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Business Law
Stephanie Zane is the sole proprietor of Shear Madness, a hair salon. Her revenue comes from two sources, haircuts and the sale of "hair products. Stephanie has three employees whose compensation
Rebecca and Irving incur the following medical expenses during the current year: Medical insurance
A taxpayer purchases $25,000 worth of property that qualifies for the Section 179 deduction during the current year. The taxpayer would like to deduct the greatest depreciation expense possible
In 2015, Terrell, Inc., purchases machinery costing $216,000. Its 2015 taxable income before considering the Section 179 deduction is $10,000. a. What is Terrell's maximum Section 179 deduction in
On March 1, 2015, Babar Inc., pays $125,000 for a store building, moves into the building, and begins business on April 1. Babar properly allocates $100,000 of its cost to the building and $25,000 to
On June 2, 2015, Lokar Corporation purchases a patent for $68,000 from the inventor of a new extrusion process. The patent has 12 years remaining on its legal life. Also, Lokar purchases
Neila sells 500 shares of Bolero Corporation stock for $10,500 and pays $500 in sales commissions on September 23 of the current year. She acquired the stock for $4,700 plus $300 in commissions five
Ansel sells 400 shares of Sharpe, Inc., common stock on October 12, 2015, for $11,800 and pays $600 in commissions on the sale. He acquired the stock for $18,400 plus $800 in commissions on July 8,
Thuy bought a rental house in 2008 for $75,000. In 2015, she sells it for $86,000. Thuy properly deducted $22,000 in depreciation on the house before its sale.a. What is the amount and character of
Oscar and Harriet agree to exchange apartment buildings and the mortgages on the buildings, with any difference in value to be paid in cash. Particulars of their respective buildings are as
Othello trades a concrete ready mix truck and a general purpose truck used in his landscape business to Sonja for an ore truck and a general purpose truck and $1,000 cash. The adjusted basis and fair
Ken and Helen own a bed and breakfast in Vermont. They acquired the property in 2000 for $190,000, and their adjusted basis in it is $95,000. The property is worth $260,000, and they have a mortgage
Myron, Al, and Janda make the following transfers from their sole proprietorships to a newly formed business, each receiving a 1/3 ownership interest.In addition, the business borrows $60,000 from a
Determine the tax year(s) each of the following S corporations must use. Explain.a. Will, Dan, and Tom are equal owners of Rheen Corporation, and each has a different fiscal year. Will has a fiscal
Kim and Brendan, who are longtime friends, have decided to buy a golf equipment store and go into business together as equal partners. Kim reports his income by calendar year, and Brendan uses a
Myrna operates a plumbing business as a sole proprietorship. During the year, she sells the business to Tonya for $175,000. The assets sold and the allocation of the purchase price are as
Harry and Matilda are married and have the following tax return data for 2015:Do Harry and Matilda owe any income tax for 2015? Explain why they might owe tax in 2015, and discuss the items on their
Alice and Frank have the following items on their current-year tax return:Determine the amount of the adjustments that Alice and Frank will have to make in computing their alternative minimum tax.
Joan and Matthew are married, have 2 children, and report the following items on their current year's tax return:Determine Joan and Matthew's regular tax liability and, if applicable, the amount of
Explain the difference between closed-fact and open-fact situations. Discuss.
In 2011, there was a change in the authoritative weight of interpretive versus legislative regulations. Briefly explain what changed and why.
Does the IRS acquiesce in decisions of U.S. district courts?
Under what circumstances might a tax advisor find the provisions of a tax treaty useful?
Use any major tax service to answer the following questions: a. What are the principal primary sources? b. What are the principal secondary sources?
Explain what is encompassed by the term tax law as used by tax advisors.
Clay, who was single, died in 2016 and has a gross estate valued at $8,500,000. Six months after his death, the gross assets are valued at $9,000,000. The estate incurs funeral and administration
In 2015, Paul, who is single, has a comfortable salary from his job as well as income from his investment portfolio. However, he is habitually late in filing his federal income tax return. He did not
Use the index of any tax service to locate authorities dealing with the deductibility of the cost of a facelift.a. Cite the authority you find.b. List the primary IRC section cited as authority.c.
Using any tax service, locate Reg. Sec. 1.302-1. Does this Treasury Regulation reflect recent amendments to the IRC? Explain.
Using the index of any tax service, search the editorial materials to locate authorities addressing whether termite damage constitutes a casualty loss. a. Cite the authority you found. b. Cite at
a. Using any tax service, locate Sec. 303. This section states that Sec. 303(a) applies only if the stock in question meets a certain percentage test. What is the applicable percentage? b. Locate
Rick Cabela, a high income client, has contacted you for advice regarding two new proposed business ventures and other tax planning ideas. Rick already operates a highly successful consulting
Using a keyword search of editorial materials in any tax service, locate authorities dealing with the deductibility of the cost of work clothing by a firefighter. List a revenue ruling addressing
Using any tax service, refer to the Holden Fuel Oil Company, RIA T.C. Memo ¶72,045 (T.C. Memo 1972-45), 31 TCM 184. a. In which year was the case decided? b. What controversy was litigated? c. Who
Access the IRS Internet site at www.irs.gov and indicate the titles of the following IRS forms: a. Form 4506 b. Form 973 c. Form 8725
Access the Federation of Tax Administrators Internet site at www.taxadmin.org/state-tax-forms and indicate the titles of the following state tax forms and publications: a. Minnesota Form M-100 b.
Refer to IRC Sec. 301. a. Which subsection discusses the general rule for the tax treatment of a property distribution? b. Where should one look for exceptions to the general rule? c. What type of
In the current year, Dick, Evan, and Fran form Triton Corporation. Dick contributes land (a capital asset) having a $50,000 FMV in exchange for 50 shares of Triton stock. He purchased the land three
In the current year, Ed, Fran, and George form Jet Corporation. Ed contributes land (a capital asset) having a $35,000 FMV purchased as an investment four years ago for $15,000 in exchange for 35
During 2016, Julio attended school for much of the year but was supported by his parents. Julio married Jillian in December 2016. Julio graduated and began working full-time in 2017. Jillian worked
On January 10 of the current year, Mary transfers to Green Corporation a machine purchased three years ago for $100,000. On the transfer date, the machine has a $60,000 adjusted basis and a $110,000
Duck Corporation is owned equally by Harry, Susan, and Big Corporation. Harry and Susan are single. Eight years ago, Harry, Tom, and Big, the original investors in Duck, each paid $125,000 for their
In 2012, Harry and Mary purchased Series EE bonds, and in 2016 redeemed the bonds, receiving $500 of interest and $1,500 of principal. Their income from other sources totaled $30,000. They paid
In 2016, Ace Corporation reports gross income of $200,000 (including $150,000 of profit from its operations and $50,000 in dividends from less-than-20%-owned domestic corporations) and $220,000 of
In 2016, Ken and Lynn paid $5,000 to purchase Series EE bonds in the name of their 11-year-old son. The son has no other income, and they are in the 28% tax bracket. The taxable interest during the
During 2016, Gary earned $57,000 as an executive. Gary, who is single, supported his half sister, who lives in a nursing home. Gary received the following interest: $400 on City of Los Angeles bonds,
On January 5, 2016 Rita left the United States for Germany, where she had accepted an appointment as vice president of foreign operations. Her employer, USA Corporation, told her the assignment would
Alice, Bob, Carol, the ABC Partnership, Franklin Corporation, and the Gleason Family Trust own shares of Holston Corporation's single class of stock as follows:The Holston shareholders have owned
In October 2010, Jose acquired 100% of Acorn Corporation common stock by transferring property with an adjusted basis of $1,000,000 and fair market value of $4,000,000. Acorn is a qualified small
Sara owns 60% of Mayfield Corporation's single class of stock. A group of five family members and three key employees own the remaining 40%. Mayfield is a calendar year taxpayer that uses the accrual
Grayson Corporation is a calendar year taxpayer. In the following independent situations, which of the pro rata dividends paid by Grayson during the current year are eligible for the dividends-paid
Donna files as a head of household in 2016 and has taxable income of $90,000, including the sale of a stock held as an investment for two years at a gain of $20,000. Only one asset was sold during
On December 31, 2015, Phil purchased $20,000 of newly issued bonds of Texas Corporation for $16,568. The bonds are dated December 31, 2015. The bonds are 9%, 10-year bonds paying interest
On January 1, 2014, Swen paid $184,000 for $200,000 of the 8%, 20-year bonds of Penn Corporation, issued on January 1, 2010, at par. The bonds are held as an investment. Determine the gain and the
On February 10, 2016, Gail purchases 20 calls on Red Corporation for $250 per call. Each call represents an option to buy 100 shares of Red stock at $42 per share any time before November 25, 2016.
On January 1, 2015, Sean purchased an 8%, $100,000 corporate bond for $92,277. The bond was issued on January 1, 2015, and matures on January 1, 2020. Interest is paid semiannually, and the effective
In 2011, the Ryan Corporation sold a capital asset and incurred a $40,000 LTCL that was carried forward to subsequent years. That sale was the only sale of a capital asset that Ryan made until 2016,
During 2016, Kent, a 40-year-old single taxpayer, reports the following items of income and
The following facts pertain to Lifecycle Corporation:• Able owns a parcel of land (Land A) having a $30,000 FMV and $16,000 adjusted basis. Baker owns an adjacent parcel of land (Land B) having
How does the IRS interpret the continuity of business enterprise requirement for a Type A reorganization?
During 2016, Angela sustains serious injuries from a snow-skiing accident. She incurs the following expenses: Item Amount Doctor bills.......................................$11,700 Hospital
In 2016, Charla, a single taxpayer with no dependents, was severely hurt in a farm accident. Charla is 38 years old. The accident left Charla's legs 85% paralyzed. After incurring $14,000 of medical
Joyce is a single, cash-method taxpayer. On April 11, 2015, Joyce paid $120 in state income taxes with her 2014 state income tax return. During 2015, Joyce had $1,600 in state income taxes withheld.
During 2016, Doug incurs the following deductible expenses: $2,300 in state income taxes, $3,000 in local property taxes, $800 in medical expenses, and $2,000 in charitable contributions. Doug is 33,
During 2016, James, a single, cash method taxpayer incurred the following expenditures: Qualified medical expenses..................................$ 8,000 Investment interest
On December 1, 2016, Rebecca Ward, a single taxpayer, comes to you for tax advice. At the end of every year, she donates $5,000 to charity. She has no other itemized deductions. This year, she plans
Jean Corporation has two divisions- home cookware and electric home appliances. Bill and Bob Jean own all of Jean Corporation's single class of stock. Bill, the older brother, owns 70% of the Jean
In 2015, Mark purchased two separate activities. Information regarding these activities for 2015 and 2016 is as follows:The 2015 losses were suspended losses for that year. During 2016, Mark also
In 2016, Julie, a single individual, reported the following items of income and deduction: Salary..................................................................$166,000 Interest
During 2016, Pam incurred the following casualty losses:All of the items were destroyed in the same casualty. Before considering the casualty items, Pam reports business income of $80,000, qualified
P and S Corporations form in Year 1, with S as P's wholly-owned subsidiary. The corporations immediately elect to file consolidated tax returns. The group reports the following results:The group does
During 2016, Karen, a single taxpayer, reports the following income and expense items relating to her interior design business: Revenues................................$52,000 Cost of goods
In 2013, Annie Cook and several family members formed Treehouse Rentals, Inc., in Denver, Colorado. Treehouse is a closely held C corporation engaged in the rental real estate business. Treehouse
Early in the current year, Keith meets Dan through a business associate. Dan tells Keith that he is directing a business venture that purchases poorly managed restaurants in order to turn them around
Discuss the reporting procedures that should be followed by an employee to report employment related expenses on his or her tax return under the following conditions: a. Expenses are less than
Refer to Example C:9-25 in the text. Provide computations showing that the partners' total tax liability under the special allocation is less than their total liability under an equal allocation of
Michelle is an employee who must use her personal automobile for employment- related business trips. During 2016, Michelle drives her car 60% for business use and incurs the following total expenses
Darrell is a self-employed consultant who uses 15% of his home exclusively as an office. Darrell operates completely out of his home office and makes all of his appointments from the office as well
In 2016, Bear Corporation transfers 100 shares of its stock to its employee Patrick. The stock is valued at $10 per share on the issue date. The stock is subject to the following restrictions: •
On February 15, 2017, Jamal, who is single and age 30, establishes a traditional IRA and contributes $5,500 to the account. Jamal's adjusted gross income is $67,000 in 2016 and $57,000 in 2017. Jamal
On March 1, 2016, Sarah entered into a three-year lease of an automobile used exclusively in her business. The automobile's FMV was $58,500 at the inception of the lease. Sarah made ten monthly lease
Woburn Corporation uses the calendar year as its tax year. Woburn purchases and places into service $850,000 of depreciable property during 2016:You are working in Woburn's tax department and are
Turner Corporation uses the calendar year as its tax year. It purchases and places into service $1.97 million of property during 2016 to use in its business:* $80,000 of the cost pertains to the land
In 2016, Tish acquires and places into service in her business 7-year MACRS property costing $40,000 and 5-year MACRS property costing $165,000. Tish elects Sec. 179 expensing for all of the
Tampa Corporation sold the following assets in 2016:a The half-year convention was used in the year of acquisition. Tampa did not claim Sec. 179 expense or bonus depreciation during the acquisition
In 2016, Richmond Corporation purchases and places into service a used machine. Richmond elects Sec. 179 expensing for $500,000 of its $600,000 cost. The machine has a 7-year MACRS recovery
In 2016, Wabash Corporation purchases two assets and places them into service (both are used property and have a 7-year MACRS recovery period): • Asset #1: $1,300,000 cost; placed in service in
In 2016, Trish, a self-employed CPA and calendar year taxpayer, acquires and places in service an automobile and a personal computer. Pertinent data include the following:For each asset, calculate
In 2016, Phoenix Corporation acquires a new research facility and hires several scientists to develop new products. No new products are developed until 2017, although the following expenditures were
Stan Bushart works as a customer representative for a large corporation. Stan's job entails traveling to meet with customers, and he uses his personal car 100% for business use. In 2016, Stan must
In 2014, the Margate Corporation acquired an automobile with a cost of $30,000 for use in its business. Shortly thereafter, Margate Corporation experienced a decline in sales. Several employees were
Refer to the facts in Comprehensive Problem C:654. Now assume the entity is a partnership named Lifecycle Partnership. Additional facts are as follows: • Except for precontribution gains and
Goodrich Corporation uses the calendar year as its tax year. It acquires and places into service two depreciable assets during 2016:• Asset #1: 7-year property; $950,000 cost; placed into service
Who may use the completed contract method of reporting income from long-term contracts?
On January 30, 2016, Amy sells land to Bob for a stated price of $200,000. The full $200,000 is payable on January 30, 2018. No interest is stated. Amy, a cash-method taxpayer, purchased the land in
Problem C:6-56 considered two alternative forms for doing business. Now consider a third alternative. The C corporation could make an S election effective at the beginning of the current year (the
Assume the corporation in Problem C:11-61 (and C:6-56) had been an S corporation for its first 12 years, during which it distributed just enough cash for the shareholder to pay taxes on the
Both Damien and Latoya make taxable gifts of $250,000 in the current year. Will their current year gift tax liabilities necessarily be identical? Explain.
In 2016, Sondra makes taxable gifts aggregating $300,000. Her only other taxable gifts amount to $200,000, all of which she made in 1997.a. What is Sondra's 2016 gift tax liability?b. What is her
On April 27, 2016, an office building owned by the Ava James Corporation, an offshore drilling company that is a calendar-year taxpayer, is destroyed by a hurricane. The basis of the office building
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