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business
federal taxation

Questions and Answers of Federal Taxation

Phil, a cash-basis taxpayer, sells the following marketable securities, which are capital assets during 2016. Determine whether the gains or losses are long-term or short-term. Also determine the net
What is the first day that an individual could sell a capital asset purchased on March 31, 2016 and have a holding period of more than one year?
Jim inherits stock (a capital asset) from his brother, who died in March of 2016, when the property had a $6.9 million FMV. This property is the only property included in his brother’s gross estate
Kamal is starting a new business in 2016 which will operate as an S corporation. This means that income earned by the corporation will be reported by shareholders even if they do not receive
Stan rented an office building to Clay for $3,000 per month. On December 29, 2015, Stan received a deposit of $4,000 in addition to the first and last months’ rent. Occupancy began on January 2,
Pat was divorced from her husband in 2011. During the current year she received alimony of $18,000 and child support of $4,000 for her 11-year-old son, who lives with her. Her former husband had
Matt and Sandy reside in a community property state. Matt left home in April 2016 because of disputes with his wife, Sandy. Subsequently, Matt earned $15,000. Before leaving home in April, Matt
Mike and Linda are a married couple who file jointly. They have three dependent children who are full-time students in 2016. Mike and Linda€™s taxable income is $180,000 and they provided
In 2016, Lana, a single taxpayer with AGI of $85,400, claims exemptions for three dependent children, all under age 17. What is the amount of her child credit?
Jim and Pat are married and file jointly. In 2016, Jim earned a salary of $46,000. Pat is self-employed. Her gross business income was $49,000 and her business expenses totaled $24,000. Each
For the following independent situations, determine the optimum filing status for the years in question.a. Wayne and Celia had been married for 24 years before Wayne died in an accident in 2014.
Which of the following taxpayers must file a 2016 return?a. Amy, age 19 and single, has $8,050 of wages, $800 of interest, and $350 of self-employment income.b. Betty, age 67 and single,
Bill and Mary plan to marry in December 2016. Bill’s salary is $32,000 and he owns his residence. His itemized deductions total $12,000. Mary’s salary is $39,000. Her itemized deductions total
The following information relates to two married couples:Compute the 2016 tax due or refund due for each couple. Assume that the itemized deductions have been reduced by the applicable floors. Ignore
a. Keith Thomas and Thomas Brooks began a new consulting business on January 1, 2016. They organized the business as a C corporation, KT, Inc. During 2016, the corporation was successful and
In April 2016, Dan is audited by the IRS for the year 2014. During the course of the audit, the agent discovers that Dan’s deductions for business travel and entertainment are unsubstantiated and a
Howard Gartman is a 40% partner in the Horton & Gartman Partnership. During 2016, the partnership reported the total items below (100%) on its Form 1065:Howard and his wife Dawn, who file a joint
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
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
Latesha, a single taxpayer, had the following income and deductions for the tax year 2016:a. Compute Latesha€™s taxable income and federal tax liability for 2016 (round to
Betty, a married taxpayer, makes the following gifts during the current year (2016): $20,000 to her church, $50,000 to her daughter, and $40,000 to her husband. What is the amount of Betty’s
Based on the amounts of taxable income below, compute the federal income tax payable in 2016 on each amount assuming the taxpayers are married filing a joint return. Also, for each amount of taxable
The PDQ Partnership earned ordinary income of $150,000 in 2016. The partnership has three equal partners, Pete, Donald, and Quint. Quint, who is single, uses the standard deduction, and has other
The Bruin Corporation, a C corporation, is owned 100% by John Bean and had taxable income in 2016 of $500,000. John is also an employee of the corporation. In December 2016, the corporation has
Sally and Tom are married, have three dependent children, and file a joint return in 2016. If they have adjusted gross income (AGI) of $90,000 and itemized deductions of $10,000, what is their
Carlos inherits 100 shares of Allied Corporation stock from his father. The stock cost his father $8,000 and had a $25,000 FMV on the date of his father’s death in 2016. The alternate valuation
Refer to the facts in Comprehensive Problem C:6-54. Now assume the entity is a partnership named Lifecycle Partnership. Additional facts are as follows:€¢ Except for precontribution gains
Cara, Bob, and Steve want to begin a business on January 1, 2018. The individuals are considering three business forms—C corporation, partnership, and S corporation.• Cara has investment land
Wilton Corporation has a single class of common stock outstanding. Robert owns 100 shares, which he purchased six years ago for $100,000. In the current year, when the stock is worth $1,200 per
Jackson Corporation prepared the following book income statement for its year ended December 31, 2017:Information on equipment depreciation and sale:Equipment 1:€¢ Acquired March 3, 2015
Mike Barton owns Barton Products, Inc. The corporation has 30 employees. Barton Corporation expects $800,000 of net income before taxes in 2017. Mike is married and files a joint return with his
Wright Corporation’s taxable income for calendar years 2014, 2015, and 2016 was $120,000, $150,000, and $100,000, respectively. Its total tax liability for 2016 was $22,250. Wright estimates that
Zeta Corporation’s taxable income for 2016 was $1.5 million, on which Zeta paid federal income taxes of $510,000. Zeta estimates calendar year 2017’s taxable income to be $2 million, on which it
In 2017, 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
Budget Corporation is a personal service corporation. Its taxable income for the current year is $75,000. What is Budget’s income tax liability for the year?
Ed and Fay together own 100% of the common stock of an existing corporation. On January 2 of the current year, they made the following additional transfers to the corporation, which qualify under
a. What original action (acquiescence or nonacquiescence) did the IRS Commissioner take regarding the 1982 Tax Court decision in Doyle, Dane, Bernbach, Inc., 79 T.C. 101 (1982)? b. Did the IRS
The objective is to locate a general overview of available home office deductions. You have previously researched the issue and know that Sec. 280A is the primary authority for this issue. In the
According to the Statements on Standards for Tax Services, what belief should a CPA have before taking a pro-taxpayer position on a tax return?
Assume the same facts as in Problem C:2-51 except that Lois gave the Water stock to her daughter, Sue, six months after she received it. The stock had a $120,000 FMV when Lois acquired it and when
a. What official action (acquiescence or nonacquiescence) did the IRS Commissioner take regarding the 1985 Tax Court decision in John McIntosh, 85 T.C. 31 (1985)?b. Did this action concern all issues
Which IRC section(s) does Rev. Rul. 2001-29 interpret?
List three methods of searching the major tax service databases.
Name three primary sources of authority that tax professionals should check against the citatory before relying on those sources for important matters.
What two functions does a citator serve?
Latisha is an unmarried taxpayer, filing head of household. She has two dependent children (7-year-old twins) who lived with her all year. Her 2017 earned income was $18,600, her AGI was $22,700, and
Jose is unmarried with no qualifying children. He has $8,300 of 2017 wages and is otherwise eligible for the earned income credit. Jose has $200 of interest income and no for AGI deductions.a. What
Carolyn is unmarried and has one dependent child, age 6, who lived with her for the entire year. In 2017, she has income of $16,000 in wages and $6,000 in alimony. Her AGI is $22,000.a. What is
Randall and Dianne Wall live in St. Louis, Missouri. Randall and Dianne are each 30 years old, neither smokes, and they have no children or other dependents.Randall is attending law school full time
Caroline, age 66 and filing single as a dependent of another, received the following income items for the current year:Social Security benefits (nontaxable) …………..$ 3,000Pension benefits
Lou and Stella North are married, file a joint return, and have two dependent children in college, Phil and Jaci. Phil attends a State University in a neighboring state, and Jaci attends a State
Brad and Valerie decided to adopt a child and contacted an adoption agency in August 2016. After extensive interviews and other requirements (such as financial status, etc.), Brad and Valerie were
In each of the following independent situations, determine the amount of the child and dependent care tax credit. (Assume that both taxpayers are employed and the year is 2017.)a. Brad and Bonnie are
Anita, a single taxpayer, reports the following items for 2017:Salary ………………………………………………………………………….............................…$20,000Income
Arnie and Angela are married and file a joint return in 2017. Arnie is a partner in a public accounting firm. His share of the partnership’s income in the current year is $40,000, and he receives
Amelia has wages of $45,000 and net income from a small unincorporated business of $70,000 for 2017.a. What is the amount of Amelia’s self-employment (SE) tax and deduction for AGI for her SE
Allen, an unmarried taxpayer filing single, has no dependents and reports the following items on his 2017 federal income tax return:Adjusted gross income
Harry and Mary Prodigious are married filing jointly and have 12 dependent children. Six of the children are under age 17. With the large number of children, they live in a very austere manner.
Jose, an unmarried taxpayer filing single with no dependents, has AGI of $200,000 and reports the following items in 2017:Taxable income
William and Maria Smith are a married couple filing jointly. They have no children and report the following items in 2017:Taxable income
Vincent anticipates that his actual tax liability for the tax year 2017 will be $12,000 and that federal income taxes withheld from his salary will be $9,000. Thus, when he files his 2017 income tax
Alice is a single mother, 37 years old, and has two qualifying children, ages 3 and 6. In 2017, she receives $3,600 alimony and earns $18,000 in wages resulting in $21,600 of AGI. Is Alice eligible
What types of business property qualify for the business energy credit?
Describe the tax costs to a taxpayer who does not purchase health insurance coverage for 2017. Assume the taxpayer is single, 40 years old, has no dependents, has household income of $55,000, and
Sarah, a married taxpayer who files a joint return, is considering a foreign assignment for two years. In 2017, she will earn $120,000 in the foreign country. Sarah has no other income. She will be
What are the more significant tax credit items included in the computation of the general business tax credit?
Which of the following itemized deductions are deductible when computing the alternative minimum tax for individuals?a. Charitable contributionsb. Mortgage interest on a loan used to acquire a
May a taxpayer appeal a case litigated under the Small Cases Procedure of the Tax Court?
Holly has recognized a $9,000 STCL. She has no other recognized capital gains and losses in 2017. She is considering the sale of a Sec. 1231 asset held for four years at a $5,000 gain in 2017. She
Does Title 26 contain statutory provisions dealing only with income taxation? Explain.
Russ has never recognized any Sec. 1231 gains or losses. In December 2017, Russ is considering the sale of two Sec. 1231 assets. The sale of one asset will result in a $20,000 Sec. 1231 gain while
Ed operates a storage business as a sole proprietorship and owns the following assets acquired in 1998:Warehouse ……………………………………….............$400,000Minus: Accumulated
In 2011, Jack purchased undeveloped oil and gas property for $900,000 and paid $170,000 for intangible drilling and development costs. He elected to expense the intangible drilling and development
Glen, whose tax rate is 33%, sells each of the following assets for $200,000. Each case is an independent case. Sec. 1231 Ordinary Gain (Loss) Income Тахed Тахed Тахed Тахed at 33% at 20%
Mr. Briggs purchased an apartment complex on January 10, 2015, for $2 million with 10% of the price allocated to land. He sells the complex on October 22, 2017, for $2.5 million. Assume that 10% of
The LaPoint Corporation placed in service $350,000 of used equipment (seven-year recovery property) on June 3, 2016 and elected to expense $250,000 as Sec. 179 depreciation expense. LaPoint sold the
Arnie, a college student, purchased a truck in 2015 for $6,000. He used the truck 70% of the time as a distributor for the local newspaper and 30% of the time for personal use. The truck has a
Explain how committee reports can be used in tax research. What do they indicate?
Lean Corporation was incorporated in 2011 by Bruce Smith, who has served as an officer and member of the Board of Directors. Carl Jones has served as the secretary-treasurer of the company as a
Barbara was divorced two years ago. However, the final property settlement and determination of alimony payments was not made until February 2017 because of extended litigation. Barbara received a
Mike Webb, married to Nancy Webb, is employed by a large pharmaceutical company and earns a salary. In addition, Mike is an entrepreneur and has two small businesses on the side, both of which
Consider the following summary of Sec. 1231 gains and losses recognized by Janet during the period 2012€“2017. Janet had no nonrecaptured Sec. 1231 losses at the beginning of 2012. If Janet
On March 10, 2014, Elizabeth, a college professor, purchased a house for $300,000. She did not move into the house until August 8, 2014. On August 1, 2015, she accepted a position as a visiting
Sylvester owns and operates an unincorporated pizza business that delivers pizza to customers. Three years ago, he acquired an automobile for $30,000 to provide delivery service. Recently, Sylvester
At the beginning of 2017, Silver Corporation has a $95,000 capital loss carryforward from 2016. During 2017, the corporation sells land, held for four years, and realizes an $80,000 gain. Silver has
Marc, age 45, sells his personal residence on May 15, 2017, for $180,000. He pays $8,000 in selling expenses and $900 in repair expenses to help sell the residence. He has lived in the residence
Mr. and Mrs. Rusbarsky purchased a residence on June 12, 2014, for $200,000. On March 12, 2017, they sell the residence for $300,000, and selling expenses amount to $11,000. They purchase another
On January 10, 2017, Kirsten married Joe. Joe sold his personal residence on October 25, 2016, and excluded the entire gain of $175,000. Although they had originally planned to live in the house that
Mr. and Mrs. Kitchens purchased their first home in Ohio for $135,000 on October 1, 2016. Because Mr. Kitchens’ employer transferred him to Utah, they sold the house for $160,000 on January 10,
Sherron, who is single, purchased a house to use as rental property on April 1, 2007, for $300,000. He moved into the house on June 1, 2016, and used it as a personal residence until August 1, 2017,
Consider the following information for Mr. and Mrs. Di Palma:• On June 10, 2016, they sold their principal residence for $80,000 and incur $6,000 of selling expenses. The basis of the residence,
Consider the following information for Mr. and Mrs. Gomez:• On May 26, 2016, they sold their principal residence, acquired in 1999, for $200,000. They paid $8,000 of selling expenses. Their basis
Paden, who is single and has been employed as an accountant for 27 years with Harper, Inc., lost his job due to company downsizing. His last day of employment is July 31, 2017, and Harper provides a
On September 3, 2017, Federal Corporation’s warehouse is totally destroyed by fire. $800,000 of insurance proceeds are received, and the realized gain is $300,000. Whenever possible, Federal elects
On April 27, 2017, 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
The Madison Corporation paid $3,000 for several acres of land in 1993 to use in its business. The land is condemned and taken by the state in March 2017. The company receives $25,000 from the state.
Debbie owns office equipment with a basis of $300,000 and a holding period starting on May 10, 2006. Debbie exchanges the equipment for other office equipment owned by Doug on July 23, 2017. Doug’s
In 2015, 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
Prime Corporation begins operations in late 2017. Prime decides to use the single-pool LIFO method. Year-end inventories under FIFO are as follows:2017
On January 30, 2017, Amy sells land to Bob for a stated price of $200,000. The full $200,000 is payable on January 30, 2019. No interest is stated. Amy, a cash-method taxpayer, purchased the land in

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