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Statistics For Business And Economics 10th Edition David R. Anderson, Dennis J. Sweeney, Thomas A. Williams - Solutions
12. LO.2 In 2012, the Helpful Trust agreed to make a $90,000 contribution to Local Soup Kitchen, a charitable organization. Helpful’s board agreed to the gift at a November 2012 meeting, but the check was not issued until February 20, 2013 (i.e., during the next tax year). Can the trust claim a
11. LO.2 The Sterling Trust owns a business and generated $100,000 in depreciation deductions for the tax year. Mona is one of the income beneficiaries of the entity. Given the following information, can Mona deduct any of the Sterling depreciation on her Form 1040? If so, how much is her
10. LO.2 In its first tax year, the Vasquez Estate generated $50,000 of taxable interest income and $30,000 of tax-exempt interest income. It paid fiduciary fees of $8,000. The estate is subject to a 35% marginal estate tax rate and a 40% marginal income tax rate.How should the executor assign the
9. LO.2 The Liu Trust is short of cash. It is required to distribute $100,000 to Yang every year, and that payment is due in six weeks. In its asset corpus, Liu holds a number of investments that are valued at $100,000. One of them is a plot of land with a tax basis to the trust of $80,000.
8. LO.2 Using Figure 28.2 as a guide, describe the computation of a fiduciary entity’s accounting income, taxable income, and distributable net income.
7. LO.1 Create a fact pattern that illustrates each of the following tax situations. Be specific.a. A simple trust.b. A complex trust with a $300 personal exemption.c. A complex trust with a $100 personal exemption.
6. LO.1 Your college’s accounting group has asked you to give a 10-minute speech titled“Trusts, Estates, and the AMT.” The audience will be students who have completed at least one course concerning Federal income taxation. Develop a brief outline for your remarks.
5. LO.1 In general terms, describe how the following entities are subject to the Federal income tax. (Answer only for the entity, not for its owners, beneficiaries, etc.)a. C corporations (Subchapter C).b. Partnerships (Subchapter K).c. S corporations (Subchapter S).d. Trusts and estates
4. LO.1 Some fiduciary entities are known as simple trusts, while others are complex trusts.How does the tax professional know whether a trust is simple or complex? When is this determination made?
3. LO.1 Define the following terms.a. Income interest.b. Remainder interest.c. Reversionary interest.d. Life tenant.e. Term certain.
2. LO.1 Trusts and estates are known as fiduciary entities, in that a legal structure is formed to accomplish the financial and other goals of one or more individuals. List the parties who must be identified when a trust is created, and describe the responsibilities of each. Do the same for an
1. LO.1 A local bank has asked you to speak at its Building Personal Wealth Conference on the topic of “What Should Your Trust Do for You?” Develop at least four PowerPoint slides, each one listing a function that a trust might be able to accomplish for an individual who has more than a modest
3. The IRS makes available several publications that can prove useful to those involved in the administration of estates. Retrieve and summarize the following documents.a. Publication 559.b. Publication 510.c. Publication 950.
2. Before her death in 2009, Lucy entered into the following transactions.a. In 2000, Lucy borrowed $600,000 from her brother, Irwin, so that Lucy could start a business. The loan was on open account, and no interest or due date was provided for.Under applicable state law, collection on the loan
1. In 2000, June, a 75-year-old widow, creates an irrevocable trust naming her five adult grandchildren as the beneficiaries. The assets transferred in trust consist of marketable securities (worth $800,000) and June’s personal residence (worth $400,000).Bob, June’s younger brother and a
58. LO.5, 8 In each of the following independent situations, determine the gift tax that was due and the decedent’s final estate tax liability (net of any unified tax credit). Decedent Joseph Brandi Caden 2002 2005 2012 $1,500,000 Year of death Taxable estate Post-1976 taxable gifts- Made in 2001
57. LO.9 In 2011, Marsha died, and her after-tax estate of $6 million passed to a trust.Under the terms of the trust, Wilma (Marsha’s daughter) is granted a life estate with the remainder passing to Karl (Marsha’s grandson) upon Wilma’s death. The trustee elects to use $3 million of the
56. LO.9 In 2012, Loretta makes a taxable gift of $2 million to her granddaughter, Bertha.Presuming that Loretta used up both her unified transfer tax credit and her generationskipping transfer tax credit, how much tax does Loretta owe as a result of the transfer?
55. LO.8 Under Rowena’s will, Mandy (Rowena’s sister) inherits her property. One year later, Mandy dies. Based on the following independent assumptions, what is Mandy’s credit for the tax on prior transfers?a. The estate tax attributable to the inclusion of the property in Rowena’s gross
54. LO.7 In 2012, Roy dies and is survived by his wife, Marge. Under Roy’s will, all of his otherwise uncommitted assets pass to Marge. Based on the property interests listed below, determine the marital deduction allowed to Roy’s estate.a. Timberland worth $1.2 million owned by Roy, Marge, and
53. LO.7 While vacationing in Florida in November 2012, Sally was seriously injured in an automobile accident (she died several days later). How are the following transactions handled for tax purposes?a. Bruce, Sally’s son and executor, incurred $6,200 in travel expenses in flying to Florida,
52. LO.5, 6, 7 In each of the independent situations below, determine the transfer tax (i.e., estate and gift) consequences of what has occurred. (In all cases, assume that Gene and Mary are married and that Ashley is their daughter.)a. Mary purchases an insurance policy on Gene’s life and
51. LO.4, 6, 7 Assume the same facts as in Problem 50, except that Gordon and Fawn are husband and wife (not brother and sister).a. What are the gift tax consequences in 2002?b. What are the estate tax consequences in 2012?c. Under part (b), would your answer change if it was Fawn (not Gordon) who
50. LO.4, 6, 7 In 2002, Gordon purchased real estate for $900,000 and listed title to the property as “Gordon and Fawn, joint tenants with right of survivorship.” Gordon predeceases Fawn in 2012 when the real estate is worth $2.9 million.Gordon and Fawn are brother and sister.a. Did a gift
49. LO.6 At the time of his death on July 9, 2012, Aiden was involved in the following real estate.Fair Market Value(on July 9, 2012)Apartment building $2,100,000 Tree farm 1,500,000 Pastureland 750,000 Residence 900,000 The apartment building was purchased by Chloe, Aiden’s mother, and is owned
48. LO.6, 7 In 2000, Alan purchases a commercial single premium annuity. Under the terms of the policy, Alan is to receive $120,000 annually for life. If Alan predeceases his wife, Katelyn, she is to receive $60,000 annually for life. Alan dies first at a time when the value of the survivorship
47. LO.6 In 2007, Peggy, a widow, places $3 million in trust, life estate to her children, remainder to her grandchildren, but retains the right to revoke the trust. In 2011, when the trust is worth $3.1 million, Peggy rescinds her right to revoke the trust. Peggy dies in 2012 when the trust is
46. LO.6, 9 At the time of his death, Garth was involved in the following arrangements.• He held a life estate in the Myrtle Trust with the remainder passing to Garth’s adult children. The trust was created by Myrtle (Garth’s mother) in 1984 with securities worth $900,000. The Myrtle Trust
45. LO.4, 6, 7 In 2005, using $2.5 million in community property, Quinn creates a trust, life estate to his wife, Eve, and remainder to their children. Quinn dies in 2009 when the trust is worth $3.6 million, and Eve dies in 2012 when the trust is worth $5.6 million.a. Did Quinn make a gift in
44. LO.4, 6 Before her death in early 2012, Katie made the following transfers.• In 2008, purchased stock in Green Corporation for $200,000, listing title as follows:“Katie, payable on proof of death to my son Travis.” Travis survives Katie, and the stock is worth $300,000 when Katie dies.•
43. LO.6, 7 At the time of Matthew’s death, he was involved in the following transactions.• Matthew was a participant in his employer’s contributory qualified pension plan. The plan balance of $2 million is paid to Olivia, Matthew’s daughter and beneficiary. The distribution consists of the
42. LO.6 Assume the same facts as in Problem 41 with the following modifications.• Mitch is killed in a rock slide while mountain climbing in November 2012, and the insurer pays Alicia’s estate $400,000.• Bert’s executor did not make a QTIP election.• Alicia’s IRAs were the Roth type
41. LO.6 At the time of her death on September 4, 2012, Alicia held the following assets.Fair Market Value Bonds of Emerald Tool Corporation $ 900,000 Stock in Drab Corporation 1,100,000 Insurance policy (face amount of$400,000) on the life of her father, Mitch 80,000*Traditional IRAs 300,000* Cash
40. LO.6, 7 At the time of his death on September 2, 2012, Kenneth owned the following assets.Fair Market Value City of Boston bonds $2,500,000 Stock in Brown Corporation 900,000 Promissory note issued by Brad(Kenneth’s son) 300,000 In October 2012, the executor of Kenneth’s estate received the
39. LO.5 Using property she inherited, Myrna makes a gift of $6.2 million to her adult daughter, Doris. The gift takes place in 2012. Neither Myrna nor her husband, Greg, has made any prior taxable gifts. Determine the gift tax liability if:a. The § 2513 election to split gifts is not made.b. The
38. LO.4 Jesse dies intestate (i.e., without a will) in May 2011. Jesse’s major asset is a tract of land. Under applicable state law, Jesse’s property will pass to Lorena, who is his only child. In December 2011, Lorena disclaims one-half of the property. In June 2012, Lorena disclaims the
37. LO.4, 7 In May 2011, Dudley and Eva enter into a property settlement preparatory to the dissolution of their marriage. Under the agreement, Dudley is to pay Eva $6 million in satisfaction of her marital rights. Of this amount, Dudley pays $2.5 million immediately, and the balance is due one
36. LO.4 Carl made the following transfers during 2012.• Transferred $900,000 in cash and securities to a revocable trust, life estate to himself and remainder interest to his three adult children by a former wife.• In consideration of their upcoming marriage, gave Lindsey (age 21) a $90,000
35. LO.3 In each of the following independent situations, indicate whether the alternate valuation date can be elected. Explain why or why not. Assume that all deaths occur in 2012. Value of Gross Estate Estate Tax Liability Six Months Date of Six Months Date of Decedent Death Later Death Later
34. LO.1, 3, 6, 7 Arlene’s estate includes the following assets.Accrued rents on the apartment building are as follows: $70,000 (date of death) and $60,000 (six months later). To pay expenses, the executor of Arlene’s estate sells the Tan stock for $600,000 five months after her death.a. If the
33. LO.9 In terms of the generation-skipping transfer tax, comment on the following.a. A GSTT termination event and a GSTT distribution event look very similar.b. A direct skip can occur only in gift situations, not in testamentary situations.c. Spouses may be of different generations if there is
32. LO.7, 8 Abby dies in the current year. In determining her Federal estate tax liability, comment on the relevance of each of the following.a. Abby made taxable gifts in 1975 and 2008.b. Abby held a life estate in a trust created by her late husband.c. State death taxes paid by Abby’s estate.d.
31. LO.4, 6 Using the legend provided, classify each of the following transactions.Legend NT = No transfer tax imposed GT = Subject to the Federal gift tax ET = Subject to the Federal estate taxa. Hal establishes a bank checking account listing ownership as “Hal and Darlene, joint tenants with
30. LO.8 Three unmarried and childless sisters live together. All are of advanced age and in poor health, and each owns a significant amount of wealth. Each has a will that passes her property to her surviving sister(s) or, if no survivor, to their church. Within a period of two years and on
29. LO.7 Bernice dies and, under a will, passes real estate to her surviving husband. The real estate is subject to a mortgage. For estate tax purposes, how will any marital deduction be determined? Can Bernice’s estate deduct the mortgage under § 2053? Explain.
28. LO.6, 7 Due to the negligence of the other driver, Adam’s car is completely destroyed, and he is seriously injured. Two days later, Adam dies from injuries suffered in the accident.a. What, if any, are the estate tax consequences of these events?b. Are there any income tax consequences to
27. LO.6 With regard to “life insurance,” comment on the following.a. What the term includes (i.e., types of policies).b. The meaning of “incidents of ownership.”c. When a gift occurs upon maturity of the policy.d. The tax consequences when the owner of the policy predeceases the insured
26. LO.6 At the time of Emile’s death, he was a joint tenant with Colette in a parcel of real estate. With regard to the inclusion in Emile’s gross estate under § 2040, comment on the following independent assumptions:a. Emile and Colette received the property as a gift from Douglas.b. Colette
25. LO.6 Discuss the estate tax treatment of each of the following. In all cases, assume that Mike is the decedent and that he died on July 5, 2012.a. Interest on State of South Dakota bonds paid on August 1, 2012.b. Cash dividend on Puce Corporation stock paid on August 10, 2012. Date of record
24. LO.3, 6, 7 Distinguish between the following.a. The gross estate and the taxable estate.b. The taxable estate and the tax base.c. The gross estate and the probate estate.
23. LO.4 In each of the following independent situations, indicate whether the transfer is subject to the Federal gift tax.a. Asa contributes to his mayor’s reelection campaign fund. The mayor has promised to try to get some of Asa’s property rezoned from residential to commercial use.b. Mary
22. LO.5 In connection with the filing of a Federal gift tax return, comment on the following.a. No Federal gift tax is due.b. The gift is between spouses.c. The § 2513 election to split gifts is to be used.d. The donor uses a fiscal year for Federal income tax purposes.e. The donor obtained from
21. LO.5 Regarding the gift-splitting provision of § 2513, comment on the following.a. What it was designed to accomplish.b. The treatment of any taxable gifts previously made by the nonowner spouse.c. The utility of the election in a community property jurisdiction.
20. LO.4 Qualified tuition programs under § 529 enjoy significant tax advantages. Describe these advantages with regard to the Federal:a. Income tax.b. Gift tax.c. Estate tax.
19. LO.4 The Randalls have a married son and four grandchildren (ages 15, 17, 18, and 19). They establish a trust under which the income is to be paid annually to the grandchildren until the youngest reaches age 25. At that point, the trust terminates and the principal (corpus) is distributed to
18. LO.4 Derek dies intestate (i.e., without a will) and is survived by a daughter, Ruth, and a grandson, Ted (Ruth’s son). Derek’s assets include a large portfolio of stocks and bonds and a beach house. Ruth has considerable wealth of her own, while Ted has just finished college and is
17. LO.4, 6 At a local bank, Jack purchases for $100,000 a five-year CD listing title as follows:“Meredith, payable on death to Briana.” Four years later, Meredith dies. Briana, Meredith’s daughter, then redeems the CD when it matures. Discuss the transfer tax consequences if Meredith is:a.
16. LO.4 Addison provides all of the support of her dependent father, Walter, who lives with her. Because Walter is very proud and wants to appear independent, Addison gives him the money to pay his medical bills. Is Addison subject to the Federal gift tax as a result of these transfers? Explain.
15. LO.4 Gus (age 84) and Belle (age 18) are married in early 2012. Late in 2012, Belle confronts Gus about his failure to transfer to her the considerable amount of property he previously promised. Gus reassures Belle that she will receive the property when he dies. Because the transfer occurs at
14. LO.4 Corinne wants to sell some valuable real estate to her son on an installment arrangement. Because related parties are involved, she fears that the IRS may question the selling price and contend that a portion of the transfer is a gift.a. Are Corinne’s concerns realistic? Explain.b. How
13. LO.3 What type of ownership interest is appropriate in each of the following?a. A father wants to provide for his daughter during her life but wants to ensure that her younger husband (i.e., the son-in-law) does not inherit the property if he survives her.b. A married couple buys a home and
12. LO.3 Hugo dies in 2012, leaving a large estate. Among other provisions in his will are charitable and marital bequests. When Hugo’s executor elects the alternate valuation date, it has the effect of decreasing the marital deduction and increasing the charitable deduction of the estate. How
11. LO.3 As to the alternate valuation date of § 2032, comment on the following.a. The justification for the election.b. The main heir prefers the date of death value.c. An estate asset is distributed to an heir three months after the decedent’s death.d. Effect of the election on income tax
10. LO.3 Regarding the formula for the Federal estate tax (see Figure 27.2 in the text), comment on the following.a. The gross estate may include property interests not owned by the decedent at the time of death.b. The gross estate may include assets that are not part of the probate estate (i.e.,
9. LO.2, 4, 5 Regarding the formula for the Federal gift tax (see Figure 27.1), comment on the following observations.a. Only post-1976 taxable gifts must be considered in determining the tax on a current gift.b. A credit is allowed for the gift taxes actually paid on prior gifts.c. A deduction for
8. LO.2 A new out-of-state client, Robert Ball, has asked you to prepare a Form 709 for a large gift he made in 2011. When you request copies of any prior gift tax returns he may have filed, he responds, “What do gifts in prior years have to do with 2011?” Send a letter to Robert at 4560 Walton
7. LO.1 In what manner does an inheritance tax differ from an estate tax?
6. LO.1 To avoid both state and Federal transfer taxes (i.e., estate, inheritance, and gift), Gary (a U.S. citizen) has moved to Costa Rica. Furthermore, he plans to limit his investments to non-U.S. assets (e.g., foreign stocks and bonds and real estate). Will Gary accomplish his objective?
5. LO.1 Carlos, a citizen and resident of Chile, would like to buy stock in General Electric and make gifts of the shares to his children. Will the Federal gift tax pose a problem for him? Explain.
4. LO.1 Kim, a wealthy Korean national, is advised by his physicians to have an operation performed at the Mayo Clinic. Kim is hesitant to come to the United States because of the possible tax consequences. If the procedure is not successful, Kim does not want his wealth to be subject to the
3. LO.1 Eight years ago, Alex made gifts of all of his assets to family and friends. Although the transfers would have generated gift taxes, none were paid and no gift tax returns were filed. At present, no one knows where Alex is or even if he is still alive. The IRS has discovered that the gifts
2. LO.1 Over the years, the tax treatment of transfers by gift and by death has not been consistent. In this regard, what were the policy considerations supporting the original rules and the changes made?
1. LO.1 Why can the unified transfer tax be categorized as an excise tax? In this regard, how does it differ from an income tax?
3. Find an article in which a tax professional describes the confidentiality privilege available under the Code for a CPA tax adviser. Then construct a list of “Confidentiality Dos and Don’ts for the CPA.” Summarize the article in an e-mail to your professor.
2. In 2008, Gupta sold some shares of Wingo, a private U.S. corporation, for $40 million. On his Form 1040 Schedule D for 2008, Gupta showed the basis of the stock as $11 million, thereby reporting a $29 million capital gain. Gupta filed his return on October 1, 2009, after properly receiving an
1. Your firm is preparing the Form 1040 of Norah McGinty, a resident, like you, of Oklahoma. You have contracted for the last three filing seasons with a firm in India, Tax Express Bangalore, to prepare initial drafts of tax returns using tax software that you provide to Tax Express. You find that
47. LO.8 You are the chair of the Ethics Committee of your state’s CPA Licensing Commission.Interpret controlling AICPA authority in addressing the following assertions by your membership.a. When a CPA has reasonable grounds for not answering an applicable question on a client’s return, a brief
46. LO.8 Compute the preparer penalty the IRS could assess on Gerry in each of the following independent cases.a. On March 21, the copy machine was not working, so Gerry gave original returns to her 20 clients that day without providing any duplicates for them. Copies for Gerry’s files and for
45. LO.8 Discuss which penalties, if any, might be imposed on the tax adviser in each of the following independent circumstances. In this regard, assume that the tax adviser:a. Suggested to the client various means by which to acquire excludible income.b. Suggested to the client various means by
44. LO.8 Christie is the preparer of the Form 1120 for Yostern Corporation. On the return, Yostern claimed a deduction that the IRS later disallowed on audit. Compute the tax preparer penalty that could be assessed against Christie in each of the following independent situations. Form 8275
43. LO.8 Rod’s Federal income tax returns (Form 1040) for the indicated three years were prepared by the following persons.Year Preparer 2011 Rod 2012 Ann 2013 Cheryl Ann is Rod’s next-door neighbor and owns and operates a pharmacy. Cheryl is a licensed CPA and is engaged in private practice.
42. LO.7 Chee owed $4,000 in Federal income tax when she filed her Form 1040 for 2012.She attached a sticky note to the 1040 that read, “My inventory computations on last year’s (2011) return were wrong, so I paid $1,000 too much in tax.” Chee then included a check for $3,000 with the Form
41. LO.5, 7 On April 3, 2009, Mark filed his 2008 income tax return, which showed a tax due of $80,000. On June 1, 2011, he filed an amended return for 2008 that showed an additional tax of $10,000. Mark paid the additional amount. On May 18, 2012, Mark filed a claim for a 2008 refund of $45,000.a.
40. LO.7 Loraine, a calendar year taxpayer, reported the following transactions, all of which were properly included in a timely return.a. Presuming the absence of fraud, how much of an omission from gross income is required before the six-year statute of limitations applies?b. Would it matter if
39. LO.7 What is the applicable statute of limitations in each of the following independent situations?a. No return was filed by the taxpayer.b. The taxpayer incurred a bad debt loss that she failed to claim.c. A taxpayer inadvertently omitted a large amount of gross income.d. Same as (c), except
38. LO.6 The Leake Company, owned equally by Jacquie (chair of the board of directors)and Jeff (company president), is in very difficult financial straits. Last month, Jeff used the $300,000 withheld from employee paychecks for Federal payroll and income taxes to pay a creditor who threatened to
37. LO.6 Kold Services Corporation estimates that its 2013 taxable income will be$500,000. Thus, it is subject to a flat 34% income tax rate and incurs a $170,000 liability.For each of the following independent cases, compute Kold’s 2013 minimum quarterly estimated tax payments that will avoid an
36. LO.6 Trudy’s AGI last year was $200,000. Her Federal income tax came to $65,000, which she paid through a combination of withholding and estimated payments. This year, her AGI will be $300,000, with a projected tax liability of $45,000, all to be paid through estimates.a. Ignore the
35. LO.6 Moose, a former professional athlete, now supplements his income by signing autographs at collectors’ shows. Unfortunately, Moose has not been conscientious about reporting all of this income on his tax return. Now, the IRS has charged him with additional taxes of $100,000 due to
34. LO.6 The Eggers Corporation filed an amended Form 1120, claiming an additional$400,000 deduction for payments to a contractor for a prior tax year. The amended return was based on the entity’s interpretation of a Regulation that defined deductible advance payment expenditures. The nature of
33. LO.6 Singh, a qualified appraiser of fine art and other collectibles, was advising Colleen when she was determining the amount of the charitable contribution deduction for a gift of sculpture to a museum. Singh sanctioned a $900,000 appraisal, even though he knew the market value of the piece
32. LO.6 Compute the undervaluation penalty for each of the following independent cases involving the value of a closely held business in the decedent’s gross estate. In each case, assume a marginal estate tax rate of 35%.Reported Value Corrected IRS Valuationa. $ 20,000 $ 25,000b. 100,000
31. LO.6 Compute the overvaluation penalty for each of the following independent cases involving the fair market value of charitable contribution property. In each case, assume a marginal income tax rate of 35%. a. Taxpayer Individual C corporation Corrected IRS Value $ 40,000 Reported Valuation $
30. LO.6 LaVon underpaid her taxes by $250,000. A portion of the underpayment was shown to be attributable to LaVon’s negligence ($200,000). A court found that a portion of that deficiency constituted civil fraud ($50,000). Compute the total fraud and negligence penalties incurred.
29. LO.6 Maureen, a calendar year taxpayer, files her 2011 return on November 4, 2013.She did not obtain an extension for filing her return, and the return reflects additional income tax due of $15,000.a. What are Maureen’s penalties for failure to file and to pay?b. Would your answer change if
28. LO.6 Olivia, a calendar year taxpayer, does not file her 2011 return until December 12, 2012. At this point, she pays the $40,000 balance due on her 2011 tax liability of $70,000.Olivia did not apply for and obtain any extension of time for filing the 2011 return.When questioned by the IRS on
27. LO.6 Compute the failure to pay and failure to file penalties for John, who filed his 2011 income tax return on December 20, 2012, paying the $10,000 amount due at that time. On April 1, 2012, John received a six-month extension of time in which to file his return. He has no reasonable cause
26. LO.6 Wade filed his Federal income tax return on time but did not remit the balance due. Compute Wade’s failure to pay penalty in each of the following cases. Assume the IRS has not issued a deficiency notice.a. Four months late, $3,000 additional tax due.b. Ten months late, $4,000 additional
25. LO.6 Rita forgot to pay her Federal income tax on time. When she actually filed, she reported a balance due. Compute Rita’s failure to file penalty in each of the following cases.a. Two months late, $1,000 additional tax due.b. Five months late, $3,000 additional tax due.c. Eight months late,
24. LO.5 Gordon paid the $10,000 balance of his Federal income tax three months late.Ignore daily compounding of interest. Determine the interest rate that applies relative to this amount, assuming that:a. Gordon is an individual.b. Gordon is a C corporation.c. The $10,000 is not a tax that is due,
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