Bud received 200 shares of Georgia Corporation stock from his uncle as a gift on July 20, 2016, when the stock had a $45,000 FMV. His uncle paid $30,000 for the stock on April 12, 2001. The taxable gift was $45,000, because his uncle made another gift to Bud for $20,000 in January and used the annual exclusion. The uncle paid a gift tax of $1,500. Without considering the transactions below, Bud’s AGI is $45,000 in 2017. No other transactions involving capital assets occur during the year. Analyze each transaction below, independent of the others, and determine Bud’s AGI in each case. a. He sells the stock on October 12, 2017, for $48,000. b. He sells the stock on October 12, 2017, for $28,000. c. He sells the stock on December 16, 2017, for $42,000.
> Under what circumstances would a taxpayer use both the cash method and the accrual method of accounting at the same time?
> How might the current treatment of capital losses discourage an individual investor from purchasing stock of a high-risk, start-up company?
> Betty incurs the following transactions during the current year. Without considering the transactions, her 2017 AGI is $40,000. Analyze the transactions and answer the following questions: • On March 10, 2017, she sellsa painting for $2,000.Bettyis the
> Juan helps support his mother Maria, his son Jose, and a niece Norma. How many dependency exemptions can Juan claim given these additional facts? Maria lives with Juan. She receives $12,000 of Social Security benefits which she uses to pay for food, clo
> Katie and Alan are avid boaters and water skiers. They also enjoy parasailing. This year, they started a new parasailing venture to give rides to patrons. Katie and Alan are bothemployed full-time in other pursuits, but they take patrons out during the s
> Your client, Apex Corporation, entered into an agreement with an executive to purchase his personal residence at its current FMV in the event that his employment is terminated by the company during a five-year period. The executive’s job was terminated b
> Why was pay-as-you-go withholding needed in 1943?
> Mr. and Mrs. Pickens purchased a used piano in Y1 for their young son who had started taking piano lessons. In Y8 while cleaning the piano, Mrs. Pickens discovered $4,800 of old currency. They exchanged the old currency for new currency.
> Explain the distinction between income and gross income.
> As a political consultant for an aspiring politician, you have been hired to evaluate the following statements that pertain to capital gains and losses. Evaluate the statement and provide at least a one-paragraph explanation of each statement. As you pre
> Larry and Sue separated at the end of the year. Larry has asked Sue to sign a joint income tax return for the year because he feels that the tax will be lower on a joint return. Larry and Sue both work. Sue received a salary of $25,000 and Larry’s salary
> Under what circumstances can prepaid expenses be deducted in the year of payment by a taxpayer using the cash method of accounting?
> Lynette, a famous basketball player, is considering the possibility of transferring the sole right to use her name to promote basketball shoes produced and sold by the NIK Corporation. NIK will pay $2 million to obtain the right to use Lynette’s name for
> Partnerships and S corporations are flow-through entities. In connection with filing annual taxreturns, these entities must include Form K-1 in the returns. What is Form K-1, what is its purpose, and who receives the form?
> Robert provides much of the support for his daughter, Jane, and her two children. Jane earned $20,000. Robert, whose AGI is $350,000, paid the rent of $11,000 on Jane’s apartment and provided an additional $15,000 support. Jane is age 30, and her childre
> David, a CPA for a large accounting firm, often works 10- to 12-hour days. As a requirement for his position, he must attend social events to recruit new clients. In addition to his job with the accounting firm, he also has private clients in his unincor
> On January 1, 2016, Sean purchased an 8%, $100,000 corporate bond for $92,277. The bond was issued on January 1, 2016, and matures on January 1, 2021. Interest is paid semiannually, and the effective yield to maturity is 10% compounded semiannually. On J
> Beth retires when she turns 65. She begins receiving a monthly pension of $300 from her employer’s qualified retirement plan. While employed, Beth contributed $13,000 to the plan. a. Beth uses the simplified method to compute her exclusion. Why? b. Com
> Web Baker was hired three years ago by the Berry Corporation to serve as CEO for the company. As part of his employment contract, the corporation had agreed to purchase his residence at FMV in the event the company decided to fire him. Last year, Berry,
> On January 1 of the current year, the Orange Corporation issues $500,000 of 11%, 20-year bonds for $480,000. Determine the amount of original issue discount, if any.
> Martha has $40,000 AGI without considering the following information. During the year, she incurs an LTCL of $10,000 and has a gain of $14,000 due to the sale of a capital asset held for more than a year. a. If the $14,000 gain is not properly classified
> On December 31, 2016, Phil purchased $20,000 of newly issued bonds of Texas Corporation for $16,568. The bonds are dated December 31, 2016. The bonds are 9%, 10-year bonds paying interest semiannually on June 30 and December 31. The bonds are priced to y
> In 2001, Ellen purchased a house for $60,000 to use as her personal residence. She paid $12,000 and borrowed $48,000 from the local savings and Loan Company. In 2005 she paid $10,000 to add a room to the house. In 2007 she paid $625 to have the house pai
> a. What does the term “hazards of litigation” mean in the context of taxation? b. Why would the IRS or a taxpayer settle or compromise a case based on the “hazards of litigation”?
> Income earned by C corporations is taxed twice, once when the income is earned and again when it is distributed. If so, how is it possible that operating a business as a C corporation can reduce taxes.
> For the following taxpayers, indicate which tax form should be used, the applicable filing status, the number of personal and dependency exemptions available, and the number of children who qualify for the child credit. a. Arnie is a single college stud
> Wes and Tina are a married couple and provide financial assistance to several persons during the current year. For the situations below, determine whether the individuals qualify as Wes and Tina’s dependents. In all of the situations below, assume that a
> Explain what is meant by the phrase maintain a household.
> The following information relates to Tom, a single taxpayer, age 18: Salary $1,800 Taxable interest income 1,600 Itemized deductions 600 a. Compute Tom’s taxable income assuming he is self-supporting. b. Compute Tom’s taxable income assuming he is a de
> Otter Corporation sends people to the state capital to lobby the legislature to build a proposed highway that is planned to run through the area where its business is located. a. If Otter Corp. incurs $3,200 of expenses, what part, if any, of its expens
> Peter Baumann, your client, wants to sell a printing press to Chamberlain Corporation for $50,000. Pete has used the press in his business for two years and its adjusted basis is $90,000. The Coxmann Partnership; Chloe International, Inc.; Watts, Inc., a
> Deductible business or investment expenses must be related to a profit-motivated activity. a. What are the factors used in determining whether an activity is profit-motivated? b. Why are these factors so important in making this determination?
> Bala and Ann purchased as investments three identical parcels of land over a several-year period. Two years ago they gave one parcel to their daughter, Kim, who is now age 16. They have an offer from an investor who is interested in acquiring all three p
> Assume that it is December 31, and that Jake is considering making a $1,000 charitable contribution. Jake currently is in the 39.6% tax bracket, but expects that his tax bracket will be 28% next year. How much more will the deduction for the contribution
> a. Explain the principal difference in the tax treatment of an S corporation and a C corporation. b. Why would a C corporation be used if an S corporation is generally exempt from tax?
> Explain the purpose of the multiple support agreement.
> Tax rules are often very precise. For example, a taxpayer must ordinarily provide “over 50%” of another person’s support in order to claim a dependency exemption. Why is the threshold “over 50%” as opposed to “50% or more?”
> a. What determines who must file a tax return? b. Is an individual required to file a tax return if he or she owes no tax?
> Consider the four independent situations below for an unmarried individual, and analyze the effects of the capital gains and losses on the individual’s AGI. For each case, determine AGI after considering the capital gains and losses.
> Mr. and Mrs. Dunbar have taxable income of $260,000 without considering the following sales. Consider the following independent cases where capital gains are recognized and determine the marginal tax rate for the capital gain in each case. Ignore the eff
> An investor in a 28% tax bracket owns land that is a capital asset with a $50,000 basis and a holding period of three years. The investor wishes to sell the asset at a price high enough so that he will have $120,000 in cash after paying the income taxes.
> Beth acquired only one tract of land seven years ago as an investment. In order to sell the land at a higher price, she decides to subdivide it into 20 lots. She pays for improvements such as clearing and leveling, but the improvements are not considered
> Martha Lou owns 100 shares of Blain Corporation common stock. She purchased the stock on July 25, 1986, for $4,000. On May 2 of the current year, she receives a nontaxable distribution of 100 stock rights. Each stock right has a $10 FMV, and the FMV of t
> An individual taxpayer has realized a $40,000 loss on the sale of an asset that had a holding period of eight months. Explain why the taxpayer may be indifferent as to whether the asset is a capital asset.
> Tally owns a house that she has been living in for eight years. She purchased the house for $245,000 and the FMV today is $200,000. She is moving into her friend’s house and has decided to convert her residence to rental property. Assume 20% of the prope
> Three years ago, Paul Wilde exercised all his stock options in the start up company he helped establish and walked away with over $100 million. Since that time, he has spent all his energy, time, and effort in managing his portfolio. His investment philo
> In reference to tax research, what is meant by the best possible defensibly correct solution?
> Daniel receives 400 shares of A&M Corporation stock from his aunt on May 20, 2017, as a gift when the stock has a $60,000 FMV. His aunt purchased the stock in 2007 for $42,000. The taxable gift is $60,000 because she made earlier gifts to Daniel during 2
> The Internal Revenue Code is the most authoritative source of income tax law. In trying to resolve an income tax question, however, a tax researcher, also consults administrative rulings (Income Tax Regulations, Revenue Rulings, etc.) and court decisions
> Without considering the following capital gains and losses, Charlene, who is single, has taxable income of $460,000 and a marginal tax rate of 39.6%. During the year, she sold stock held for nine months at a gain of $10,000; stock held for three years at
> Martha owns 500 shares of Columbus Corporation common stock at the beginning of the year with a basis of $82,500. During the year, Columbus declares and pays a 10% nontaxable stock dividend. What is her basis for each of the 50 shares received?
> Sergio owns 200 shares of Palm Corporation common stock, purchased during the prior year: 100 shares on July 5, for $9,000; and 100 shares on October 15, for $12,000. When Sergio sells 50 shares for $8,000 on July 18 of the current year, he does not iden
> Vincent pays $20,000 for equipment to use in his trade or business. He pays sales tax of $800 as a result of the purchase. Must the $800 sales tax be capitalized as part of the purchase price?
> Kamal is starting a new business which will operate as an S corporation. This means that income earned by the corporation will be reported by shareholders even if they do not receive distributions. Kamal has $180,000 of income from other sources, and ite
> Juan and Maria, who have two young children, are in the process of obtaining a divorce. Juan expects to have $200,000 of income each year while Maria expects to have $60,000 of income each year. Assume the children will live with Maria after the divorce
> What is the first day that an individual could sell a capital asset purchased on March 31, 2017 and have a holding period of more than one year?
> If property is sold at a loss to a related taxpayer, under what circumstances can at least partial benefit be derived from the disallowed loss?
> Why did the Supreme Court rule in Arkansas Best that the stock of a corporation purchased by the taxpayer to protect the taxpayer’s business reputation was a capital asset?
> Distinguish between taxpaying entities and flow through entities from the standpoint of the federal income tax law.
> Amir, who is single, retired from his job this year. He received a salary of $25,000 for the portion of the year that he worked, tax-exempt interest of $3,000, and dividends from domestic corporations of $2,700. On September 1, he began receiving monthly
> Bob is a single individual and received a salary of $27,000 before he retired in October of this year. After he retired, he received Social Security benefits of $3,000 during the year. a. What amount, if any, of the Social Security benefits are taxable
> Lucia is a 69-year-old single individual who receives a taxable pension of $10,000 per year and Social Security benefits of $7,000. Lucia is considering the possibility of selling stock she has owned for years and using the funds to purchase a summer hom
> Dan and Diana file a joint return. Dan earned $31,000 during the year before losing his job. Diana received Social Security benefits of $5,000. a. Determine the taxable portion of the Social Security benefits. b. What is the taxable portion of the Soci
> Tim retired during the current year at age 58. He purchased an annuity from American National Life Company for $40,000. The annuity pays Tim $500 per month for life. a. Compute Tim’s annual exclusion. b. How much income will Tim report each year after
> Susan’s salary is $44,000 and she received dividends of $600. She received a statement from SJ partnership indicating that her share of the partnership’s income was $4,000. The partnership distributed $1,000 to her during the year and $600 after yearend.
> Ed owns Oak Knoll Apartments. During the year, Fred, a tenant, moved to another state. Fred paid Ed $1,000 to cancel the two-year lease he had signed. Ed subsequently rented the unit to Wayne. Wayne paid the first and last months’ rents of $800 each and
> Stan rented an office building to Clay for $3,000 per month. On December 29, 2016, Stan received a deposit of $4,000 in addition to the first and last months’ rent. Occupancy began on January 2, 2017. On July 15, 2017, Clay closed his business and filed
> Brad owns a successful corporation that has substantial earnings and profits. During the year, the following payments were made by the corporation: a. Salary of $250,000 to Brad. Officers in other corporations performing similar services receive between
> As a result of their divorce, Fred agrees to pay alimony to Tammy of $20,000 per year. The payments are to cease in the event of Fred’s or Tammy’s death or in the event of Tammy’s remarriage. In addition, Tammy is to receive their residence, which cost t
> If the objectives of the federal tax system are multifaceted and include raising revenues, providing investment incentives, encouraging certain industries, and meeting desired social objectives, is it possible to achieve a simplified tax system? Explain.
> In 2013, Harry and Mary purchased Series EE bonds, and in 2017 redeemed the bonds, receiving $500 of interest and $1,500 of principal. Their income from other sources totaled $30,000. They paid $2,200 in tuition and fees for their dependent daughter. The
> Carmen opens a retail store. Her sales during the first year are $600,000, of which $30,000 has not been collected at year-end. Her purchases are $400,000. She still owes $20,000 to her suppliers, and at year-end she has $50,000 of inventory on hand. She
> Ken and Lynn paid $5,000 to purchase Series EE bonds in the name of their 11-year-old son. The son has no other income, and they are in the 28% tax bracket. The taxable interest this year will be $400 if an election is made to accrue the interest on an a
> State Construction Company is owned equally by Andy, Bill, and Charlie. Andy works in the corporation full-time, and Bill and Charlie work elsewhere. Andy’s employment contract with State specifies a $50,000 annual salary. This year, Andy felt that the c
> Larry’s Art Gallery sells oil paintings, lithographs, and bronzes to collectors and corporations. Customers often come to Larry looking for special pieces. In order to meet customer needs, Larry often accepts orders and then travels looking for the desir
> Lisa and her daughter Jane are equal shareholders in Lisa’s Flooring, Inc. Lisa founded the corporation and was the sole owner for over twenty years. The company is very successful and Lisa has accumulated a fairly large estate. When Jane turned age 25 l
> George, a wealthy investor, is uncertain whether he should invest in taxable or tax-exempt bonds. What tax and nontax factors should he consider?
> What opportunities are available for a taxpayer to defer the recognition of certain types of prepaid income? That is, what advice could you give someone who wishes to defer the reporting of prepaid income?
> a. Briefly explain the tax benefit rule. b. Is a taxpayer required to report the reimbursement of a medical expense by insurance as income if the reimbursement is received in the year following the year of the expenditure?
> a. Are items of income not listed in Sec. 61 taxable? Explain. b. Because there is no specific exclusion for unrealized income, why is it not taxable? c. Can income be realized even when a cash method taxpayer does not receive cash? d. Does a cash bas
> The primary objective of the federal income tax law is to raise revenue. What are its secondary objectives?
> Explain the relationship between dividends and earnings and profits.
> Corporations are taxed on the income they earn, and shareholders are taxed on the dividends they receive. What provisions in the tax law reduce this “double tax” burden?
> a. Is the interest received from government obligations taxable? Explain. b. What impact does the fact that some bond interest is tax exempt have on interest rates? c. Is an investor always better off buying tax- exempt bonds? Explain.
> Under what conditions is an accrual-basis taxpayer allowed to defer reporting amounts received in the advance of the delivery of goods?
> a. Explain the difference between the treatment of prepaid income under the tax law and under financial accounting. b. Why are the two treatments so different? c. What problem does this treatment create for taxpayers?
> Ricardo owns a small unincorporated business. His 15-year-old daughter Jane works in the business on a part-time basis and was paid wages of $3,000 during the current year. Who is taxed on the child’s earnings: Jane or her father? Explain.
> Under present-day tax law, community property rules are followed in allocating income between husband and wife. Is this consistent with Lucas v. Earl? Explain.
> Explain the significance of Lucas v. Earl and Helvering v. Horst.
> A landlord who receives prepaid rent is required to report that amount as gross income when the payment is received. Why would Congress choose to do this? What problem does this create for the taxpayer?
> Explain the meaning of the term wherewithal to pay as it applies to taxation.
> Two commonly-recognized measures of the fairness of an income tax structure are “horizontal equity” and “vertical equity.” a. Discuss what is meant by horizontal equity and vertical equity as it pertains to the income tax. b. Why is it so difficult to d
> Contrast the accounting and economic concepts of income.
> Jack and June are retired and receive $10,000 of social security benefits and taxable pensions totaling $25,000. They have been offered $20,000 for an automobile that they restored after they retired. They did most of the restoration work themselves and
> George, a wealthy investor, is uncertain whether he should invest in taxable or tax-exempt bonds. What tax and nontax factors should he consider?
> What opportunities are available for a taxpayer to defer the recognition of certain types of prepaid income? That is, what advice could you give someone who wishes to defer the reporting of prepaid income?
> a. Briefly explain the tax benefit rule. b. Is a taxpayer required to report the reimbursement of a medical expense by insurance as income if the reimbursement is received in the year following the year of the expenditure?
> a. Are items of income not listed in Sec. 61 taxable? Explain. b. Because there is no specific exclusion for unrealized income, why is it not taxable? c. Can income be realized even when a cash method taxpayer does not receive cash? d. Does a cash bas
> Explain the relationship between dividends and earnings and profits.
> Corporations are taxed on the income they earn, and shareholders are taxed on the dividends they receive. What provisions in the tax law reduce this “double tax” burden?
