Question: Edna incurs various legal fees in obtaining

> Marcie is divorced, and her married son, Jamie (age 25), and his wife, Audrey (age 18), live with her. During the year, Jamie earned $4,800 from a part-time job and filed a joint return with Audrey to recover his withholdings. Audrey reports zero gross i

> Lynn Swartz’s husband died three years ago. Her parents have an income of over $200,000 a year and want to ensure that funds will be available for the education of Lynn’s 8-year-old son, Eric. Lynn is currently earning $45,000 a year. Lynn’s parents have

> Distinguish between an estate tax and an inheritance tax. a. Do some states impose both? Neither? b. Which, if either, does the Federal government impose?

> During the year, Hernando recorded the following transactions. How should Hernando treat these transactions for income tax purposes? • Gain on the sale of stock held as an investment for 10 months. • Gain on the sale of land held as an investment for 4 y

> During a social event, Muriel and Earl are discussing the home computer each recently purchased. Although the computers are identical makes and models, Muriel is surprised to learn that she paid a sales tax, while Earl did not. Comment as to why this cou

> In connection with the application of the kiddie tax, comment on the following. a. The child generates only earned income. b. The child reports a modest amount of unearned income. c. The child is age 20, not a student, and not disabled. d. The child is

> Mona viewed herself as a creative individual who had chosen to go to law school for economic reasons. Mona’s undergraduate majors were creative writing and American Indian studies. Mona was very successful as an attorney and eventually was admitted to p

> Rex and Agnes Harrell purchased a beach house at Duck, North Carolina, in early 2016. Although they intended to use the beach house occasionally for recreational purposes, to help pay the mortgage payments, property taxes, and maintenance costs, they als

> Sarah was contemplating making a contribution to her traditional IRA in 2016. She determined that she would contribute $5,000 in December 2016, but forgot about making the contribution until she was preparing her 2016 tax return in February 2017. Use the

> For each of the following independent transactions, calculate the recognized gain or loss to the seller and the adjusted basis to the buyer. a. Bonnie sells Parchment, Inc. stock (adjusted basis $17,000) to Phillip, her brother, for its fair market value

> The Robin Corporation is owned as follows: Isabelle……………………………………………………………….26% Peter, Isabelle’s husband……………………………………..19% Sonya, Isabelle’s mother………………………………………15% Reggie, Isabelle’s father………………………………………..25% Quinn, an unrelated party……………………………………

> Brittany Callihan sold stock (basis of $184,000) to her son, Ridge, for $160,000, the fair market value. a. What are the tax consequences to Brittany? b. What are the tax consequences to Ridge if he later sells the stock for $190,000? For $152,000? For $

> Tonya, who lives in California, inherited a $100,000 State of California bond in 2017. Her marginal Federal tax rate is 35%, and her marginal state tax rate is 5%. The California bond pays 3.3% interest, which is not subject to California income tax. She

> Elisa and Clyde operate a retail sports memorabilia shop. For the current year, sales revenue is $55,000 and expenses are as follows: Cost of goods sold……………………………. $21,000 Advertising………………………………………..1,000 Utilities……………………………………………..2,000 Rent……………………

> Chee, single, age 40, had the following income and expenses during 2017: Income Salary……………………………………………………………………………………………$43,000 Rental of vacation home (rented 60 days, used personally 60 days, vacant 245 days)…………………………………………………4,000 Municipal bond in

> The Grays live in Clay County, which is adjacent to Jackson County. Although the retail stores in both counties are comparable, the Grays usually drive a few extra miles to shop in Jackson County. As to why the Grays might do this, consider the following

> How would your answer to Problem 48 differ if Anna had rented the house for 87 days and had used it personally for 13 days?

> During the year (not a leap year), Anna rented her vacation home for 30 days, used it personally for 20 days, and left it vacant for 315 days. She had the following income and expenses: Rent income…………………………………………………. $ 7,000

> Adelene, who lives in a winter resort area, rented her personal residence for 14 days while she was visiting Brussels. Rent income was $5,000. Related expenses for the year were as follows: Real property taxes…………………………………..$ 3, 800 Mortgage interest………

> Sarah owns a vacation cabin in the Tennessee mountains. Without considering the cabin, she has gross income of $65,000. During the year, she rents the cabin for two weeks for $2,500 and uses it herself for four weeks. The total expenses for the year are

> Samantha, an executive, has AGI of $100,000 before considering income or loss from her miniature horse business. Her outside income comes from prizes for winning horse shows, stud fees, and sales of yearlings. Samantha’s home is on 20 a

> Alex, who is single, conducts an activity in 2017 that is appropriately classified as a hobby. The activity produces the following revenues and expenses: Revenue……………………………………………..$18,000 Property taxes………………………………………..3,000 Materials and supplies………………

> Terry traveled to a neighboring state to investigate the purchase of two hardware stores. His expenses included travel, legal, accounting, and miscellaneous expenses. The total was $52,000. He incurred the expenses in June and July 2017. Under the follow

> In January 2017, Ezra purchased 2,000 shares of Gold Utility Mutual Fund for $20,000. In June, Ezra received an additional 100 shares as a dividend, in lieu of receiving $1,000 in cash dividends. In December, the company declared a two-for-one stock spli

> Nancy, the owner of a very successful hotel chain in the Southeast, is exploring the possibility of expanding the chain into a city in the Northeast. She incurs $35,000 of expenses associated with this investigation. Based on the regulatory environment f

> Amber, a publicly held corporation, currently pays its president an annual salary of $900,000. In addition, it contributes $20,000 annually to a defined contribution pension plan for him. As a means of increasing company profitability, the board of direc

> Trevor, a friend of yours from high school, works as a server at the ST Cafe. He asks you to help him prepare his Federal income tax return. When you inquire about why his bank deposits substantially exceed his tip income, he confides to you that he is a

> What is meant by the term petitioner?

> Doug incurred and paid the following expenses during the year: • $50 for a ticket for running a red light while he was commuting to work. • $100 for a ticket for parking in a handicapped parking space. • $200 to an attorney to represent him in traffic co

> Duck, an accrual basis corporation, sponsored a rock concert on December 29, 2017. Gross receipts were $300,000. The following expenses were incurred and paid as indicated: Because the coliseum was not scheduled to be used again until January 15, the c

> A list of the items that Peggy sold and the losses she incurred during the current tax year is as follows: Yellow, Inc. stock………………………………………………………..$ 1,600 Peggy’s personal use SUV………………………………………………8,000 Peggy’s personal residence……………………………………………10,000

> Janice, age 22, is a student who earns $10,000 working part-time at the college ice cream shop in 2017. She has no other income. Her medical expenses for the year total $3,000. During the year, she suffers a casualty loss of $3,500 when her apartment cat

> Daniel, age 38, is single and has the following income and expenses in 2017. Salary income………………………………………………………………………………………..$60,000 Net rent income……………………………………………………………………………………….6, 000 Dividend income……………………………………………………………………………………...3,500 Payment

> Amos is a self-employed tax attorney. He and Monica, his employee, attend a conference in Dallas sponsored by the American Institute of CPAs. The following expenses are incurred during the trip: a. Amos pays for all of these expenses. Calculate the eff

> Determine Hazel’s gross income from the following receipts for the year: Gain on sale of Augusta County bonds…………………………………………..$800 Interest on U.S. government savings bonds……………………………………400 Interest on state income tax refund………………………………………………..200 Int

> During the current year, Robert pays the following amounts associated with his own residence: Property taxes………………………………………$3, 000 Mortgage interest…………………………………..8, 000 Repairs…………………………………………………..1, 200 Utilities…………………………………………………..2, 700 Replacement

> Gordon anticipates that being positively perceived by the individual who is elected mayor will be beneficial for his business. Therefore, he contributes to the campaigns of both the Democratic and the Republican candidates. The Republican candidate is el

> Stuart, an insurance salesperson, is arrested for allegedly robbing a convenience store. He hires an attorney who is successful in getting the charges dropped. Is the attorney’s fee deductible? Explain.

> Clear, Inc., is a bottled water distributor. Clear’s delivery trucks frequently are required to park in no-parking zones to make their deliveries. If the trucks are occasionally ticketed, can Clear deduct the fines that it pays? Explain.

> What is the difference between an excise tax and a general sales tax? a. Do all states impose a general sales tax? b. Does the Federal government impose a general sales tax?

> Use www.congress.gov or another reliable website to find a proposal for a carbon tax or a financial transactions tax. Draft a summary of the tax, and analyze it against five of the principles of good tax policy.

> Mary Kate owns a building that she leases to an individual who operates a grocery store. Rent income is $10,000, and rental expenses are $6,000. On what Form 1040 schedule or schedules are the income and expenses reported?

> Boston Clothing Limited was a private company that experienced cash flow difficulties and hired new management to turn the company around. The company then went public and the shares sold at $15 per share. Within months, however, the share price plummete

> Larry and Susan each invest $10,000 in separate investment activities. They each incur deductible expenses of $800 associated with their respective investments. Explain why Larry’s expenses might be properly classified as deductions from AGI (itemized de

> Classify each of the following expenditures as a deduction for AGI, a deduction from AGI, or not deductible: a. Amos contributes to his H.R. 10 plan (i.e., a retirement plan for a self-employed individual). b. Keith pays child support to his former wife,

> George is a U.S. citizen who is employed by Hawk Enterprises, a global company. Beginning on June 1, 2017, George began working in London. He worked there until January 31, 2018, when he transferred to Paris. He worked in Paris the remainder of 2018. His

> Classify each of the following expenditures as a deduction for AGI, a deduction from AGI, or not deductible: a. Sam gives cash to his father as a birthday gift. b. Sandra gives cash to her church. c. Albert pays Dr. Dafashy for medical services rendered.

> “All income must be reported, and all deductions are allowed unless specifically disallowed in the Code.” Discuss.

> Ella owns 60% of the stock of Peach, Inc. The stock has declined in value since she purchased it five years ago. She is going to sell 5% of the stock to a relative. Ella is also going to make a gift of 10% of the stock to another relative. Identify the r

> Ray loses his job as a result of a corporate downsizing. Consequently, he falls behind on the mortgage payments on his personal residence. His friend Ted would like to make the delinquent mortgage payments for him. a. Could the payments be structured so

> Hank was transferred from Arizona to North Dakota on March 1 of the current year. He immediately put his home in Phoenix up for rent. The home was rented May 1 to November 30 and was vacant during the month of December. It was rented again on January 1 f

> Why do taxpayers often have more than one alternative for structuring a business transaction?

> Karen and Andy own a beach house. They have an agreement with a rental agent to rent it up to 200 days per year. For the past three years, the agent has been successful in renting it for 200 days. Karen and Andy use the beach house for one week during th

> Paul operates a restaurant in Cleveland. He travels to Columbus to investigate acquiring a business. He incurs expenses as follows: $1,500 for travel, $2,000 for legal advice, and $3,500 for a market analysis. Based on the different tax consequences list

> What limits exist on the deductibility of executive compensation? Do the limits apply to all types of business entities? Are there any exceptions to the limitations? Explain.

> Sparrow Corporation would like you to review its employee fringe benefits program with regard to the tax consequences of the plan for the company’s president (Polly), who is also the majority shareholder. a. The company has a qualified retirement plan. T

> Melissa, the owner of a sole proprietorship, does not provide health insurance for her 20 employees. She plans to spend $1,500 lobbying in opposition to legislation that would require her to provide such insurance. Discuss the tax advantages and disadvan

> Linda operates an illegal gambling operation. Which of the following expenses that she incurs can reduce taxable income? a. Bribes paid to city employees. b. Salaries to employees. c. Security cameras. d. Kickbacks to police. e. Rent on an office. f. Dep

> Ted, an agent for an airline manufacturer, is negotiating a sale with a representative of the U.S. government and with a representative of a developing country. Ted’s company has sufficient capacity to handle only one of the orders. Both orders will have

> Aubry, a cash basis and calendar year taxpayer, decides to reduce his taxable income for 2017 by buying $65,000 worth of supplies for his business on December 27, 2017. The supplies will be used up in 2018. a. Can Aubry deduct the expenditure for 2017? E

> What is the “actually paid” requirement for the deduction of an expense by a cash basis taxpayer? Does actual payment ensure a deduction? Explain.

> Boston Clothing Limited was a private company that experienced cash flow difficulties and hired new management to turn the company around. The company then went public and the shares sold at $15 per share. Within months, however, the share price plummete

> Nanette is a first-grade teacher. Potential deductions are charitable contributions of $800, personal property taxes on her car of $240, and various supplies purchased for use in her classroom of $225 (none reimbursed by her school). How will these items

> After his first business trip to a major city, Herman is alarmed when he reviews his credit card receipts. Both the hotel bill and the car rental charge are in excess of the price he was quoted. Was Herman overcharged, or is there an explanation for the

> Michael earned $20,000 at the K-M Resort Golf Club during the summer prior to his senior year in college. He wants to make a contribution to a traditional IRA, but the amount is dependent on whether it reduces his taxable income. If Michael is going to c

> Jarret owns City of Charleston bonds with an adjusted basis of $190,000. During the year, he receives interest payments of $3,800. Jarret partially financed the purchase of the bonds by borrowing $100,000 at 5% interest. Jarret’s interest payments on the

> Rosa’s employer has instituted a flexible benefits program. Rosa will use the plan to pay for her daughter’s dental expenses and other medical expenses that are not covered by health insurance. Rosa is in the 28% marginal tax bracket and estimates that t

> John and Mary Jane Diaz are married, filing jointly. Their address is 204 Shoe Lane, Blacksburg, VA 24061. John is age 35, and Mary Jane is age 30. They are expecting their first child in early 2018. John’s salary in 2017 was $105,000, from which $20,800

> Roberta Santos, age 41, is single and lives at 120 Sanborne Avenue, Springfield, IL 60781. Her Social Security number is 123-45-6789. Roberta has been divorced from her former husband, Wayne, for three years. She has a son, Jason, who is 17, and a daught

> Murphy has a brokerage account and buys on the margin, which resulted in an interest expense of $20,000 during the year. Income generated through the brokerage account was as follows: Municipal interest………………………………………$ 50,000 Taxable dividends and inter

> Printer Company pays a $25,000 annual membership fee to a trade association for paper wholesalers. The trade association estimates that 60% of its dues are allocated to lobbying activities. a. What are Printer’s total deductible expenses for tax purposes

> Vella owns and operates an illegal gambling establishment. In connection with this activity, he has the following expenses during the year: Rent………………………………………………. $ 24,000 Bribes………………………….………..…….…….40, 000 Travel expenses……………………………………4,000 Utiliti

> Maud, a calendar year taxpayer, is the owner of a sole proprietorship that uses the cash method. On February 1, 2017, she leases an office building to use in her business for $120,000 for an 18-month period. To obtain this favorable lease rate, she pays

> Falcon, Inc., paid salaries of $500,000 to its employees during its first year of operations. At the end of the year, Falcon had unpaid salaries of $45,000. a. Calculate the salary deduction if Falcon is a cash basis taxpayer. b. Calculate the salary ded

> Glenda, a calendar year and cash basis taxpayer, rents property from Janice. As part of the rental agreement, Glenda pays $8,400 rent on April 1, 2017, for the 12 months ending March 31, 2018. a. How much is Glenda’s deduction for rent expense in 2017? b

> List an advantage and a disadvantage of using the U.S. Tax Court as the trial court for Federal tax litigation.

> Stanford owns and operates two dry cleaning businesses. He travels to Boston to discuss acquiring a restaurant. Later in the month, he travels to New York to discuss acquiring a bakery. Stanford does not acquire the restaurant but does purchase the baker

> Bluebird, Inc., does not provide its employees with any tax-exempt fringe benefits. The company is considering adopting a hospital and medical benefits insurance plan that will cost approximately $9,000 per employee. To adopt this plan, the company may h

> Your client, John Butler, is an avid Houston Astros fan. Last March at the Astros’ home opener, as a result of a random drawing of those in attendance at the game, John won 300 Shipley Do-Nut coupons. Each coupon entitled him to a cup of coffee and a fre

> Murray reported to the Environmental Protection Agency that his employer was illegally dumping chemicals into a river. His charges were true, and Murray’s employer was fined. In retaliation, Murray’s employer fired him and made deliberate efforts to prev

> Aubrey Brown is a decorated veteran of the Vietnam War. As a result of his exposure to Agent Orange during the war, Aubrey developed lung cancer and is unable to work. He received $12,000 of Social Security disability payments in the current year. He rea

> Belinda spent the last 60 days of 2017 in a nursing home. The cost of the services provided to her was $18,000 ($300 per day). Medicare paid $8,500 toward the cost of her stay. Belinda also received $5,500 of benefits under a long-term care insurance pol

> Caden and Lily are divorced on March 3, 2016. For financial reasons, however, Lily continues to live in Caden’s apartment and receives her support from him. Caden does not claim Lily as a dependent on his 2016 Federal income tax return, but he does so on

> Mia owns a warehouse that has a cost basis to her of $80,000. The city condemns the warehouse to make room for a new fire station. It pays Mia $400,000 for the property, its agreed-to fair market value. Shortly after the condemnation, Mia purchases anoth

> Heather, age 12, lives in the same household with her mother, grandmother, and uncle. a. Who can claim Heather as a dependent on a Federal income tax return? b. Which of Heather’s relatives takes precedence in claiming the exemption?

> Discuss the probable justification for each of the following aspects of the tax law: a. A tax credit is allowed for amounts spent to furnish care for minor children while the parent works. b. Deductions for interest on home mortgage and property taxes on

> Patsy maintains a household that includes her eldest son (age 30) and one of Patsy’s cousins (age 28). She can claim the cousin as a dependent but not her son. Explain.

> Some tax rules can be justified on multiple grounds (e.g., economic and social). In this connection, comment on the possible justification for the rules governing the following: a. Pension plans. b. Education. c. Home ownership.

> Jayden calculates his Federal income tax by using both the Tax Tables and the Tax Rate Schedules. Because the Tax Rate Schedules yield a slightly lower tax liability, he plans to pay this amount. a. Why is there a difference? b. Is Jayden’s approach perm

> In terms of tax policy, what do the following mean? a. Revenue neutrality. b. Pay-as-you-go, or “paygo.” c. Sunset provision. d. Indexation.

> Comment on the availability of head-of-household filing status in each of the following independent situations. a. Al lives alone but maintains the household of his parents. In July, the parents use their savings to purchase a new BMW for $62,000. b. Bre

> Rex, age 55, is an officer of Blue Company, which provides him with the following nondiscriminatory fringe benefits in 2017: • Hospitalization insurance premiums for Rex and his dependents. The cost of the coverage for Rex is $2,900 per year, and the add

> The Benson CPA firm is considering utilizing an offshore service provider to prepare many of its tax returns. In this regard, what ethical considerations must be taken into account?

> Interpret this Regulation citation: Reg. § 1.163–10(a)(2).

> Mario, who is single, is a U.S. citizen and resident. He provides almost all of the support of his parents and two aunts, who are citizens and residents of Guatemala. Mario’s parents and aunts are seriously considering moving to and becoming residents of

> In March 2017, Jim asks you to prepare his Federal income tax returns for tax years 2014, 2015, and 2016. In discussing this matter with him, you discover that he also has not filed for tax year 2013. When you mention this fact, Jim tells you that the st

> David is age 78, is a widower, and is being claimed as a dependent by his son. How does this situation affect the following? a. David’s own individual filing requirement. b. David’s personal exemption. c. The standard deduction allowed to David. d. The a

> For tax year 2014, the IRS assesses a deficiency against David for $500,000. Disregarding the interest component, what is David’s penalty if the deficiency is attributable to: a. Negligence? b. Fraud?

> In choosing between the standard deduction and itemizing deductions from AGI, what effect, if any, does each of the following variables have? a. The age of the taxpayer(s). b. The health (i.e., physical condition) of the taxpayer(s). c. Whether the taxpa

> Isabella files her income tax return 35 days after the due date of the return without obtaining an extension from the IRS. Along with the return, she remits a check for $40,000, which is the balance of the tax she owes. Disregarding the interest element,