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south western federal taxation

Questions and Answers of South Western Federal Taxation

In 2022, Chaya Corporation, an accrual basis, calendar year taxpayer, provided services to clients and earned $25,000. The clients signed notes receivable to Chaya that have a fair market value of
On December 30, 2022, Whitney sold a piece of property for $85,000. Her basis in the property was $40,000, and she incurred $1,200 in selling expenses. The buyer paid $5,000 down with the balance
In December 2022, Nell, Inc., an accrual basis taxpayer, paid $12,000 for insurance premiums for the 2023 calendar year. How much of the premiums can Nell, Inc., deduct in 2022?
In 2022, the taxpayer became ineligible to use the cash method of accounting. At the beginning of the year, accounts receivable totaled $240,000, accounts payable for merchandise totaled $80,000, and
Osprey Corporation, an accrual basis taxpayer, reported taxable income for 2022 and paid $40,000 on its estimated state income tax for the year. During 2022, the company received a $4,000 refund upon
Samantha, a cash basis taxpayer, subscribes to a service that updates a database used in her business. In December 2022, Samantha paid the $120,000 subscription fee for the period January 2023
A law practice was incorporated on January 1, 2022, and expects to earn $25,000 per month before deducting attorney Shonda’s salary. Shonda owns 100% of the stock in the practice. The corporation
Jeffrey Boyd, the president of Eagle Furniture Company (average annual gross receipts of $30,000,000), has prepared the company’s financial statements and income tax returns for the past 15 years.
George sold land to an unrelated party in 2021. His basis in the land was $45,000, and the selling price was $120,000—$30,000 payable at closing and $30,000 (plus 10% interest) due January 1, 2022,
On December 30, 2021, Maud sold land to her son, Charles, for $50,000 cash and a 7% installment note for $350,000, payable over 10 years. Maud’s cost of the land was $150,000. In October 2023,
On June 30, 2022, Kelly sold property for $240,000 cash and a $960,000 note due on September 30, 2023. The note pays 6% interest, which is higher than the Federal rate. Kelly’s cost of the property
In 2022, Skylar sold equipment for $20,000 cash and a $300,000 note due in two years. Skylar’s cost of the property was $250,000, and he had deducted depreciation of $150,000.a. Under the
Ross Company is a C corporation providing property management services. Ross has used the cash method since inception because its gross receipts did not exceed $27,000,000. This year its average
In 2021, Juan entered into a contract to write a book. The publisher advanced Juan $50,000, which was to be recovered out of future royalties. If the book was not completed by the end of 2022,
Gold, Inc., is an accrual basis taxpayer. In 2022, an employee accidentally spilled hazardous chemicals on leased property. The chemicals destroyed trees on neighboring property, resulting in $30,000
Compute Mary’s income or deductions for 2022 using (1) the cash basis and (2) the accrual basis for each of the following.a. In May 2022, Mary paid a license fee of $1,200 for the period June 1,
How do the all events and economic performance requirements apply to the following transactions by an accrual basis taxpayer?a. The company guarantees its products for six months. At the end of 2022,
Swallow Company is a large real estate construction company that has made an S election. The company reports its income using the percentage of completion method. In 2023, the company completed a
On March 31, 2020, Big Boats Company entered into a contract with Vacations Unlimited to produce a state-of-the-art cruise ship to be completed within three years. Big Boats estimated the total cost
The Wren Construction Company reports its Federal taxable income by the completed contract method. At the end of 2022, the company completed a contract to construct a building at a total cost of
In 2022, Gail changed from the lower of cost or market FIFO method to the LIFO inventory method. The ending inventory for 2021 was:Item C was damaged goods, and the replacement cost used was actually
Ven Company is a retailer. In 2022, its before-tax net income for financial reporting purposes was $600,000. This included a $150,000 gain from the sale of land held for several years as a possible
A new client, Southwest Grocers, is a calendar year C corporation that owns and operates a chain of grocery stores. Southwest Grocers is interested in donating food inventory to one or more
Hirsch Incorporated, is a calendar year corporation that has had revenues of less than $500,000 since inception. In year 12, Hirsch had a net operating loss of $50,000 that was able to be used in
On December 28, 2022, the directors of Partridge Corporation, an accrual basis calendar year taxpayer, authorized a cash contribution of $10,000 to the American Cancer Association. The payment is
The board of directors of Orange Corporation, a calendar year taxpayer, is holding its year-end meeting on December 28, 2022. One topic on the board’s agenda is the approval of a $25,000 gift to a
Gold Corporation, a calendar year C corporation, was formed several years ago and has been profitable until the current year. In the current year, Gold incurs a net operating loss. Identify the
Goose Corporation, a C corporation, incurs a net capital loss of $12,000 for 2022. It also has ordinary income of $10,000 in 2022. Goose had net capital gains of $2,500 in 2018 and $5,000 in 2021.a.
Aqua Corporation purchases nonresidential real property on May 8, 2019, for $1,000,000. Straight-line cost recovery is taken in the amount of $89,765 before the property is sold on November 27, 2022,
In the current year, Nighthawk Corporation, a calendar year C corporation, has $3,700,000 of adjusted taxable income, $125,000 of business interest income, zero floor plan financing interest, and
In the current year, Wilson Enterprises, a calendar year taxpayer, suffers a casualty loss of $90,000. The casualty was attributable to a Federally declared disaster. How much of the casualty loss
Genesis Company (GC), a calendar year entity, has one owner, who is in the 37% Federal income tax bracket (any net capital gains or dividends would be taxed at a 20% rate). GC’s gross income is
During 2022, Gorilla Corporation, a calendar year C corporation, has net shortterm capital gains of $15,000, net long-term capital losses of $105,000, and taxable income from other sources of
In the current year, Tanager Corporation (a calendar year C corporation) had operating income of $480,000 and operating expenses of $390,000. In addition, Tanager had a long-term capital gain of
In 2022, Gray Corporation, a calendar year C corporation, has a $75,000 charitable contribution carryover from a gift made in 2017. Gray is contemplating a gift of land to a qualified charity in
Hilde purchased all of the rights to a patent on a new garden tool developed by a friend of hers who is an amateur inventor. The inventor obtained the patent rights, set up a manufacturing company to
Consuela was a tenant in a campus apartment. She is a student at State University. Her lease began on August 1, 2022, and was due to expire on July 31, 2023. However, her landlord sold the building,
Roger inherited 100 shares of Periwinkle stock when his mother, Emily, died. Emily had acquired the stock for a total of $60,000 on November 15, 2018. She died on August 10, 2022, and the shares were
Dennis sells short 100 shares of ARC stock at $20 per share on January 15, 2022. He buys 200 shares of ARC stock on April 1, 2022, at $25 per share. On May 2, 2022, he closes the short sale by
Liana Amiri (single with no dependents) has the following transactions in 2022:What is Liana’s net capital gain or loss? Draft a letter to Liana describing how the net capital gain or loss will be
Peter owns and manages his single member LLC that provides a wide variety of financial services to his clients. He is married and will file a joint tax return with his spouse, Marta. His LLC reports
Donald (a married taxpayer filing jointly) owns a wide variety of commercial rental properties held in a single member LLC. Donald’s LLC reports rental income of $1,500,000. The LLC pays no W–2
Ashley (a single taxpayer) is the owner of ABC LLC. The LLC (which reports as a sole proprietorship) generates QBI of $900,000 and is not a “specified services” business. ABC paid total W–2
Scott and Laura are married and will file a joint tax return. Laura has a sole proprietorship (not a “specified services” business) that generates qualified business income of $300,000. The
On July 15, 2021, Lilac Corporation purchased 25% of the Coffee Corporation stock outstanding. Lilac Corporation purchased an additional 40% of the stock in Coffee on March 24, 2022, and an
Last year Pink Corporation acquired land and securities in a § 351 tax-free exchange. On the date of the transfer, the land had a basis of $720,000 and a fair market value of $1,000,000 and the
On January 7, 2022, Martin Corporation acquires two properties from a shareholder solely in exchange for stock in a transaction that qualifies under Â§ 351. The shareholderâs basis, the fair
How does the receipt of boot affect the taxation of shareholders in a transaction that qualifies under § 368?
Sparrow Corporation (a calendar year, accrual basis taxpayer) had the following transactions in 2022, its second year of operation:Sparrow uses the LIFO inventory method, and its LIFO recapture
Corporate executives engage in reorganizations to improve shareholder value. If shareholder value increases, the reorganization often is deemed a success. If shareholder value falls, corporate
Your firm has a new individual client, Carla Navarro, who has been assigned to you for preparation of the current year’s tax return. Upon review of Carla’s tax returns from prior years, you
Kenny Merinoff and his daughter, Mia, own all outstanding stock of Flamingo Corporation. Both Mia and Kenny are officers in the corporation and, together with Kenny’s uncle, Ira, comprise the
María and Bob form Robin Corporation. María transfers property worth $420,000 with a basis of $150,000 for 70 shares in Robin Corporation. Bob receives 30 shares for property worth $165,000 with a
Marie and Ramesh form Roundtree Corporation with the transfer of the following. Marie performs personal services for the corporation with a fair market value of $80,000 in exchange for 400 shares of
On February 12, 2007, Nancy Trout and Delores Lake formed Kingfisher Corporation to sell fishing tackle. Pertinent information regarding Kingfisher is summarized as follows:• Kingfisher's business
On November 1, 2010, Janet Morton and Kim Wong formed Pet Kingdom, Inc., to sell pets and pet supplies. Pertinent information regarding Pet Kingdom is summarized as follows:•Pet Kingdom's business
Gull Corporation, a cash method, calendar year C corporation, was formed and began business on November 1, 2022. Gull incurred the following expenses during its first year of operations (November 1,
In January 2022, Pelican, Inc., established an allowance for uncollectible accounts (bad debt reserve) of $70,000 on its books and increased the allowance by $120,000 during the year. As a result of
In each of the following independent situations, determine the corporationâs income tax liability. Assume that all corporations use a calendar year for tax purposes and that the tax year
Julieta Simms is the president and sole shareholder of Simms Corporation (a cash method, calendar year C corporation), 1121 Madison Street, Seattle, WA 98121. Julieta plans for the corporation to
At the end of 2016, Magenta Manufacturing Company discovered that construction cost had been capitalized as a cost of the factory building in 2011 when it should have been treated as a cost of
In 2015, Gail changed from the lower of cost or market FIFO method to the LIFO inventory method. The ending inventory for 2014 was computed as follows:Item C was damaged goods, and the replacement
Olivia wants to buy some vacant land for investment purposes. She cannot afford the full purchase price. Instead, Olivia pays the landowner $8,000 to obtain an option to buy the land for $175,000
Coline has the following capital gain and loss transactions for 2015.After the capital gain and loss netting process, what is the amount and character of Coline’s gain or loss? Short-term capital
Elliott has the following capital gain and loss transactions for 2015.After the capital gain and loss netting process, what is the amount and character of Elliott’s gain or loss? Short-term capital
George is the owner of numerous classic automobiles. His intention is to hold the automobiles until they increase in value and then sell them. He rents the automobiles for use in various events
Carla was the owner of vacant land that she was holding for investment. She paid $2 million for the land in 2013. Raymond was an investor in vacant land. He thought Carla’s land might be the site
Hilde purchased all of the rights to a patent on a new garden tool developed by a friend of hers who was an amateur inventor. The inventor had obtained the patent rights, set up a manufacturing
Elaine Case (single with no dependents) has the following transactions in 2015:What is Elaine’s net capital gain or loss? Draft a letter to Elaine describing how the net capital gain or loss will
Roger inherited 100 shares of Periwinkle stock when his mother, Emily, died. Emily had acquired the stock for a total of $60,000 on November 15, 2011. She died on August 10, 2015, and the shares were
In 2015, Bertha Jarow (head of household with three dependents) had a $28,000 loss from the sale of a personal residence. She also purchased from an individual inventor for $7,000 (and resold in two
Joe purchased a van for $30,000 on February 1, 20X4, for use with his business, Crew Airport Transport. Joe elected to take the Section 179 deduction. On January 1, 20X6, Joe sold the van for
In Year 3 Daniels, an individual, sold Section 1245 property for $21,000 that had an adjusted basis of $12,000, resulting in a $9,000 gain. The property had cost Daniels $20,000 when purchased in
Cowabunga Corp. had a highly profitable Year 4, during which it purchased $1,000,000 in tangible personal property and elected to claim the highest depreciation expense allowed for tax purposes under
An individual taxpayer had a net § 1231 loss in 2015. Could any of this loss be treated as a long-term capital loss? Why or why not?
Thomas receives tangible personal property as an inheritance from a decedent who died in 2015. The property was depreciated by the deceased, and Thomas will also depreciate it. At the date of the
Several years ago, Nicolas, a timber dealer, purchased a tract of land with a substantial stand of trees on it. The land cost $8,000, and the timber cost $250,000. On the first day of 2015, the
Sissie owns two items of business equipment. Both were purchased in 2011 for $100,000, both have a 7-year MACRS recovery period, and both have an adjusted basis of $37,490. Sissie is considering
In December 2015, Nell, Inc., an accrual basis taxpayer, paid $12,000 for insurance premiums for her business for the 2016 calendar year. How much of the premiums can Nell, Inc., deduct in 2015?
Osprey Corporation, an accrual basis taxpayer, had taxable income for 2015 and paid $40,000 on its estimated state income tax for the year. During 2015, the company received a $4,000 refund upon
Nathan uses the percentage of completion method to report income from his real estate construction contracts. A contract was begun in 2015 and completed in 2016. In 2015, Nathan reported gross income
Neal uses the percentage of completion method to report his gross income from long-term contracts that were to begin in 2015. In 2016, he completes a contract for more than the estimate of total
Ven Company is a retailer. In 2015, its before-tax net income for financial reporting purposes was $600,000. This included a $150,000 gain from the sale of land held for several years as a possible
In May 2015, Hernando, a resident of California, has his 2013 Federal income tax return audited by the IRS. An assessment of additional tax is made because he had inadvertently omitted some rental
Regarding the statute of limitations on additional assessments of tax by the IRS, determine the applicable period in each of the following situations. Assume a calendar year individual with no fraud
For tax year 2012, 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?
Describe the IRC sections that are found in Subtitle E of the IRC. Would you expect these provisions not to be addressed anywhere else in the IRC? Explain
Kathy and Brett Ouray married in 1997. They began to experience marital difficulties in 2011 and, in the current year, although they are not legally separated, consider themselves completely
Which of the below prevents a husband and wife from filing a joint tax return?I. The spouses have different accounting methodsII. The spouses have different tax years, provided that both spouses are
In late 2015, the Polks come to you for tax advice. They are considering selling some stock investments for a loss and making a contribution to a traditional IRA. In reviewing their situation, you
Parker and his wife Marie would have been filing a joint tax return for 20X1, however Marie died in October of 20X1. Parker has not remarried and continues to maintain a home for himself and his two
Mark and Lisa were divorced in 2014. In 2015, Mark has custody of their children, but Lisa provides nearly all of their support. Who is entitled to claim the children as dependents?
Jayden calculates his 2015 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
Compute the 2015 standard deduction for the following taxpayers.a. Margie is 15 and claimed as a dependent by her parents. She has $800 in dividends income and $1,400 in wages from a part-time job.b.
In 2015, Dominique and Felix are married and file a joint tax return. Their AGI is $312,650, and they claim three exemptions. Determine their total exemption amount for 2015.
Paul and Sonja, who are married, had itemized deductions of $8,200 and $400, respectively, during 2015. Paul suggests that they file separately—he will itemize his deductions from AGI, and she will
Compute the 2015 tax liability and the marginal and average tax rates for the following taxpayers.a. Chandler, who files as a single taxpayer, has taxable income of $91,000.b. Lazare, who files as a
In 2015, Simon, age 12, has interest income of $800 and dividend income of $4,000. He has no investment expenses. His parents have taxable income of $80,200 and file a joint tax return. Assume that
Compute the taxable income for 2015 in each of the following independent situations:a. Drew and Meg, ages 40 and 41, respectively, are married and file a joint return. In addition to four dependent
Compute the taxable income for 2015 for Emily on the basis of the following information. Her filing status is single. Salary Interest income from bonds issued by Xerox Alimony payments

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