred pursuant to the property settlement. The
> An individual has increasing levels of income each year and is uncertain regarding the amount of his estimated taxable income for any given year. What tax planning strategy can be used to avoid the penalty for underpayment of estimated tax?
> Vincent anticipates that his actual tax liability for the tax year 2017 will be $12,000 and that federal income taxes withheld from his salary will be $9,000. Thus, when he files his 2017 income tax return, he will have a $3,000 balance due. In the previ
> What is backup withholding? What is its purpose?
> Mario is a college student who had no income tax liability in the prior year and expects to have no tax liability for the current year. a. What steps should Mario take to avoid having amounts withheld from his summer employment wages? b. What are the c
> Although Virginia is entitled to five personal and dependency exemptions on her income tax return, she claims only one withholding allowance on Form W-4. a. Is it permissible to claim fewer allowances than an individual is entitled to? b. Why would an i
> The credit for employer-provided child care has two major components, a credit for qualified child care expenses and a credit for qualified child care resources and referral expenditures. a. Discuss each of the two components. What type of expenses are
> List an advisor’s duties that are excluded under the AICPA’s Statements on Standards for Tax Services.
> Explain what is encompassed by the term tax law as used by tax advisors.
> Taxpayers are permitted to contribute money to qualified retirement plans and receive very favorable tax benefits. Congress has provided further incentives to contribute money to such plans by enacting the Qualified Retirement Savings Contributions Credi
> Alice is a single mother, 37 years old, and has two qualifying children, ages 3 and 6. In 2017, she receives $3,600 alimony and earns $18,000 in wages resulting in $21,600 of AGI. Is Alice eligible for the earned income credit?
> The adoption credit is intended to assist taxpayers with the financial burden of adopting children. a. Discuss how the credit is computed. b. Why did Congress impose a phase-out of the credit for taxpayers based on AGI?
> Vivian is a single taxpayer with two children who qualify for the child and dependent care credit. She incurred $7,000 of qualifying child care expenses during the current year. She also received $4,000 in reimbursements from her employer from a qualifie
> What is the maximum child and dependent care credit available to an employed individual who has $8,000 of qualifying child care expenses and two or more qualifying dependents?
> Discuss the major differences between the American Opportunity credit and the Lifetime Learning credit. Include in your discussion the type of taxpayers who would likely qualify for each of the credits.
> If an individual is not employed and has no earned income, is it possible to take a child and dependent care credit for otherwise qualifying child and dependent care expenses? Explain.
> Discuss the difference between a refundable tax credit and a nonrefundable tax credit. Give at least one example of each type of credit.
> Discuss the special tax rules that apply to the tax credit for rehabilitation expenditures including the following: a. Types of eligible expenditures b. Applicable tax credit rates c. Calculation of basis for expenditures d. Restrictions on depreciat
> Queen Corporation has been in business since 1989. During the preceding year, the company had 25 full-time employees and gross receipts of $8,000,000. During the current year, Queen spent $15,000 to install access ramps for disabled individuals. Is Queen
> According to the Statements on Standards for Tax Services, what belief should a CPA have before taking a pro-taxpayer position on a tax return?
> Describe the tax costs to a taxpayer who does not purchase health insurance coverage for 2017. Assume the taxpayer is single, 40 years old, has no dependents, has household income of $55,000, and does not meet any of the conditions to be exempt from the
> Sarah, a married taxpayer who files a joint return, is considering a foreign assignment for two years. In 2017, she will earn $120,000 in the foreign country. Sarah has no other income. She will be eligible for either the foreign tax credit or the foreig
> Discuss the limitations that have been imposed on the general business tax credit, including the following: a. Overall ceiling limitation based on the tax liability b. Priority of general business and personal credits c. Carryback and carryover of unu
> If Congress is considering a tax credit or deduction as an incentive to encourage certain activities, is a $40 tax credit more valuable than a $200 tax deduction for a taxpayer with a 15% marginal rate? A 25% marginal rate?
> Discuss the underlying rationale for the following tax credit items: a. Foreign tax credit b. Research credit c. Business energy credit d. Premium tax credit e. Dependent care credit f. Earned income credit g. American Opportunity credit h. Adopt
> Theresa is a college professor who wants to work for a consulting firm during the summer. She will be working on special projects relating to professional development programs. What advantages might accrue to the consulting firm if the engagement is set
> Tony, who is single and 58 years old, is considering early retirement from his salaried job. He currently has $90,000 salary and also earns $50,000 profit from a consulting business. What advice would you give Tony relative to the need to make Social Sec
> Which of the following itemized deductions are deductible when computing the alternative minimum tax for individuals? a. Charitable contributions b. Mortgage interest on a loan used to acquire a personal residence c. State and local income taxes d. In
> Which of the following are individual AMT adjustments? a. Itemized deductions that are allowed for regular tax purposes but not allowed in computing AMTI. b. Excess of MACRS depreciation over depreciation computed under the alternative depreciation sys
> Which of the following are tax preference items for purposes of computing the individual AMT? a. Net long-term capital gain b. Excess depreciation for real property placed in service before 1987 c. Straight-line depreciation on residential real estate
> Compare the features of the computerized tax services with those of Internet sites maintained by noncommercial institutions. What are the relative advantages and disadvantages of each? Could the latter sites serve as a substitute for a commercial tax ser
> From a cash-flow perspective, why is it generally preferable to have an underpayment of tax (assuming no underpayment penalty is imposed) rather than an overpayment of tax?
> Why do many taxpayers intentionally overpay their tax through withholdings to obtain a tax refund?
> A credit is allowed to encourage businesses to conduct research and experimentation. One feature of the research credit is that only incremental expenditures are eligible. Explain the concept that the credit is allowed for increasing research activities.
> If an employer fails to withhold federal income taxes and FICA taxes on wages or fails to make payment to the IRS, what adverse tax consequences may result? May corporate officers or other corporate officials be held responsible for the underpayment?