Edith, who has no other sales or exchanges and no nonrecaptured Sec. 1231 losses, sells three tracts of land that are used in her trade or business. Edith is single, and her regular income tax rate is 33%. Asset #1—$15,000 gain and holding period of 20 months Asset #2—$17,000 loss and holding period of 25 months Asset #3—$ 5,000 gain and holding period of 13 months a. What is the increase in her taxes as a result of the three sales? b. If the holding period for Asset #2 is nine months, what is the decrease in her taxes as a result of the three sales? c. Same as part a except her tax rate is 39.6%.
> 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?
> Why are most elderly people unable to qualify for the tax credit for the elderly?
> What are the underlying reason for enactment of many of the personal tax credits?
> What types of business property qualify for the business energy credit?
> What are the more significant tax credit items included in the computation of the general business tax credit?
> Brian and Jennifer are a married couple who believe they may be subject to the AMT this year. Currently, they calculate their alternative minimum taxable income (AMTI) to be $160,000. a. What is their AMT exemption amount? b. They are considering an op
> Why are most individuals not subject to the selfemployment tax?
> Use any major tax service to answer the following questions: a. What are the principal primary sources? b. What are the principal secondary sources?
> Does the AMT apply if an individual’s tax liability as computed under the AMT rules is less than his or her regular tax amount?
> Why are most taxpayers not subject to the alternative minimum tax (AMT)?
> Mike Webb, married to Nancy Webb, is employed by a large pharmaceutical company andÂ earns a salary. In addition, Mike is an entrepreneur and has two small businesses on the side, both of which operate as sole proprietorships. One is a profita
> Chips-R-Us is a computer technology corporation that designs hardware and software for use in large businesses. The corporation regularly pays individuals to install programs and give advice to companies that buy their software. In the current year, Simo
> Barbara was divorced two years ago. However, the final property settlement and determination of alimony payments was not made until February 2017 because of extended litigation. Barbara received a $20,000 payment of back alimony in March 2017 and will re
> Russ has never recognized any Sec. 1231 gains or losses. In December 2017, Russ is considering the sale of two Sec. 1231 assets. The sale of one asset will result in a $20,000 Sec. 1231 gain while the sale of the other asset will result in a $20,000 Sec.
> Holly has recognized a $9,000 STCL. She has no other recognized capital gains and losses in 2017. She is considering the sale of a Sec. 1231 asset held for four years at a $5,000 gain in 2017. She had not recognized any Sec. 1231 losses during the previo
> Berkeley Corporation has a policy of furnishing new automobiles to the athletic department of the local university. The automobiles are used for short periods of time by the extremely popular head basketball coach. When the automobiles are returned to Be
> In 2011, Jack purchased undeveloped oil and gas property for $900,000 and paid $170,000 for intangible drilling and development costs. He elected to expense the intangible drilling and development costs. During the current year he sells the property for
> Bob owns farmland with a $600,000 basis, and he elects to expense $100,000 of expenditures incurred for soil and water conservation purposes. Bob sells the farmland after farming for seven years and four months. What is the amount of the recognized gain
> List three methods of searching the major tax service databases.
> Glen, whose tax rate is 33%, sells each of the following assets for $200,000. Each case is an independent case. Sec. 1231 Ordinary Gain (Loss) Income Тахed Тахed Тахed Тахed at 33% at 25% at 20% at 15% Building purchascd in 2001 for $220,000 with adj
> Raquel owns land used in her trade or business for more than one year. The basis is $10,000 and its FMV is $40,000. Her tax rate is 33% and her AGI is $250,000. She makes no other charitable contributions except for the ones considered below. a. If she
> Assume the same facts as in Problem I:13-56 except the taxpayer is a corporation instead of an individual. a. What is the recognized gain on the sale of the building and the character of the gain? b. What is the recognized gain on the sale of the land
> Molly, whose tax rate is 39.6%, sells an apartment complex for $4.5 million with 10% of the price allocated to land. The apartment complex was purchased in 1993. She has no other sales or exchanges during the year and no nonrecaptured net Sec. 1231 losse
> Assume the same facts as in Problem I:13-54 except the taxpayer is a corporate taxpayer with a 34% tax rate and answer the ten true-false questions. From problem 54: Consider three office buildings placed in service as shown below and answer the followin
> Consider three office buildings placed in service as shown below and answer the following true-false questions. Assume all assets are sold by a noncorporate taxpayer at a gain and there are no other sales or exchanges or nonrecaptured Sec. 1231 loss unle
> Rosemary owns an office building placed in service in 1980 that cost $625,000 and has an adjusted basis of $227,000. If the straight-line method of depreciation were used, the adjusted basis would be $300,000. a. What is the maximum selling price that s
> Jesse owns a duplex used as residential rental property. The duplex cost $100,000 in 1986, and 10% of the cost was allocated to the land. Total cost-recovery deductions allowed amount to $90,000. The statutory percentages were used to compute cost-recove
> Mr. Briggs purchased an apartment complex on January 10, 2015, for $2 million with 10% of the price allocated to land. He sells the complex on October 22, 2017, for $2.5 million. Assume that 10% of the $2.5 million selling price is allocated to land and
> Brigham is single and is in the 33% marginal income tax bracket. He has the sales or exchanges below. At the beginning of the year, he has nonrecaptured net Sec. 1231 losses of $10,000. Determine the increase or decrease in Brigham’s tax liability as a r
> Name three primary sources of authority that tax professionals should check against the citator before relying on those sources for important matters.
> Assume the same facts as in Problem I:13-47 except the taxpayer is a corporation and answer the same questions. From problem 37: Charles owns an office building and land that are used in his trade or business. The office building and land were acquired i
> General Corporation owns equipment which cost $70,000 and has a $44,000 adjusted basis. General exchanges the equipment for other equipment ($42,000 FMV) and marketable securities ($30,000 FMV). Determine the following: a. Realized gain b. Recognized g
> Arnie, a college student, purchased a truck in 2015 for $6,000. He used the truck 70% of the time as a distributor for the local newspaper and 30% of the time for personal use. The truck has a five-year recovery period, and he claimed depreciation deduct
> Elizabeth owns equipment that cost $500,000 and has an adjusted basis of $230,000. If the straight-line method of depreciation had been used, the adjusted basis would be $300,000. a. What is the maximum selling price that she could sell the equipment fo
> Consider the following summary of Sec. 1231 gains and losses recognized by Janet during the period 2012â€“2017. Janet had no nonrecaptured Sec. 1231 losses at the beginning of 2012. If Janet has no capital gains and losses during the six-
> During the current year, Sean’s office building is destroyed by fire. After collecting the insurance proceeds, Sean has a $50,000 recognized gain. The building was acquired in 1998, and the straight-line method of depreciation has been used. He does not
> Vicki has an AGI of $70,000 without considering the sale of a nondepreciable asset for $23,000. The asset was acquired six years ago and has an adjusted basis of $35,000. She has no other sales or exchanges. Determine her AGI for the following independen
> All assets listed below have been held for more than one year. Which assets might be classified as Sec. 1231, Sec. 1245, or Sec. 1250 property? An asset may be classified as more than one type of property. a. Land on which a factory is located b. Equip
> Ed operates a storage business as a sole proprietorship and owns the following assets acquired in 1998: Warehouse…………………………………..$400,000 Minus: Accumulated depreciation…..(230,000) Adjusted basis………………………………$170,000 Land……………………………………………….65,000 The FM
> What two functions does a citator serve?
> At the beginning of 2017, Silver Corporation has a $95,000 capital loss carryforward from 2016. During 2017, the corporation sells land, held for four years, and realizes an $80,000 gain. Silver has no unrecaptured net Sec. 1231 losses, and it made no ot
> Jeremy purchased undeveloped oil and gas property five years ago. He paid $300,000 for intangible drilling and development costs and elected to expense the $300,000. During the current year, Jeremy sells the property, which has an $800,000 adjusted basis
> Sylvester owns and operates an unincorporated pizza business that delivers pizza to customers. Three years ago, he acquired an automobile for $30,000 to provide delivery service. Recently, Sylvester hired an employee who prefers to use his personal autom
> Sarah, who has been in the business of erecting, maintaining, and renting outdoor advertising displays for 18 years, has an offer to purchase her business. Two basic types of advertising displays are used in her business: structure X and structure Y. Str
> Green Acres, Inc., owns 1,400 acres adjacent to land owned by the U.S. government. The government, wanting to sell timber from its land, had to assure prospective bidders of access to the timber. The government entered into an agreement with Green Acres
> Six years ago Joelle started raising chinchillas. She separates her chinchillas into two groups, a breeding group and a market group. During the year, she had the following sales of chinchillas from her market group: 400 to producers of fur products; 100
> Dale owns business equipment with a $100,000 FMV and an adjusted basis of $60,000. The property was originally acquired for $150,000. Which one of the following transactions would result in recognition of $40,000 ordinary income by Dale due to the deprec
> Why may a corporation recognize a greater amount of ordinary income due to the sale of Sec. 1250 property than a noncorporate taxpayer?
> John and Karen are unrelated individuals. John sold land that is Sec. 1231 property held for three years and recognized a $50,000 gain. Karen sold a building that is Sec. 1231 property held for three years and recognized a $50,000 gain. Straight-line dep
> Will an individual taxpayer ever have to recognize Sec. 1250 ordinary income on the sale of a building used for business and placed in service after 1986? Explain.
> Under what circumstances might a tax advisor find the provisions of a tax treaty useful?
> Jackie purchases equipment during the current year for $800,000 that has a seven-year MACRS recovery period. She expects to sell the property after three years. Jackie anticipates that her marginal tax rate in the year of sale will be significantly highe
> Why is it unlikely that gains due to the sale of equipment will be treated as Sec. 1231 gains?
> Carlie who is single has a Sec. 1231 gain of $10,000 and no Sec. 1231 losses during the current year. Explain why the gain might be taxed at (a) 15%, (b) 39.6%, (c) 25%, (d) 20%, or (e) zero.
> Explain how the gain from an involuntary conversion of business property held more than one year is taxed if the involuntary conversion is the result of a condemnation. Explain the tax treatment if the involuntary conversion is due to a casualty.
> Alice owns timber, purchased six years ago, with an adjusted basis of $50,000. The timber is cut for use in her furniture business on October 1, when the FMV of the timber is $200,000. The FMV of the timber on January 1 is $190,000. May Alice treat any o
> Explain how the gain on the sale or exchange of land could be classified as either ordinary income, a Sec. 1231 gain, or a LTCG, depending on the facts and circumstances.
> Ted owns a warehouse that cost $850,000 in 1984 and is subject to depreciation recapture under Sec. 1245. The warehouse, which has an adjusted basis of zero, is destroyed by a tornado and Ted receives $580,000 from the insurance company. Within nine mont
> William owns two appreciated assets, land and a building, which have been used in his trade or business since purchased in 1990. If he sells the two assets to his 100%-owned corporation, will William have to recognize any ordinary income? Explain.
> When a taxpayer disposes of oil, gas, or geothermal property, part or all of the gain may be recaptured as ordinary income. Explain how the recapture amount is determined for oil and gas and geothermal properties.
> Carlos owns equipment with an $800,000 acquisition cost, a $270,000 adjusted basis, and a $500,000 FMV. Carlos makes a gift of the equipment to a charitable organization. The equipment is used by the charity in its exempt function. What is the amount of
> Which official publication(s) contain(s) the following: a. Transcripts of Senate floor debates b. IRS announcements c. Tax Court regular opinions d. Treasury decisions e. U.S. district court opinions f. Technical advice memoranda
> Assume a taxpayer sells equipment used in a trade or business for a gain that is less than the depreciation allowed. If the taxpayer is a corporation, will a greater amount of Sec. 1245 income be recognized than if the taxpayer is an individual? Explain.
> Rashad owns a duplex used 100% as residential rental property. Under what conditions, if any, will any gain that he recognizes be Sec. 1245 ordinary income?
> Roger owns an apartment complex with a FMV of $2 million. If he sells the apartment complex, $700,000 of the gain is Sec. 1231 gain with $600,000 taxed at 25% because it is unrecaptured Sec. 1250 gain. If he dies before selling the apartment complex and
> Does a building that is 60% rented for residential use and 40% for commercial use qualify as residential rental property?
> When is an office building subject to the depreciation recapture rules of Sec. 1245?
> Which of the following assets (assume all assets have a holding period of more than one year) do not qualify as Sec. 1231 property: inventory, a pig held for breeding, land used as a parking lot for customers, and marketable securities?
> Marty sells his fully depreciated building at a gain to an unrelated party. The building is purchased before 1981. Is any of the gain taxed as ordinary income?
> Sheila owns a motel that is used in a trade or business. If she sells the motel, the gain will be Sec. 1245 ordinary income. During what period of time was the motel placed into service?
> Karen purchased a computer three years ago for $15,300 to use exclusively in her business. She expensed the entire cost of the computer under Sec. 179. If she sells the computer during the current year for $3,721, what is the amount and character of her
> Hank sells equipment used in a trade or business for $25,000. The equipment costs $30,000 and has an adjusted basis of $25,500. Why is it important to know the holding period?
> Assume that the only precedents relating to a particular issue are as follows: Tax Court—decided for the taxpayer Eighth Circuit Court of Appeals—decided for the taxpayer (affirming the Tax Court) U.S. District Court for Eastern Louisiana— decided for th
> When is a net Sec. 1231 gain treated as ordinary income?
> When is livestock considered Sec. 1231 property?
> Why were taxpayers reluctant to sell appreciated business property between 1938 and 1942? What effect did this reluctance have on the tax law?
> Betty, whose tax rate is 33%, is in the business of breeding and racing horses. Except for the transactions below, she has no other sales or exchanges and she has no unrecaptured net Sec. 1231 losses. Consider the following transactions that occur during
> Assume the same facts as in Case Study Problem I:13-69 except you have the following market values as a result of an appraisal: Equipment $ 250,000 Building 500,000 Land
> Your client, Kent Earl, whose tax rate is 35%, owns a bowling alley and has indicated that he wants to sell the business for $1 million and purchase a minor league baseball franchise. His business consists of the following tangible assets: Because you h
> Ray and Ellie have each owned a principal residence used for more than five years. Ray’s residence has an adjusted basis of $100,000 and a FMV of $325,000, while Ellie’s residence has an adjusted basis of $300,000 and a FMV of $490,000. They plan to marr
> George, age 68, decides to retire from farming and is considering selling his farm. The farm has a $100,000 basis and a $400,000 FMV. George’s two sons are not interested in farming. Both sons have large families and would like to own houses suitable for
> For the last nine years, Mr. and Mrs. Orchard live in a residence located on eight acres. In January of the current year they sell the home and two acres of land. The purchaser of the residence does not wish to own the entire eight acres of land. In Dece
> Mr. and Mrs. Hattan have lived in their residence for 20 years and purchased the house for $100,000 as joint tenants with right of survivorship. Mr. Hattan died in May of the current year when the house’s FMV was $800,000. Mrs. Hattan wants to sell the h
> Explain the Golsen Rule. Give an example of its application.
> According to the AICPA’s Statements on Standards for Tax Services, what duties does the tax practitioner owe the client?
> On March 10, 2014, Elizabeth, a college professor, purchased a house for $300,000. She did not move into the house until August 8, 2014. On August 1, 2015, she accepted a position as a visiting professor at Hogwatts University for one year and moved to L
> Sherron, who is single, purchased a house to use as rental property on April 1, 2007, for $300,000. He moved into the house on June 1, 2016, and used it as a personal residence until August 1, 2017, when he sells the house for $500,000. Depreciation allo
> In 1970, Mr. and Mrs. Self purchased their first principal residence for $80,000. In 1995, they sold the house for $300,000 and purchased a new residence for $1.5 million. At that time, the Selfs were allowed to defer the $220,000 gain because they purch