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business
federal taxation

Questions and Answers of Federal Taxation

Dana manages real estate and is a cash method taxpayer. She changes to the accrual method in 2018. Dana€™s business income for 2018 is $30,000 computed on the accrual method. Her books show
BCD Partnership has, for many years, had a March 31 year-end. The partnership’s net income for the fiscal year ended March 31, 2018 is $400,000. Because of its fiscal year, BCD has $100,000 on
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 2017,
John and Ellen Brite (SSN 000-00-1111 and 000-00-2222, respectively) are married and file a joint return. They have no dependents. John owns an unincorporated specialty electrical lighting retail
Phillips Corporation, a construction company that specializes in home construction, uses special computer software to schedule jobs and keep track of job costs. It uses generic software for
In 2017, Phoenix Corporation acquires a new research facility and hires several scientists to develop new products. No new products are developed until 2018, although the following expenditures were
Troy entered into a three-year lease of a luxury automobile on January 1, 2017, for use 80% in business and 20% for personal use. The FMV of the automobile at the inception of the lease was $40,500,
Tracy acquires an automobile (MACRS 5-year recovery) on March 1, 2017. He uses the automobile 70% of the time in his business and 30% of the time for personal use. The automobile cost $36,000. No
Luby Corporation acquires a 100% business-use automobile (MACRS 5-year recovery) on July 1, 2017 for $36,000. Luby does not elect Sec. 179 and elects out of bonus depreciation. What are depreciation
Lutz Corporation acquired a 100% business-use automobile (MACRS 5-year recovery) on July 1, 2017 for $32,000. The company did not elect Sec. 179 expensing and elects out of bonus depreciation. What
Tammy acquired an automobile for $20,000 on July 1, 2014. She used the automobile partially for business purposes during the 2014–2017 period. The percentage of business use is as follows: 2014,
In 2017, 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
Long Corporation has been unprofitable for several years and has substantial NOL carryovers. Therefore, the company has elected to use straight-line MACRS for property acquisitions. Long acquires,
In 2017, 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 2017, Richmond Corporation purchases and places into service a used machine. Richmond elects Sec. 179 expensing for $510,000 of its $610,000 cost. The machine has a 7-year MACRS recovery period.
Tampa Corporation sold the following assets in 2017:a. What is the depreciation deduction for each asset in 2017?b. Compute the gain or loss on each asset sold. Original Cost Depreciation/
In 2017, 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
Turner Corporation uses the calendar year as its tax year. It purchases and places into service $1.97 million of property during 2017 to use in its business:What is Turner€™s total
Large Corporation acquired and placed in service the following 100% business-use assets. Large did not claim Sec. 179 or bonus depreciation expensing on any of these properties.• Truck (light-duty,
Sid purchased an automobile for personal use on January 18, 2013 for $10,000. On January 1, 2017, Sid starts a small business and begins to use the automobile exclusively in the business. The
Sandy acquired business machinery (which qualified as 7-year MACRS property) on July 15, 2014, for $10,000. In 2014, Sandy claimed a $1,429 regular MACRS depreciation deduction and she elected not to
Jose is considering acquiring a new luxury automobile costing $45,000 that will be used 100% in his business. The salesperson at the automobile dealership states that Jose will be entitled to
Woburn Corporation uses the calendar year as its tax year. Woburn purchases and places into service $850,000 of depreciable property during 2017:_________________________ Cost Recovery
On March 1, 2017, 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
Goodrich Corporation uses the calendar year as its tax year. It acquires and places into service two depreciable assets during 2017:• Asset #1: 7-year property; $950,000 cost; placed into service
Robert is a sole proprietor who uses the calendar year as his tax year. On July 20, 2017 he acquired and placed in service a business machine, a 7-year asset, for $50,000. No other property was
Dan and Cheryl are married, file a joint return, and have no children. Dan, age 45, is a pharmaceutical salesman and Cheryl, age 42, is a nurse at a local hospital. Dan’s SSN is 400-20-1000 and
Bender Corporation grants a nonqualified stock option to Penny, an employee, on January 1, 2017, that entitled Penny to acquire 1,000 shares of Bender stock at $80 per share. On this date, the stock
Bell Corporation grants an incentive stock option to Peggy, an employee, on January 1, 2017, when the option price and FMV of the Bell stock is $80. The option entitles Peggy to buy 10 shares of Bell
Paula is a self-employed doctor and is considering whether to establish a defined contribution H.R. 10 plan. Paula’s only employee is a full-time nurse who has been employed by Paula for seven
Jack and Katie have five grandchildren, ages 19, 16, 15, 12, and 10. They have established Coverdell Education Savings Accounts (CESA) for each of the grandchildren and would like to contribute the
Chatham Mae is single, age 35, and wants to make a contribution to an IRA for the year ended December 31, 2017. She is an active participant in a qualified retirement plan sponsored by her employer.
On February 15, 2018, Jamal, who is single and age 30, establishes a traditional IRA and contributes $5,500 to the account. Jamal’s adjusted gross income is $68,000 in 2017 and $57,000 in 2018.
In 2017, 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:•
Pat is a participant in a qualified pension plan. She retires on January 1, 2017, at age 63, and receives pension payments beginning in January 2017. Her pension payments, which will be received
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
Anne works for a CPA firm as a secretary/receptionist and earns approximately $27,000 per year. About five years earlier, she had completed 70 credit hours at State U. To increase her career
For each of the following independent situations, determine whether any of the expenditures qualify as deductible education expenses in connection with a trade or business (Reg. Sec. 1.162-5). Are
Michael graduates from New York University and on February 1, 2017, accepts a position with a public accounting firm in Chicago. Michael is a resident of New York. In March, Michael travels to
Andrew and Beth are equal partners in the AB Partnership. On December 30 of the current year, the AB Partnership agrees to liquidate Andrew’s partnership interest for a cash payment on December 30
Your client, Charley Long, age 40, has requested your advice with respect to his IRA. He has a traditional IRA with a balance of $250,000 and his current AGI is $150,000. He expects his income to
Amelie is an employee who uses her personal automobile in connection with her job. During 2017, Amelie drove her car a total of 28,000 miles. Her business log shows that she drove 22,400 miles for
Michelle is an employee who must use her personal automobile for employment-related business trips. During 2017, Michelle drives her car 60% for business use and incurs the following total expenses
Bass Corporation purchases 10 tickets to the Super Bowl in February 2017 for entertaining its customers. Due to unusually high demand, the tickets have to be purchased from scalpers for $15,000 (10
Caitlin and Wally formed the C & W Partnership on September 20, 2017. Caitlin contributed cash of $195,000, and Wally contributed office furniture with a FMV of $66,000. He bought the furniture
In 2014, 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
Assume the same facts as in Problem I:8-54, except that Becky and Ken are not related and that under the terms of the loan Ken agrees to repay Becky the $5,000 plus interest (at a reasonable stated
In 2016, Mark purchased two separate activities. Information regarding these activities for 2016 and 2017 is as follows:The 2016 losses were suspended losses for that year. During 2017, Mark also
Jace Seaton is a single taxpayer living in Eugene, Oregon. From 2013 to 2016, he worked as the CEO of Wengren & Jeffers, a local architectural firm. In 2017, he left the firm to start his own
Moss Corporation has a single class of common stock outstanding. Tillie owns 1,000 shares, which she purchased five years ago for $100,000. Moss declares a stock dividend payable in 8% preferred
John died on March 3, 2017. His gross estate of $8.25 million includes First Corporation stock (400 of the 1,000 outstanding shares) worth $5 million or $12,500 per share ($5,000,000/400). This FMV
Several years ago, Brian formed Sigma Corporation, a retail company ineligible for the U.S. production activities deduction. Sigma uses the accrual method of accounting. In 2017, the corporation
Explain Congress’ intent for enacting the AMT.
Bird Corporation purchases machinery for $3 million and places it in service in June 2017. Installation costs are $75,000. The machine replaces an old machine that Bird purchased several years ago,
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
Some acquisitive transactions may be characterized as either a Type C or a Type D reorganization. Which reorganization provision controls if the two types overlap?
Silvia exchanges all her Theta Corporation stock (acquired August 1, 2013) for $300,000 of Alpha Corporation voting common stock pursuant to Theta’s merger into Alpha. Immediately after the
Murray Corporation’s stock is owned by about 1,000 shareholders, none of whom own more than 1% of the outstanding shares. Pursuant to a tender offer, Said purchased all the Murray stock for $7.5
Ruby Corporation has 100 shares of common stock outstanding. Fred, a shareholder of Ruby, exchanges his 25% interest in the Ruby stock for Garnet Corporation stock and securities. Ruby purchased 80%
At the close of business on May 31, 2017, Alaska Corporation exchanges $2 million of its voting common stock for all the noncash assets of Tennessee Corporation. Tennessee uses its cash to pay off
Albert Corporation is a profitable publicly traded corporation. None of its shareholders owns more than 1% of its outstanding shares. On December 31, 2016, Albert exchanged $8 million of its stock
The following advertisement appeared in a financial journal:$17 MILLION CASH WITHADDITIONAL CASH AVAILABLE$105 MM TAX LOSS GOOD THROUGH 2031CAPITAL GROUP, INC.NASDAQ listed w/300 shareholdersWANTS TO
P Corporation uses the calendar year as its tax year and the accrual method as its overall accounting method. S Corporation uses a fiscal year ending June 30 as its tax year and the cash method as
The ABC Partnership has a non-recourse liability that it incurred by borrowing from an unrelated bank. It is secured by an apartment building owned and managed by the partnership. The liability is
Which of the following items are considered to be inventory for purposes of Sec. 751?a. Suppliesb. Inventoryc. Notes receivabled. Land held for investment purposese. Lots held for resale
Frank, Greta, and Helen each have a one-third interest in the FGH Partnership. On December 31, 2016, the partnership reported the following balance sheet:The partnership placed Asset 1 (seven-year
Carl Carson, a single taxpayer, owns 100% of Delta Corporation. During 2017, Delta reports $150,000 of taxable income. Carl reports no income other than that earned from Delta, and Carl claims the
Voyles Corporation, a calendar year taxpayer formed five years ago, desires to make an S election beginning in 2017. Sue and Andrea each own one-half of the Voyles stock.a. How does Voyles make the S
Orlando Corporation, a calendar year taxpayer, has been an S corporation for several years. On July 9, 2017, Orlando authorizes a second class of nonvoting preferred stock that pays a 10% annual
Tango Corporation, a calendar year taxpayer, has been an S corporation for several years. Tango’s business activities have become very profitable in recent years. On June 16, 2017, its sole
Indicate in each of the following independent situations whether the taxpayer can accomplish what is proposed. Provide adequate authority for your answer including any special elections that are
Alice, a single taxpayer, will form Morning Corporation in the current year. Alice plans to acquire all of Morning’s common stock for a $100,000 contribution to the corporation. Morning will
During 2016, Becky loans her brother Ken $5,000, which he intends to use to establish a small business. Because Ken has no other assets and needs cash to establish the business, the agreement
During 2017, 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
Jerry sprayed all of the landscaping around his house with a pesticide in June 2017. Shortly thereafter, all of the trees and shrubs unaccountably died. The FMV and the adjusted basis of the plants
In 2017, Julie, a single individual, reported the following items of income and deduction:Salary ………………………………………………………………………………
Phil, age 30, is married and files a joint return with his spouse. On February 15, 2018, Phil establishes a traditional IRA for himself and a spousal IRA for his spouse with a $11,000 contribution,
During 2017, Karen, a single taxpayer, reports the following income and expense items relating to her interior design business:Revenues …………………………………………….$52,000Cost
Michelle and Mark are married and file a joint return. Michelle owns an unincorporated dental practice. Mark works part-time as a high school math teacher, and spends the remainder of his time caring
Is the personal injury exclusion found in Sec. 104 limited to physical injury? Explain.
Last year, Mr. Smith was involved in an automobile accident, severely injuring his legs. As part of a long-term rehabilitation process, his physician prescribes a daily routine of swimming. Because
Mark Hancock is a self-employed attorney who operates his law practice as an unincorporated sole proprietorship. In 2016, the IRS disallowed several business deductions he took in 2014 and 2015. In
For several years, you have prepared the tax return for Alpha Corporation, a closely held corporation engaged in manufacturing garden tools. On February 20 of the current year, Bill Johnson, the
Brian Brown, an executive at a manufacturing enterprise, comes to you on December 1 of the current year for tax advice. He has agreed to donate a small tract of land to the Rosepark Community
On December 1, 2017, 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
Dean makes a pledge of $30,000 to a local college. The college is willing to accept either cash or marketable securities in fulfillment of the pledge. Dean owns stock in Ajax Corporation worth
Howard Gartman is a 40% partner in the Horton & Gartman Partnership. During 2017, the partnership reported the total items below (100%) on its Form 1065:Ordinary income$180,000Qualified
Which of the following constitutes constructive receipt in the current year ended December 31?a. A salary check received at 6:00 p.m. on December 31, after all the banks have closed.b. A rent check
What opportunities are available for a taxpayer to defer the recognition of certain types of prepaid income? That is, what advice could you give someone who wishes to defer the reporting of prepaid
Tim and Monica Nelson are married, file a joint return, and are your newest tax clients. They provide you with the following information relating to their 2017 tax return:1. Tim works as a
Bonnie€™s charitable contributions and AGI for the past four years were as follows:What is the amount of the charitable deduction for each year and the order in which the deduction and
Circle Corporation, an accrual method taxpayer, manufactures and sells mainframe computers. In January of the current year, Circle Corporation donates a mainframe that was part of its inventory to
During the current year, Melissa reports AGI of $200,000. As part of some estate planning, she donates $30,000 to her alma mater, Middle State University, and $65,000 to a private non-operating
During the current year, Helen donates stock worth $50,000 to her local community college. Two years ago the stock cost Helen $40,000. Her AGI for the current year is $100,000. Beginning next year,
Assume the same facts as Problem I:7-54, except that the qualified organization is a private non-operating foundation. Determine the amount of the charitable contribution for Parts a through e.Data
In each of the following independent cases, determine the amount of the charitable contribution and the limitation that would apply. In each case, assume that the donee is a qualified public
Donna is an attorney who renders volunteer legal services to a Legal Aid Society, which provides legal advice to low-income individuals. The Legal Aid Society is a qualified charitable organization.
Assume all the same facts as in Problem I:7-51 except that James’ salary income is $130,000 instead of $70,000 and that he does not make the election. Compute James’ taxable income for the
During 2017, James, a single, cash method taxpayer incurred the following expenditures:Qualified medical expenses.................................................. $ 8,000Investment interest
During 2017, 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,

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