Question: Polly has the following capital gains and

> Why is it important that a conduit entity separate the reporting of its capital gains and losses from its reporting of other forms of income?

> The Small Business Job Protection Act of 1996 limited the exclusion for damages received to nonpunitive damages received on account of a personal physical injury or physical sickness. The new law specifically disqualifies emotional distress as a physica

> In April, a tornado damages the house owned by Delbert and Debbie. The damaged residence required extensive repairs, making it necessary for Delbert and Debbie to move into a motel and eat their meals in restaurants. During the repair period they incur

> Perry Corporation leases a building to Jimison Corporation for $10,000 per month. The terms of the lease provide that any improvements to the building will revert to Perry upon termination of the lease. During the current year, Jimison adds a wing to t

> Bud borrows $20,000 from a friend. Before he can repay any of the loan, the friend dies. His friend's will provides that any amounts owed to him are to be forgiven upon his death. Identify the tax issue(s) posed by the facts presented. Determine the

> Sonya purchases a house for $65,000. The seller had listed the house for sale at $80,000 but got into financial trouble and had to accept Sonya's $65,000 offer to avoid bankruptcy. Identify the tax issue(s) posed by the facts presented. Determine the p

> Taki was injured in an airplane crash. He sues the airline and receives $4,400 for his pain and suffering, $3,300 for lost wages while he recuperated from his injuries, and $7,000 in punitive damages. He also uses $1,000 from his Medical Savings Accoun

> Salina is an apartment manager and is paid $6,000 per year. The owner of the apartments offered her the option of a $300-per-month living allowance or the use of an apartment rent-free. Salina chose to live in the apartment, which normally rents for $4

> Ikleberry is a self-employed fisherman. He buys a health insurance policy by donating 1,000 salmon filets to the Nordisk Insurance Company’s annual Christmas party. During the year, Ikleberry receives $321 in reimbursements from the plan. Identify th

> If you were in the 28% marginal tax bracket and you could choose either a $1,000 tax credit or a $3,000 tax deduction, which would give you the most tax savings? Why?

> Based solely on the definitions in the chapter, is the Social Security tax a proportional, regressive, or progressive tax? Explain, and state how the tax might be viewed differently.

> Are all losses realized on the sale of capital assets deductible?

> Ariel has worked for Sander Corporation for 30 years. Sander has a pension plan in which it matches employee contributions by up to 5% of the employee's salary. Ariel, who is single, retires during the current year when she is 66 years old. Her pensio

> You are a CPA working for a local firm and have been assigned the 2017 tax return of Bobby Crosser. In going over the data that Bobby gave to the firm, you are surprised to see that he has reported no dividend income or gains from the sale of stock. Yo

> Are punitive damages taxable? Explain

> Why are life insurance proceeds excluded from the gross income of the beneficiary of the policy?

> How can gifts be used to lower the overall tax paid by a family?

> What is the difference between an exclusion of income and a deferral of income?

> What are the two reasons most commonly advanced for excluding items from income? Give examples of each and explain how they accomplish the purpose of the exclusion.

> Are all stock dividends received excluded from gross income?

> What is the purpose of excluding municipal bond interest from gross income?

> Discuss the difference in the tax treatment of payments received from an employer-provided health and accident insurance policy and a health and accident insurance policy purchased by the taxpayer.

> What is the purpose of the capital gain-and-loss netting procedure?

> How is a tax credit different from a tax deduction?

> Are payments for loss of income taxable? Explain.

> What is a personal physical injury for purposes of excluding damage payments received?

> Why are workers' compensation payments treated differently from unemployment compensation payments for tax purposes?

> What is the difference between a cafeteria plan and a flexible benefits (salary reduction) plan?

> What is the difference between a qualified employee discount and a bargain purchase by an employee?

> What is a Health savings account?

> What is the difference in the tax treatment of a medical insurance plan that is purchased from a third-party insurer and a self-insured medical reimbursement plan?

> Distinguish group term life insurance from whole life insurance.

> How do employees benefit from payments made into a qualified pension plan on their behalf?

> How is capital gain income treated differently from other forms of income?

> What tax relief is provided to U.S. citizens who earn income in a foreign country and pay taxes in that country?

> What is a tax credit?

> Explain the circumstances under which a scholarship would not be excluded from gross income.

> Germaine, 22, is a single individual with no dependents who recently graduated from college and has job offers from two firms. Germaine likes both companies equally well and has decided to base her decision on which company offers more. Details of each

> Marlo and Merlin's son, Alex, needs $20,000 to start a business. They have $30,000 in securities that they can use to give him the capital he needs. Pertinent information regarding the securities is given below: Marlo and Merlin are in the 28% margin

> Peter is a professor of mathematics at State University. His lifetime avocation has been sailing and he owns an ocean going sailing vessel. He plans to retire in five years and spend the remainder of his life "plying" the South Pacific, visiting exotic

> a. Assuming that Nick and Jolene have total allowable itemized deductions of $13,350 in 2017 and that they have no dependents, determine their 2017 taxable income and tax liability based on the projections they gave you. b. The 6-month CDs consist of two

> Albert and Patricia are divorced during the current year. As part of their divorce agreement, Patricia agrees to pay Albert alimony of $85,000 in the current year and $5,000 per year in subsequent years. What tax problem is presented by this agreement?

> Jawan has the following capital gains and losses in the current year: Short-term capital gain…………………….$ 500 Short-term capital loss……………………...3,000 Long-term capital gain………………………6,000 Long-term capital loss……………………..12,000 Collectibles gain……………………………

> Herbert and Geraldine have a taxable income of $28,000 before considering the gain they realize on the sale of 500 shares of Olebolla Corporation common stock for $26 per share. Herbert had acquired the shares for $3 per share while he worked for Olebol

> What is a bargain purchase?

> Jennifer is single and has the following income and expenses: Salary………………………………………….$76,000 Interest income……………………………….5,000 Dividend income……………………………..9,000 Long-term capital gain……………………10,000 Short-term capital loss……………………14,000 Deductions for AG

> Jason and Jill are married and have a six-year-old daughter. During the year they sell one acre of land for $80,000. Three years ago, they paid $70,000 for two acres of land. Their other income and deductions are as follows: Jill’s commissions……………………

> Explain the pay-as-you-go system.

> Erin, a single taxpayer, has a taxable income of $103,000 in the current year before considering the following capital gains and losses: Short-term capital gain……………………………………..$ 3,000 Long-term capital gain………………………………………..22,000 Unrecaptured Section 1

> Rikki has the following capital gains and losses for the current year: Short-term capital gain………………………………$ 1,000 Long-term capital gain……………………………….. 11,000 Long-term capital loss…………………………………..3,000 Collectibles gain…………………………………………….8,000 Collectibl

> Pedro purchases 50 shares of Piper Company common stock on February 19, 2014, at a cost of $4,300. He sells the 50 shares on July 2, 2017, for $9,000. On March 14, 2017, Pedro purchases 100 shares of Troxel common stock for $9,700. He sells the Troxel

> Determine whether the taxpayer has income that is subject to taxation in each of the following situations: a. Capital Motor Company is going out of business. As a result, June is able to purchase a car for $12,000; its original sticker price was $25,000

> Aziza is the sole owner of Azi's Fast Pizza. During the current year, Azi's replaces its fleet of delivery vehicles. Aziza's son purchases one of the old vehicles for $500, its tax basis to Azi's. Similar vehicles are sold for $4,000. What tax proble

> Reggie works during the summer for Dan the Screenman. Dan pays Reggie $4,300 in salary, saves Reggie $200 on free screens for Reggie’s father’s house, and agrees to pay Reggie’s fall college tuition of $2,100. How much gross income does Reggie have fro

> Evaluate the following statement: Whenever another person pays an expense for you, you are in receipt of taxable income.

> Determine whether the following taxpayers have gross income from the payment of their expenses: a. Julia's mother, Henrietta, is short of cash when it comes time to pay her property taxes. Julia pays Henrietta's property taxes of $350. b. Kurt fell asle

> On January 1, Wilton loans Andy $90,000. The loan is to be repaid in 5 years with no interest charged. The applicable federal rate is 5%. Discuss the treatment of the loan for both Wilton and Andy in each of the following independent situations: a. An

> Laura makes the following interest-free loans during the current year. Discuss the income tax implications of each loan for both Laura and the borrower. In all cases, the applicable federal interest rate is 8%. a. On April 15, Laura loans $30,000 to he

> Based on the example in Exhibit 1--2, explain how inflation can have two effects that result in a hidden tax.

> Which of the following interest-free loans are subject to the imputed interest rules? a. Alamor Corporation loans Sandy, an employee, $8,000. The loan is to be repaid over 4 years. Sandy uses the proceeds to buy a used automobile. She has $1,100 in inv

> Erica and Raphael are divorced during the current year. Because Erica made millions in the record industry while Raphael served as the homemaker and primary caretaker to baby Dexter, Erica agrees to give Raphael 20% of the stock in her record business.

> Will and Janine are divorced during the current year. Will is to have custody of their two children and will receive their house as part of the divorce settlement. The house, which Will and Janine bought for $60,000, is worth $100,000. Janine is to re

> Upon returning from lunch, you find the following message on your voice mail: This is Jarrett Ogilvie. I'm not one of your clients, but I need some advice. I received a statement in the mail from the Social Security Administration reporting the $8,500

> Hermano and Rosetta are a retired couple who receive $10,000 in Social Security benefits during the current year. They also receive $3,000 in interest on their savings account and taxable pension payments of $28,000. What is their gross income if a. Th

> Elwood had to retire early because of a job-related injury. During the current year, he receives $10,000 in Social Security benefits. In addition, he receives $6,000 in cash dividends on stocks that he owned and $8,000 in interest on tax-exempt bonds.

> Does the tax treatment of below market-rate loans violate any income tax concepts? If so, how? Explain.

> Chapter 1 discussed how gross income is equal to all income received, less exclusions. Which concepts form the basis for this calculation of gross income? Explain.

> Determine whether the taxpayer in each of the following situations has a claim of right to the income received: a. Trigger, Inc., receives a $5,000 stud fee for services rendered by one of its prized horses. Under its standard contract, Trigger will ret

> Shannon signs a $100,000 contract to develop a plan for integrating the computer operations of State University in December. Under the contract, she receives a $30,000 advance against future payments on the contract upon signing the contract.The contrac

> Determine whether the taxpayer in each of the following situations has realized income. Explain why there has or has not been a realization, and determine the amount of income to be reported: a. Ramrod Development Company purchases land costing $230,000.

> Determine whether the taxpayer in each of the following situations has realized income. Explain why there has or has not been a realization, and determine the amount of income to be reported. a. Alfredo owns a one-third interest in Bayou Partnership. D

> George purchases stock in Dodo Corporation in 2013 at a cost of $50,000. In 2017, he sells the stock for $32,000. What is the effect of the sale of stock on George's taxable income? Assume that George sells no other assets in 2017.

> Explain why the following statement is not necessarily true: "If the IRS disagrees, I'll take my case all the way to the Supreme Court."

> Chelsea, who is single, purchases land for investment purposes in 2012 at a cost of $22,000. In 2017, she sells the land for $38,000. Chelsea's taxable income without considering the land sale is $100,000. What is the effect of the sale of the land on

> Postum Partnership purchases a building in 2014 for $250,000. It deducts $5,600 in depreciation on the building in 2014, $6,400 in 2015, $6,400 in 2016, and $3,200 in 2017. It sells the building in 2017 for $260,000. What is the partnership’s gain or

> For each of the following tax treatments, determine the concept, construct, or doctrine that provides the rationale for the treatment: a. During the current year, Trafalger Corporation pays $475,000 in estimated tax payments. Trafalger determines that it

> Only mortgage interest paid on valid debts is deductible. Because Angela's parents loaned her the money with the stipulation that she would return it to them shortly thereafter, there is no economic significance to the debts created. The only purpose o

> Angela enrolls as a student at Local College during the current year. Before she starts school, her parents lend Angela $80,000 with the stipulation that she will lend the entire $80,000 back to them. The loan is evidenced by a non-interest-bearing not

> Jamal Corporation is an accrual basis taxpayer. In 2016, Jamal writes off a $1,000 account receivable from a customer who has died. In 2017, the former customer's estate sends Jamal a check for $600. What are the tax effects of the receipt of the $600

> Tim has state income taxes of $4,500 withheld from his salary during 2017. On his 2016 federal income tax return, Tim properly deducts the $4,500 as state taxes paid. Upon filing his 2016 state income tax return, he determines that his actual state inco

> For each of the following situations, determine the proper year for recognition of the income or deduction if the taxpayer is (1) a cash basis taxpayer and (2) an accrual basis taxpayer: a. Helen fixes Mark's plumbing in November 2017. Mark receives the

> For each of the following situations determine the proper year for recognition of the income or deduction if the taxpayer is (1) a cash basis taxpayer and (2) an accrual basis taxpayer: a. Tindle Corporation purchases office supplies costing $600 on Dece

> Esmeralda is an attorney. Before 2017, she is employed by the law firm of Ellis and Morgan (E&M). Esmeralda is not a partner in E&M; her compensation consists of a fixed salary and a percentage of any fees generated by clients she brings or refers to t

> Identify three primary sources of tax law.

> Arnie is a self-employed handyman. During the current year, customers pay him $10,000 in cash for his services. Arnie gives the $10,000 to his daughter, Ariel, who uses it to pay college expenses. Is Arnie or Ariel taxed on the $10,000? Explain.

> Christie purchases a one-third interest in the Corporate Capital Partnership (CCP) in 2016 for $40,000. During 2016, CCP earns an income of $90,000, and Christie withdraws $30,000 in cash from the partnership. In 2017, CCP suffers a loss of $30,000, an

> Binh owns several businesses. The total income generated by all his businesses puts him in the highest marginal tax bracket. Seeking to lower the overall tax on his business income, Binh is thinking of creating two S corporations and putting half his b

> Wendy owns 20% of the common stock of Britton Company. During the current year, Britton reported a taxable income of $90,000 and paid $40,000 in cash dividends. What are the income tax effects for Wendy of her investment in Britton Company if Britton i

> Aiko, Lani, and Charlie own the 3-Star Partnership, sharing profits and losses 20:50:30. During the current year, 3-Star has total gross income of $500,000 and total allowable deductions of $300,000. How should each of the following taxpayers account for

> Jie owns a lawn mower repair business. Her repair shop is in a building she constructed on the lot on which her personal residence is located. How should Jie account for each of the following? a. Interest paid on her home mortgage, $9,200. Interest of

> Ed runs an auto repair business out of the garage attached to his personal residence. How should he account for each of the following items? a. Cash received from repair services, $28,000. b. Interest paid on his home mortgage, $7,300. c. Power jack hois

> Doiko Corporation owns 90% of the stock in Nall, Inc. Trebor owns 40% of the stock of Doiko. Trebor's sister owns the remaining 60% of Doiko. During the current year, Trebor purchased land from Nall for $43,000. Nall had purchased the land for $62,00

> In each of the following cases, determine whether Inez is a related party: a. Inez owns 500 shares of XYZ Corporation's common stock. XYZ has 50,000 shares of common stock outstanding. b. Inez owns a 40% interest in the Tetra Partnership. The other 60%

> Which of the following are related parties? a. Harvey and his sister Janice? b. Harvey and the Madison Partnership? Harvey owns a 60% interest in the partnership. Three of Harvey’s friends own the remaining partnership interest. c. Harvey and his gran

> Who is responsible for reporting and paying gift taxes? Estate taxes?

> Andrew and Barbara each receive a salary of $80,000. Neither Andrew nor Barbara has any other source of income. During the current year, Barbara paid $800 more in tax than Andrew. What might explain why Barbara paid more tax than Andrew when they both

> Sheila, a single taxpayer, is a retired computer executive with a taxable income of $100,000 in the current year. She receives $30,000 per year in tax-exempt municipal bond interest. Adam and Tanya are married and have no children. Adam and Tanya's $10

> Which of the following are based on an ability to pay? Explain. a. Local County assesses property taxes at the rate of 1% of assessed value. b. The university library lets all students, faculty, and staff members check out books for free. Students who d

> Which of the following are based on an ability to pay? Explain. a. State Y collects a sales tax of 5% on all purchases of goods and services. b. State X collects a sales tax of 5% on all purchases of goods and services but gives low-income families a tax

> Davidson Industries manufactures golf course maintenance equipment. The equipment comes with a 4-year warranty. Davidson’s engineers estimate that approximately 10% of the equipment will be defective and require payment under the warranty. Discuss the