Donald was killed in an accident while he was on the job in 2017. Darlene, Donald’s wife, received several payments as a result of Donald’s death. What is Darlene’s gross income from the items listed below? a. Donald’s employer paid Darlene an amount equal to Donald’s three months’ salary ($60,000), which is what the employer does for all widows and widowers of deceased employees. b. Donald had $20,000 in accrued salary that was paid to Darlene. c. Donald’s employer had provided Donald with group term life insurance of $480,000 (twice his annual salary), which was payable to his widow in a lump sum. Premiums on this policy totaling $12,500 had been included in Donald’s gross income under § 79. d. Donald had purchased a life insurance policy (premiums totaled $250,000) that paid $600,000 in the event of accidental death. The proceeds were payable to Darlene, who elected to receive installment payments as an annuity of $30,000 each year for a 25-year period. She received her first installment this year.
> Sam and Abby are dependents of their parents, and each earns gross income of $2,100 for the year. Sam’s standard deduction for the year is $1,050, while Abby’s is $2,450. As their income is the same, what causes the difference in the amount of the standa
> Aldo has just been audited by the IRS. He does not agree with the agent’s findings but believes that he has only two choices: pay the proposed deficiency or resort to the courts. Do you agree with Aldo’s conclusion? Why or why not?
> Determine the net effect on Tamara’s adjusted gross income with regard to these capital asset transactions that occurred this year. • Sold ABCCo stock, acquired 2 years ago, for a $1,500 loss. • Sold collectible coins, held for 17 months, for a $2,000 ga
> How does the tax benefit rule apply in the following cases? a. In 2015, the Orange Furniture Store, an accrual method taxpayer, sold furniture on credit for $1,000 to Sammy. The cost of the furniture was $600. In 2016, Orange took a bad debt deduction fo
> With regard to the IRS audit process, comment on the following: a. The audit is resolved by mail. b. The audit is conducted at the office of the IRS. c. A “no change” RAR results. d. A special agent joins the audit team.
> Rebecca sells her personal scooter for $550. She purchased the scooter for $700 three years ago. In addition, Rebecca sells a painting for $1,200 that she acquired five years ago for $900. What are the tax implications attributable to these sales?
> Serena operates a gift shop. To reduce costs of credit card transactions, she offers customers a discount if they pay in cash. For the holiday rush, she hires some short-term workers, but pays them cash and does not add them to the payroll. a. What are s
> Butch 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. Butch asks you for advice. If he follows the treaty position, does he need to disclo
> Simon, age 12, generates $800 interest income and $4,000 dividend income for 2017. He incurs no investment expenses. His parents report $80,200 taxable income and file a joint tax return. Determine the following. a. Simon’s net unearned income. b. Simon’
> Both a value added tax (VAT) and a national sales tax have been criticized as being regressive in their effect. a. Explain. b. How could this shortcoming be remedied?
> Paul and Sonja, who are married, reported 2017 itemized deductions of $8,200 and $400, respectively. Paul suggests that they file their Federal income tax returns separately—he will itemize his deductions from AGI, and she will claim the standard deducti
> Regarding the value added tax (VAT), comment on the following: a. Popularity of this type of tax. b. Nature of the tax. c. Effect on government spending.
> In 2017, Dominique and Felix are married with one dependent and file a joint Federal income tax return. Their AGI is $316,550, and they claim three dependency exemptions. Compute the taxpayers’ total deduction for exemptions for the year.
> Describe the nature and purpose of the following taxes: a. Severance taxes. b. Franchise taxes. c. Occupational fees. d. Customs duties. e. Export duties.
> Albert established a qualified tuition program for each of his twins, Kim and Jim. He started each fund with $20,000 when the children were 5 years old. Albert made no further contributions to his children’s plans. Thirteen years later, both children hav
> Compute the 2017 standard deduction for the following taxpayers. a. Margie is 15 and claimed as a dependent by her parents. She reports $800 in dividends income and $1,400 in wages from a part-time job. b. Ruby and Woody are married and file a joint tax
> One of the tax advantages of hiring family members to work in your business is that FICA taxes are avoided. Do you agree with this statement? Explain.
> Describe simulation questions on the CPA exam.
> In connection with the Medicare component of FICA, comment on the following: a. Any dollar limitation imposed. b. The applicability of the .9% increase in the 1.45% regular tax rate.
> The Sixteenth Amendment to the U.S. Constitution was passed to overturn a Supreme Court decision that had invalidated the Federal income tax. Do you agree? Why or why not?
> What is the primary purpose of effective tax planning? Explain.
> Contrast FICA and FUTA as to the following: a. Purpose of the tax. b. Upon whom imposed. c. Governmental administration of the tax. d. Reduction of tax based on a merit rating system.
> You inherit a tax problem that was researched five months ago. You believe the answer is correct, but you are unfamiliar with the general area. How would you find recent articles dealing with the subject area? How do you evaluate the reliability of the a
> Many states have occasionally adopted amnesty programs that allow taxpayers to pay back taxes with reduced penalties. a. Besides the revenue generated, how are these programs advantageous? b. Could an amnesty program be used by a state that does not levy
> Where can a researcher find the current Internal Revenue Code of 1986?
> Starting in 2006, Chuck and Luane have been purchasing Series EE bonds in their name to use for the higher education of their daughter Susie, who currently is age 18. During the year, they cash in $12,000 of the bonds to use for freshman year tuition, fe
> Many state income tax returns contain checkoff boxes that allow taxpayers to make donations to a multitude of local charitable causes. On what grounds has this procedure been criticized?
> For her tax class, Yvonne must prepare a research paper discussing the tax aspects of child support payments. Explain to Yvonne how she can research this topic using various tax research resources.
> A question on a state income tax return asks the taxpayer if he or she made any out-of-state internet or mail-order catalog purchases during the year. The question requires a yes or no answer, and if the taxpayer answers yes, the amount of such purchases
> Where can you locate a published decision of the U.S. Court of Federal Claims?
> Mike Barr was an outstanding football player in college and expects to be drafted by the NFL in the first few rounds. Mike has let it be known that he would prefer to sign with a club located in Florida, Texas, or Washington. Mike sees no reason why he s
> Where does Federal tax legislation generally originate?
> Give the Commerce Clearing House citation for the following courts: a. Small Cases Division of the Tax Court. b. Federal District Court. c. U.S. Supreme Court. d. U.S. Court of Federal Claims. e. Tax Court Memorandum decision.
> In May 2017, Hernando, a resident of California, has his 2015 Federal income tax return audited by the IRS. An assessment of additional tax is made because he had inadvertently omitted some rental income. In October 2017, California audits his state retu
> Compute the 2017 Federal income tax liability and the marginal and effective tax rates in each of the following independent cases. Use the tax rate schedules in Appendix A for this purpose. a. Chandler is single and reports taxable income of $93,000. b.
> As to those states that impose an income tax, comment on the following: a. “Piggyback” approach and possible “decoupling” from this approach. b. Using IRS audit results as part of a state tax audit. c. Credit for taxes paid to other states.
> Is the breadth and number of Federal excise taxes increasing or decreasing? Explain.
> Finch Construction Company provides the carpenters it employs with all of the required tools. However, the company believes that this practice has led to some employees not taking care of the tools and to the mysterious disappearance of some tools. The c
> Bertha is considering taking an early retirement offered by her employer. She would receive $3,000 per month, indexed for inflation. However, she would no longer be able to use the company’s health facilities, and she would be required to pay her hospita
> Eddy Falls is considering litigating a tax deficiency of approximately $229,030 in the court system. He asks you to provide himwith a short description of his alternatives, indicating the advantages and disadvantages of each. Prepare your response to Edd
> Does the taxpayer recognize gross income in the following situations? a. Ava is a filing clerk at a large insurance company. She is permitted to leave the premises for lunch, but she usually eats in the company’s cafeteria because it is quick and she is
> Tim is the vice president of western operations for Maroon 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 office. The company-provided home is equipped with high-spe
> Mauve Corporation has a group hospitalization insurance plan that has a $200 deductible amount for hospital visits and a $15 deductible for doctor visits and prescriptions. The deductible portion paid by employees who have children has become substantial
> The UVW Union and HON Corporation are negotiating contract terms. Assume that the union members are in the 25% marginal tax bracket and that all benefits are provided on a nondiscriminatory basis. Write a letter to the UVW Union members explaining the ta
> Determine the effect on gross income in each of the following cases: a. Eloise received $150,000 in settlement of a sex discrimination case against her former employer. b. Nell received $10,000 for damages to her personal reputation. She also received $4
> Leigh sued an overzealous bill collector and received the following settlement: Damage to her automobile that the collector attempted to repossess……..$ 3,300 Physical damage to her arm caused by the collector………………………………..15,000 Loss of income while her
> Adrian was awarded an academic scholarship to State University for the 2017–2018 academic year. He received $6,500 in August and $7,200 in December 2017. Adrian had enough personal savings to pay all expenses as they came due. Adrian’s expenditures for t
> Sally was an all-state soccer player during her junior and senior years in high school. She accepted an athletic scholarship from State University. The scholarship provided the following: Tuition and fees: $15,000 Housing and meals: 6,000 Books and suppl
> Ray and Carin are partners in an accounting firm. The partners have entered into an arm’s length agreement requiring Ray to purchase Carin’s partnership interest from Carin’s estate if she dies before Ray. The price is set at 120% of the book value of Ca
> The Morgan family lives in Massachusetts. They moor their sailboat in Rhode Island. What might be a plausible reason for the possible inconvenience?
> What is the taxpayer’s gross income in each of the following situations? a. Darrin received a salary of $50,000 in 2017 from his employer, Green Construction. b. In July 2017, Green gave Darrin an all-expense-paid trip to Las Vegas (value of $3,000) for
> Laura was recently diagnosed with cancer and has begun chemotherapy treatments. A cancer specialist has stated that Laura has less than one year to live. She has incurred many medical bills and other general living expenses and is in need of cash. Theref
> Determine the gross income of the beneficiaries in the following cases: a. Justin’s employer was downsizing and offered employees an amount equal to one year’s salary if the employee would voluntarily retire. b. Trina contracted a disease and was unable
> Ed, an employee of the Natural Color Company, suffered from a rare disease that was very expensive to treat. The local media ran several stories about Ed’s problems, and the family created a website that generated more than $10,000 in gifts from individu
> Vic, who was experiencing financial difficulties, was able to adjust his debts as follows: a. Vic is an attorney. Vic owed his uncle $25,000. The uncle told Vic that if he serves as the executor of the uncle’s estate, Vic’s debt will be canceled in the u
> Wilbur has been offered a job at a salary that would put him in the 25% marginal tax bracket. In addition to his salary, he would receive health insurance coverage. Another potential employer does not offer health insurance but has agreed to match the fi
> Holly was injured while working in a factory and received $12,000 as workers’ compensation while she was unable to work because of the injury. Jill, who was self-employed, was also injured and unable to work. Jill collected $12,000 on an insurance policy
> Carey is a waiter at a restaurant that pays a small hourly amount plus tips. Customers are not required to tip the waiter. Carey is especially attentive and friendly, and her tips average 25% of the restaurant charges. Is Carey required to include any of
> Fred specified in his will that his nephew John should serve as executor of Fred’s estate. John received $10,000 for serving as executor. Can John exclude the $10,000 from his gross income? Explain.
> Ralph has experienced financial difficulties as a result of his struggling business. He has been behind on his mortgage payments for the last six months. The mortgage holder, who is a friend of Ralph’s, has offered to accept $80,000 in full payment of th
> List an advantage and a disadvantage of using the U.S. Court of Federal.
> Dolly is a cash basis taxpayer. In 2017, she filed her 2016 South Carolina income tax return and received a $2,200 refund. Dolly took the standard deduction on her 2016 Federal income tax return, but will itemize her deductions in 2017. Molly, a cash bas
> Andrea entered into a § 529 qualified tuition program for the benefit of her daughter, Joanna. Andrea contributed $15,000 to the fund. The fund balance had accumulated to $25,000 by the time Joanna was ready to enter college. However, Joanna received a s
> Tammy, a resident of Virginia, is considering purchasing a North Carolina bond that yields 4.6% before tax. She is in the 35% Federal marginal tax bracket and the 5% state marginal tax bracket. She is aware that State of Virginia bonds of comparable risk
> The Sage Company has the opportunity to purchase a building located next to its office. Sage would use the building as a day care center for the children of its employees and an exercise facility for the employees. Occasionally, portions of the building
> Several of Egret Company’s employees have asked the company to create a hiking trail that employees 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 if
> Eagle Life Insurance Company pays its employees $.30 per mile for driving their personal automobiles to and from work. The company reimburses each employee who rides the bus $100 a month for the cost of a pass. Tom collected $100 for his automobile milea
> Ted works for Azure Motors, an automobile dealership. All employees can buy a car at the company’s cost plus 2%. The company does not charge employees the $300 dealer preparation fee that nonemployees must pay. Ted purchased an automobile for $29,580 ($2
> What is the difference between a cafeteria plan and an employee flexible spending plan?
> Casey is in the 15% 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
> Wes was a major league baseball pitcher who earned $10 million for his 20 wins this year. Sam was also a major league baseball pitcher before a careerending injury caused by a negligent driver. Sam sued the driver and collected $6 million as compensation
> Sophia lives several blocks from her parents in the same residential subdivision. Sophia is surprised to learn that her ad valorem property taxes for the year were raised, while those of her parents were lowered. What is a possible explanation for the di
> Billy fell off a bar stool and hurt his back. As a result, he was unable to work for three months. He sued the bar owner and collected $100,000 for the physical injury and $50,000 for the loss of income. Billy also collected $15,000 from an income replac
> Lime Finance Company requires its customers to purchase a credit life insurance policy associated with the loans it makes. Lime is the beneficiary of the policy to the extent of the remaining balance on the loan at the time of the customer’s death. In 20
> Dolly is a college student who works as a part-time server in a restaurant. Her usual tip is 20% of the price of the meal. A customer ordered a piece of pie and said that he would appreciate prompt service. Dolly abided with the customer’s request. The c
> Leonard’s home was damaged by a fire. He also had to be absent from work for several days to make his home habitable. Leonard’s employer paid Leonard his regular salary, $2,500, while he was absent from work. In Leonard’s pay envelope was the following n
> Martin S. Albert (Social Security number 111-11-1111) is 39 years old and is married to Michele R. Albert (Social Security number 123-45-6789). The Alberts live at 512 Ferry Road, Newport News, VA 23601. They file a joint return and have two dependent ch
> Alfred E. Old and Beulah A. Crane, each age 42, married on September 7, 2014. Alfred and Beulah will file a joint return for 2016. Alfred’s Social Security number is 111-11-1112. Beulah’s Social Security number is 123-45-6789, and she adopted “Old” as he
> Myrna and Geoffrey filed a joint tax return in 2016. Their AGI was $85,000, and itemized deductions were $13,700, which included $4,000 in state income tax. In 2017, they received a $1,800 refund of the state income taxes they paid in 2016. The standard
> Jarrod receives a scholarship of $18,500 from Riggers University to be used to pursue a bachelor’s degree. He spends $12,000 on tuition, $1,500 on books and supplies, $4,000 for room and board, and $1,000 for personal expenses. How much may Jarrod exclud
> Leland pays premiums of $5,000 for an insurance policy in the face amount of $25,000 upon the life of Caleb and subsequently transfers the policy to Tyler for $7,500. Over the years, Tyler pays subsequent premiums of $1,500 on the policy. Upon Caleb’s de
> Alfred owned a term life insurance policy at the time he was diagnosed with a terminal illness. After paying $18,300 in premiums, he sold the policy to a company that is authorized by the state of South Carolina to purchase such policies. The company pai
> Dwain receives a 90-day letter after his discussion with an appeals officer. He is not satisfied with the $101,000 settlement offer. Identify the relevant tax research issues facing Dwain.
> Ellie purchases an insurance policy on her life and names her brother, Jason, as the beneficiary. Ellie pays $32,000 in premiums for the policy during her life. When she dies, Jason collects the insurance proceeds of $500,000. As a result, how much gross
> Mio was transferred from New York to Germany. He lived and worked in Germany for 340 days in 2017. Mio’s salary for 2017 is $190,000. In your computation, round any division to four decimal places before converting to a percentage. For example, .473938 w
> Valentino is a patient in a nursing home for 45 days of 2017. While in the nursing home, he incurs total costs of $13,500. Medicare pays $8,000 of the costs. Valentino receives $15,000 from his long-term care insurance policy, which pays while he is in t
> Your client was the beneficiary of an annuity contract purchased by her stepmother. When the stepmother died, the insurance company paid the client $400,000 and sent her a Form 1099 indicating that the taxable portion (i.e., the amount in excess of the i
> Tranquility Funeral Home, Inc., your client, is an accrual basis taxpayer that sells preneed funeral contracts. Under these contracts, the customer pays in advance for goods and services to be provided at the contract beneficiary’s death. These payments
> Your client owns a life insurance policy on his life. He has paid $6,800 in premiums, and the cash surrender value of the policy is $30,000. He borrowed $30,000 from the insurance company, using the cash surrender value as collateral. He is considering c
> Charles E. Bennett, age 64, will retire next year and is trying to decide whether to begin collecting his Social Security benefits at that time. His monthly benefits will increase if he defers his starting date for the benefits. He has asked you to estim
> Linda and Don are married and file a joint return. In 2017, they received $12,000 in Social Security benefits and $35,000 in taxable pension benefits and interest. a. Compute the couple’s adjusted gross income on a joint return. b. Don would like to know
> Herbert was employed for the first six months of 2017 and earned $90,000 in salary. During the next six months, he collected $8,800 of unemployment compensation, borrowed $12,000 (using his personal residence as collateral), and withdrew $2,000 from his
> The LMN Partnership has a group term life insurance plan. Each partner has $150,000 of protection, and each employee has protection equal to twice his or her annual salary. Employee Alice (age 32) has $90,000 of insurance under the plan, and partner Kay
> The commissioners for Walker County are actively negotiating with Falcon Industries regarding the location of a new manufacturing plant in the area. As Falcon is considering several other sites, a “generous tax holiday” may be needed to influence the fin
> In the following independent situations, is the tax position of the taxpayer likely to change? Explain why or why not. a. John started renting out a spare room in his home. b. Theresa quit her job as a staff accountant and has established her own practi
> For each of the following, determine the amount that should be included in gross income: a. Peyton was selected the most valuable player in the Super Bowl. In recognition of this, he was awarded an automobile with a value of $60,000. Peyton did not need
> Pam retires after 28 years of service with her employer. She is 66 years old and has contributed $42,000 to her employer’s qualified pension fund. She elects to receive her retirement benefits as an annuity of $3,000 per month for the remainder of her li
> Vito is the sole shareholder of Vito, Inc. He is also employed by the corporation. On June 30, 2017, Vito borrowed $8,000 from Vito, Inc., and on July 1, 2018, he borrowed an additional $10,000. Both loans were due on demand. No interest was charged on t
> Indicate whether the imputed interest rules should apply in the following situations. Assume that all of the loans were made at the beginning of the tax year unless otherwise indicated. a. Mike loaned his sister $90,000 to buy a new home. Mike did not ch
> Ridge is a generous individual. During the year, he made interest-free loans to various family members when the Federal rate was 3%. What are the tax consequences of the following loans by Ridge: a. On June 30, 2016, Ridge loaned $12,000 to his cousin, J
