Questions and Answers of Taxation

1. Walters, an individual, received the following in 2017: W-2 income .......................................................................... $10,000 Federal tax refund for 2016
Valentino is a patient in a nursing home for 45 days in 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
Myers, who is single, reports compensation income of $69,000 in 2017. He is an active participant in his employer's qualified retirement plan. Myers contributes $5,500 to a traditional IRA. Of the
Meredith, who is single, would like to contribute $5,500 to her Roth IRA. What is the maximum amount that Meredith can contribute if her AGI is $119,000?
Rex, age 55, is an officer of Blue Company, which provides him with the following nondiscriminatory fringe benefits in 2017. Determine the amounts that Rex must include in gross income. •
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
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. What is Mio's foreign earned income exclusion? (In your
Upon losing his job as a plant manager in Quincy, Massachusetts, Anthony incurs $6,200 in job search expenses. Having no success in finding new employment in the same type of work, Anthony moves to
Elijah is employed as a full-time high school teacher. The school district for which he works recently instituted a policy requiring all of its teachers to start working on a master's degree.
Janet, age 29, is unmarried and is an active participant in a qualified retirement plan. Her modified AGI is $64,000 in 2017. a. Calculate the amount Janet can contribute to a traditional IRA and the
Carri and Dane, ages 34 and 32, respectively, have been married for 11 years, and both are active participants in employer qualified retirement plans. Their total AGI in 2017 is $189,000, and they
Harvey is a self-employed accountant with earned income from the business of $120,000 (after the deduction for one-half of his self-employment tax). He has a profit sharing plan (e.g., defined
In 2017, Miranda records net earnings from self-employment of $146,000. She reports no other gross income. Determine the amount of Miranda's self-employment tax and her for AGI income tax deduction.
Beth R. Jordan lives at 2322 Skyview Road, Mesa, AZ 85201. She is a tax accountant with Mesa Manufacturing Company, 1203 Western Avenue, Mesa, AZ 85201 (employer identification number 11-1111111).
David R. and Ella M. Cole (ages 39 and 38, respectively) are husband and wife who live at 1820 Elk Avenue, Denver, CO 80202. David is a regional sales manager for Wren Industries, a national
Jacob Patterson cannot make a fully deductible $5,500 IRA contribution because his AGI exceeds the phase-out range. Instead, he makes a $3,500 nondeductible IRA contribution to his traditional IRA.
Seth, Pete, Cara, and Jen form Kingfisher Corporation with the following consideration:* Seth receives $6,000 in cash in addition to the 30 shares.** Pete receives $9,000 in cash in addition to the
Tom and Gail form Owl Corporation with the following consideration:The installment note has a face amount of $350,000 and was acquired last year from the sale of land held for investment purposes
In January of the current year, Wanda transferred machinery worth $200,000 (adjusted basis of $30,000) to a controlled corporation, Oriole, Inc. The transfer qualified under § 351. Wanda had
Gull Corporation, a cash method, calendar year C corporation, was formed and began business on November 1, 2017. Gull incurred the following expenses during its first year of operations (November 1,
Egret Corporation, a calendar year C corporation, was formed on March 6, 2017, and opened for business on July 1, 2017. After its formation but prior to opening for business, Egret incurred the
In each of the following independent situations, determine the corporation's income tax liability. Assume that all corporations use a calendar year for tax purposes and that the tax year involved is
Emerald Corporation, a calendar year and accrual method taxpayer, provides the following information and asks you to prepare Schedule M-1 for 2017: Net income per books (after-tax)
The following information for 2017 relates to Sparrow Corporation, a calendar year, accrual method taxpayer.Net income per books (after-tax) ......................................... $174,100Federal
Dove Corporation, a calendar year C corporation, had the following information for 2017:Net income per books (after-tax) ..................................... $386,250Taxable income
In January 2017, 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
Cherry Corporation, a calendar year C corporation, is formed and begins business on April 1, 2017. In connection with its formation, Cherry incurs organizational expenditures of $54,000. Determine
On November 1, 2007, Janet Morton and Kim Wong formed Pet Kingdom, Inc., to sell pets and pet supplies. Pertinent information regarding Pet Kingdom is summarized as follows:â€¢ Pet Kingdom's
Tim is a real estate broker who specializes in commercial real estate. Although he usually buys and sells on behalf of others, he also maintains a portfolio of property of his own. He holds this
Cardinal Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it holds a 10% interest. Cardinal also receives interest income of $35,000 from
Compute current E & P for Sparrow Corporation (a calendar year, accrual basis taxpayer). Sparrow reported the following transactions during 2017, its second year of operation. Taxable income
On January 1 of the current year, Rhondell Corporation holds accumulated E & P of $13,000. Current E & P for the year is $84,000, earned evenly throughout the year. Elizabeth and Jonathan are
Global Corporation distributed property with an $850,000 fair market value and a $415,000 adjusted basis to Kang, one of its shareholders. The property was subject to a $230,000 mortgage, which Kang
Rosata Corporation has 2,000 shares of common stock outstanding. Howard owns 600 shares, Howard's grandfather owns 300 shares, Howard's mother owns 300 shares, and Howard's son owns 100 shares. In
For the last 11 years, Zhang Corporation has owned and operated four different trades or businesses. Zhang also owns stock in several corporations that it purchased for investment purposes. The stock
Amy and Mitchell share equally in the profits, losses, and capital of the accrual basis AM Products LLC. Amy is the managing member of the LLC (treated as a general partner) and is a U.S. citizen. At
Henrietta transfers cash of $75,000 and equipment with a fair market value of $25,000 (basis to her as a sole proprietor, $10,000) in exchange for a 40% profit and loss interest worth $100,000 in the
The JM Partnership was formed to acquire land and subdivide it as residential housing lots. On March 1, 2017, Jessica contributed land valued at $600,000 to the partnership in exchange for a 50%
Burgundy, Inc., and Violet Gomez are equal partners in the calendar year BV LLC. Burgundy uses a fiscal year ending April 30, and Violet uses a calendar year. Burgundy receives an annual guaranteed
Wozniacki and Wilcox form Jewel LLC, with each investor receiving a one-half interest in the capital and profits of the LLC. Wozniacki receives his one-half interest as compensation for tax planning
Candlewood LLC began its business on September 1; it uses a calendar tax and accounting year. Candlewood incurred $6,500 in legal fees for drafting the LLC's operating agreement and $3,000 in
Franco owns a 60% interest in the Dulera LLC. On December 31 of the current tax year, his basis in the LLC interest is $128,000. The fair market value of the interest is $140,000. Dulera then
When Bruno's basis in his interest in the MNO LLC is $150,000, he receives cash of $55,000, a proportionate share of inventory, and land in a distribution that liquidates MNO and his interest in the
Polly has been the sole shareholder of a calendar year S corporation since its inception. Polly's stock basis is $15,500, and she receives a distribution of $19,000. Corporate-level accounts indicate
If the beginning balance in Swan, Inc.'s OAA is $6,700 and the following transactions occur, what is Swan's ending OAA balance? Depreciation recapture income ................................ $
Orange, Inc., a calendar year corporation in Clemson, South Carolina, elects S corporation status for 2017. The company generated a $74,000 NOL in 2016 and another NOL of $43,000 in 2017. Orange
One of your clients, Texas, Inc., is considering electing S status. Both of Texas's equal shareholders paid $30,000 for their stock. As of the beginning of 2017, Texas's Subchapter C NOL
On March 2, 2017, the two 50% shareholders of a calendar year corporation decide to elect S status. One of the shareholders, Terry, purchased her stock from a previous shareholder (a nonresident
John Parsons (123-45-6781) and George Smith (123-45-6782) are 70% and 30% owners, respectively, of Premium, Inc. (11-1111111), a candy company located at 1005 16th Street, Cut and Shoot, TX 77303.
Alice owns 100% of Medical Data, a C corporation, and 100% of Your Realtors, an S corporation. She worked full time for Medical Data (i.e., she materially participated in the entity), but Alice did
Sean Moon is president, secretary, treasurer, sole director, and sole shareholder of Streetz, an S corporation real estate company. He manages all aspects of the company's operations, and he is the
Enders, Inc., a domestic corporation, reports $290,000 total taxable income for the year, consisting of $208,800 in U.S.-source business profits and $81,200 of income from foreign investment
US-Co, a domestic corporation, reports worldwide taxable income of $1.5 million, including a $400,000 dividend from For-Co, a wholly owned foreign corporation. For-Co's undistributed E & P totals $16
Is a foreign corporation owned equally by 100 unrelated U.S. citizens considered to be a controlled foreign corporation (CFC)? Explain.
Vogel Corporation owns two subsidiaries. Song, located in State A, generated $500,000 taxable income this year. Bird, located in State B, generated a $100,000 loss for the period. a. Determine Song's
Oak Corporation holds the following general business credit carryovers. 2013 ............................... $ 5,000 2014 ............................... 15,000 2015 .................................
In January 2016, Iris Corporation purchased and placed in service a 1933 building that houses retail businesses. The cost was $300,000, of which $25,000 applied to the land. In modernizing the
Green Corporation hires six individuals on January 4, 2017, all of whom qualify for the work opportunity credit. Three of these individuals receive wages of $8,500 during 2017, and each individual
Blue Sky, Inc., a U.S. corporation, is a manufacturing concern that sells most of its products in the United States. It also conducts some business in the European Union through various branches.
Aqua, Inc., a calendar year corporation, has the following gross receipts and taxable income for its first four tax years: Year ____________ Gross Receipts ___________ Taxable Income 2014
In March 2017, Grackle, Inc., acquired used equipment for its business at a cost of $300,000. The equipment is five-year class property for regular income tax purposes and for AMT purposes. Grackle
Rust Company is a real estate construction business with average annual gross receipts of $3 million. Rust uses the completed contract method on a particular contract that requires 16 months to
Allie, who was an accounting major in college, is the controller of a medium size construction corporation. She prepares the corporate tax return each year. Due to reporting a home construction
Pheasant, Inc., is going to be subject to the AMT in 2017. The corporation owns an investment building and is considering disposing of it and investing in other realty. Based on an appraisal of the
Purple Corporation, a calendar year taxpayer, began operations in 2015. It reported the following amounts for its first four tax years. Calculate Purple's positive and negative ACE adjustments for
During 2017, Lincoln Company hires seven individuals who are certified to be members of a qualifying targeted group. Each employee works in excess of 600 hours and is paid wages of $7,500 during the
Included in Alice's regular taxable income and in her AMT base is a $300,000 capital gain on the sale of stock she owned for three years. Alice is in the 35% tax bracket for regular income tax
In the current year, DYL Corporation earned taxable and tax-exempt interest from the following investments. Investment ___________________________________ Interest Income 10-year municipal bond
Jane and Robert Brown are married and have eight children, all of whom are eligible to be claimed as the couple's dependents. Robert earns $94,000 working as an accountant, and Jane earns $38,000 as
Pat, who is age 66 and single with no dependents, received a salary of $90,000 in 2017. She earned interest income of $1,000, dividend income of $5,000, gambling winnings of $4,000, and interest
Renee and Sanjeev Patel, who are married, reported taxable income of $273,000 for 2017. They incurred positive AMT adjustments of $38,000, negative AMT adjustments of $14,000, and tax preference
Dora incurs the following research expenditures. In-house wages ................................... $60,000 In-house supplies .................................... 5,000 Payment to ABC, Inc., for
Siga, Inc., a calendar year Corporation, records the following gross receipts and taxable income for 2015 through 2017. Year _________ Gross Receipts _________ Taxable Income 2015 .................
Pine-view Corporation placed an asset (three-year MACRS class life) costing $5,000 in service on June 1, 2017. Complete the table below by providing the AMT adjustment and indicate whether the
Given the following information, determine the ACE adjustment for each year. _____________________________ 2017 _________ 2018 __________ 2019 Unadjusted AMTI $ ............... 800,000 .......
Adelyn has a tentative general business credit of $42,000 for the current year. Her net regular tax liability before the general business credit is $107,000, and her tentative minimum tax is $88,000.
Balm, Inc., has a general business credit for 2017 of $90,000. Balm's regular income tax liability before credits is $140,000, and its tentative AMT is $132,000.a. Calculate the amount of general
Cooper Partnership, a calendar year partnership, made qualifying rehabilitation expenditures to a building that it has used in its business for eight years. These improvements were placed in service
For many years, Saul's sole proprietorship and his related Form 1040 have had a number of AMT tax preferences and AMT adjustments. He has made the AMT calculation each year, but the calculated amount
Roscoe contributes a personal-use asset, adjusted basis $15,000 and fair market value $28,000, to a new business in which he is an owner. Determine Roscoe's recognized gain on the transfer, and the
Falcon Corporation, a calendar year taxpayer, is a deepwater offshore drilling company that is planning to sell drilling equipment that it no longer needs. The drilling equipment has an adjusted
For many years, Sophie has owned and operated several apartment buildings. In 2011, upon the advice of her attorney, Sophie transferred the apartment buildings to a newly created corporation. Her
Rosa contributes $50,000 to Flip-Co in exchange for a 10% ownership interest. Rosa materially participates in Flip-Co's business. Flip-Co incurs a loss of $900,000 for the current tax year. Entity
Why can people avoid paying an excise tax more readily than they can avoid
Mrs. DK, a resident of Rhode Island, traveled to Delaware to purchase an oil painting from a local artist. The cost of the painting was $9,400. Rhode Island has a 7 percent sales and use tax, while
Ms. SP, who lives in California, traveled to Oregon to purchase gold jewelry for $20,000. California has a 7.5 percent sales and use tax, while Oregon has no sales and use tax. a. Compute the use tax
Company W produces circuit boards in a foreign country that imposes a 15 percent VAT. This year, Company W manufactured 8.3 million boards at a $5 material cost per unit. Company W's labor and
In each of the following cases, determine if the United States has jurisdiction to tax Mr. KT. a. Mr. KT is a U.S. citizen but has been a permanent resident of Belgium since 1993. b. Mr. KT is a
Monroe County levies a tax on the value of real property located within the county. The tax equals 3 percent of the property's assessed value up to $2 million plus 1 percent of the value in excess of
TR Company conducts business exclusively in State V, which levies a 5 percent sales and use tax on goods purchased or consumed in-state. This year, TR bought equipment in State B. The cost of the
A local government levies an annual real property tax on the personal residence located at 123 Maple Drive. This tax is assessed on a calendar-year basis, and the homeowner must pay the tax before
Mr. KW, age 72, has lived in Los Angeles his entire life. His net worth is estimated at $95 million. Mr. KW is considering renouncing his U.S. citizenship, selling his home in Los Angeles, and
Company F operates in a jurisdiction that levies real property tax but no personal property tax. This year, the company spent $6 million to add an exterior lighting system and security fences to the
Company B, which has offices in six states, owns an airplane that company executives use to travel from office to office. When the plane is not in use, it is stored in a hangar located in a
For the past 22 years, Mrs. O contributed part of her salary to a retirement plan sponsored by her corporate employer. Under federal law, Mrs. O did not pay tax on the income she contributed. She
Business Q orders $500,000 of office furniture from Vendor V, which ships the furniture by rail from its manufacturing facility in State V to Business Q's corporate headquarters in State Q. State V
Acme Corporation was formed under the laws of State X and has its corporate headquarters in that state. Acme operates a manufacturing plant in State Y and sells goods to customers in States X, Y, and
Eighteen months ago, BBB Company opened a manufacturing facility in County K. As an incentive for BBB to locate within its jurisdiction, County K abated all local property taxes for the first two
Dempsey Corporation is organized under Canadian law and has its corporate headquarters in Montreal. This year, Dempsey sold $28 million of goods to customers who live in the United States. However,
The federal government levies a gift tax on the value of property that people give away during their life and an estate tax on the value of property that people transfer at death. From the

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