South Western Federal Taxation Taxation Of Business Entities 16th Edition Smith, James E., Raabe, William A., Maloney, David M. - Solutions

Check with a major CPA firm in your area. Does the firm provide office space for all of its field auditors? If so, what arrangements are made? If not, what workplace does the firm expect the staff to
An employer allows its employees limited personal use of one of the corporate executive jets. Does the IRS provide any guidelines as to how much income the employee should recognize due to such use?
Kristina will soon graduate from law school with more than $40,000 in student loans. She would like to work as a public defender, but the pay is not enough to allow her to meet her living expenses
You recently read an article in your school newspaper about Professor Rodney Taylor, one of your favorite professors in the religious studies department.According to the article, he and the
Herron, Inc., previously gave all of its employees a ham for Christmas.However, many of the employees do not eat ham. Therefore, Herron has decided to give each employee a coupon for $35 that can be
Al Hardee has been employed as a salesperson by Robin Chevrolet at its Milwaukee dealership. In early May, Al and the general manager of the office had a serious dispute over job procedures. When it
Rick Beam has been an independent sales representative for various textile manufacturers for many years. His products consist of soft goods such as tablecloths, curtains, and drapes. Rick’s
Tom Roberts, a chemical engineer, is a long-time employee of Teal Chemical Corporation. Tom’s specialty is the design and construction of special-purpose chemical processing plants. Teal has
LO.6 Hank is single and a doctor in a west Texas community. He owns and operates a cattle ranch, which has been profitable in only one of the last 10 years. He believes that he satisfies one-third of
LO.5 During 2012, Helen, the owner of a store, has the following income and expenses:Gross profit on sales $73,000 Income from part-time job (subject to FICA) 45,000 Business expenses (related to
LO.5 In each of the following independent situations, determine the amount of FICA(Social Security and Medicare) that should be withheld from the employee’s 2012 salary by the employer.a. Harry
LO.5 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
LO.5 In 2012, Susan’s sole proprietorship earns $300,000 of self-employment net income (after the deduction for one-half of self-employment tax).a. Calculate the maximum amount Susan can deduct for
LO.4 In 2013, Joyce receives a $4,000 distribution from her Coverdell Education Savings Account (CESA), which has a fair market value of $10,000. Total contributions to her CESA have been $7,000.
LO.4 Jeanne has $335,000 of earned income in 2012. Calculate the maximum amount she can contribute to a SEP.
LO.4 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 2012 is $175,000, and
LO.4 Janet, age 29, is unmarried and is an active participant in a qualified deductible(traditional) IRA plan. Her modified AGI is $61,000 in 2012.a. Calculate the amount Janet can contribute to the
LO.3, 4 Charles has AGI of $94,000 during the year and the following expenses related to his employment:Lodging while in travel status $5,000 Meals during travel 4,000 Business transportation 6,000
LO.5 Melanie is employed full-time as an accountant for a national hardware chain.She also has a private consulting practice, which provides tax advice and financial planning to the general public.
LO.3, 4 Elvis is a salesperson who works for Crane Sales, Inc. Typically, Elvis spends several days out of town each week. Crane provides Elvis with a travel allowance of$1,100 per month, but
LO.3 In each of the following independent situations, determine how much, if any, qualifies as a deduction for AGI under § 222 (qualified tuition and related expenses).a. Sophia is single and is
LO.3 Marlo 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.
LO.3 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
LO.3 Veronica is a key employee of Perdiz Corporation, an aerospace engineering concern located in Seattle. Perdiz would like to establish an office on the east coast of Florida and wants Veronica to
LO.3 On Thursday, Justin flies from Baltimore (his home office) to Cadiz (Spain). He conducts business on Friday and Tuesday; vacations on Saturday, Sunday, and Monday(a legal holiday in Spain); and
LO.3 In June of this year, Dr. and Mrs. Bret Spencer traveled to Denver to attend a three-day conference sponsored by the American Society of Implant Dentistry. Bret, a practicing oral surgeon,
LO.3 Larry went from Cleveland to New York on business. His time was spent as follows:Thursday Travel Friday Business Saturday and Sunday Sightseeing Monday and Tuesday Business Wednesday Travel
LO.3 Kirk is employed by an accounting firm and uses his automobile in connection with his work. During the month of October 2012, he works at the office for 3 days and participates in the audit of a
LO.2 George is a U.S. citizen who is employed by Hawk Enterprises, a global company.Beginning on June 1, 2012, George began working in London. He worked there until January 31, 2013, when he
LO.2 Bluebird, Inc., does not provide its employees with any tax-exempt fringe benefits.The company is considering adopting a hospital and medical benefits insurance plan that will cost approximately
LO.2 Several of Egret Company’s employees have asked the company to create a hiking trail that employees could use during their lunch hours. The company owns vacant land that is being held for
LO.2 Tom works for Roadrunner Motors, a company that manufactures automobiles.Tom purchased a new automobile from Roadrunner at the company’s cost of $10,000.The retail selling price for the
LO.2 Ted works for Azure Motors, an automobile dealership. All employees can buy a car at the company’s cost plus 2%. The company does not charge employees the $300 dealer preparation fee that
LO.2 Sparrow Corporation would like you to review its employee fringe benefits program with regard to the tax consequences of the plan for the company’s president(Polly), who is also the majority
LO.2 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
LO.1, 4 Finch Construction Company provides its employees who are carpenters with all of the required tools. However, the company believes that this has led to some employees not taking care of the
LO.2 Sally and Bill are married and file joint returns. In 2012, Bill, an accountant, has a salary of $75,000, and Sally receives a salary of $25,000 as an apartment manager. What are the tax
LO.2 Does the taxpayer recognize gross income in the following situations? Explain.a. Ava is a filing clerk at a large insurance company. She is permitted to leave the premises for her lunch, but she
LO.2 Belinda spent the last 60 days of 2012 in a nursing home. The cost of the services provided to her was $16,000. Medicare paid $8,500 toward the cost of her stay. Belinda also received $9,500 of
LO.2 Paul is in the 15% marginal tax bracket, and Betty is in the 35% marginal tax bracket. They each pay $6,300 in health insurance premiums for themselves and their families. Their employer has
LO.2 Rex, age 55, is an officer of Blue Company, which provides him with the following nondiscriminatory fringe benefits in 2012:• Hospitalization insurance premiums for Rex and his dependents. The
LO.1 Jacob performs services for Rail Corporation. In determining whether Jacob is an employee or an independent contractor, discuss the relevance of each of the independent factors listed below.a.
LO.10 For many years, Loretta Johnson, a single mother of three children, has been struggling to make ends meet by working at two jobs that pay barely the minimum wage and together provide just over
LO.10 Briefly discuss the requirements that must be satisfied for a taxpayer to qualify for the earned income tax credit.
LO.10 Bernadette, a longtime client of yours, is an architect and the president of the local Rotary chapter. To keep up to date with the latest developments in her profession, she attends continuing
LO.10 Jim and Mary Jean are married and have two dependent children under the age of 13. Both parents are gainfully employed and during 2012 earn salaries as follows:$16,000 (Jim) and $5,200 (Mary
LO.10 Paul and Karen are married, and both are employed (Paul earned $44,000 and Karen earned $9,000 during 2012). Paul and Karen have two dependent children, both under the age of 13. So they can
LO.10 Ann and Bill were on the list of a local adoption agency for several years, seeking to adopt a child. Finally, in 2011, good news came their way, and an adoption seemed imminent. They paid
LO.9 Linda, who is a head of household with one dependent, had AGI of $150,000 for 2012. She incurred the following expenses and losses during the year:Medical expenses before the 7.5%-of-AGI
LO.9 Ramon had AGI of $180,000 in 2012. He contributed stock in Charlton, Inc.(a publicly traded corporation), to the American Heart Association, a qualified charitable organization. The stock was
LO.9 In December each year, Eleanor Young contributes 10% of her gross income to the United Way (a 50% organization). Eleanor, who is in the 28% marginal tax bracket, is considering the following
LO.9 Pedro contributes a painting to an art museum in October of this year. He has owned the painting for 12 years, and it is worth $130,000 at the time of the donation.Pedro’s adjusted basis for
LO.9 In 2003, Roland, who is single, purchased a personal residence for $340,000 and took out a mortgage of $200,000 on the property. In May of the current year, when the residence had a fair market
LO.9 Helen borrowed $100,000 to acquire a parcel of land to be held for investment purposes. During 2012, she paid interest of $11,000 on the loan. She had AGI of $75,000 for the year. Other items
LO.9 In 2012, Kathleen Tweardy incurs $30,000 of interest expense related to her investments. Her investment income includes $7,500 of interest, $6,000 of qualified dividends, and a $12,000 net
LO.9 Norma, who uses the cash method of accounting, lives in a state that imposes an income tax. In April 2012, she files her state income tax return for 2011 and pays an additional $1,000 in state
LO.9 Pablo suffers from emphysema and severe allergies and, upon the recommendation of his physician, has a dust elimination system installed in his personal residence.In connection with the system,
LO.8, 9 A local ophthalmologist’s advertising campaign included a certificate for free LASIK eye surgery for the lucky winner of a drawing. Ahmad held the winning ticket, which was drawn in
LO.9 Ron, who lives in Phoenix, has a chronic heart problem. He flies to Rochester, Minnesota, several times each year for checkups and treatment at the Mayo Clinic, which has one of the most highly
LO.9 Hunter and Cynthia are married and together have AGI of $100,000 in 2012.They have three dependents and file a joint return. They pay $3,000 for a high-deductible health insurance policy and
LO.8 Leigh sued an overzealous bill collector and received the following settlement:Damage to her automobile that the collector attempted to repossess $ 3,300 Physical damage to her arm caused by the
LO.8 Adrian was awarded an academic scholarship to State University for the 2012–2013 academic year. He received $6,000 in August and $7,000 in December 2012. Adrian had enough personal savings to
LO.8 Linda and Don are married and file a joint return. In 2012, they received$12,000 in Social Security benefits and $35,000 in taxable pension benefits and interest.a. Compute the couple’s
LO.8 For each of the following, determine the amount that should be included in gross income:a. Don was selected as the most valuable player in the World Series. In recognition of this, he was
LO.8 Alicia and Rafel are in the process of negotiating a divorce agreement. They both worked during the marriage and contributed an equal amount to the marital assets.They own a home with a fair
LO.9 Each year, the Bateses normally have itemized deductions of $10,000, including a$4,000 pledge payment to their church. Upon the advice of a friend, they do the following:in early January 2012,
LO.5 Which of the following individuals are required to file a tax return for 2012?Should any of these individuals file a return even if filing is not required? Why or why not?a. Patricia, age 19, is
LO.1, 4, 6 Charlotte (age 40) is a surviving spouse and provides all of the support of her four minor children who live with her. She also maintains the household in which her parents live and
LO.2, 7 Taylor, age 18, is claimed as a dependent by her parents. For 2012, she has the following income: $4,000 of wages from a summer job, $1,800 of interest from a money market account, and $2,000
LO.3, 4 For tax year 2012, determine the number of personal and dependency exemptions in each of the following independent situations:a. Leo and Amanda (ages 48 and 46, respectively) are husband and
LO.4 Using the legend provided below, classify each statement as to the taxpayer for dependency exemption purposes.Legend QC = Could be a qualifying child QR = Could be a qualifying relative B =
LO.2, 5 Jim and Beau, residents of New York, entered into a same-sex marriage in late 2012. For tax year 2012, they plan to file separate returns for Federal income tax purposes.On his return, Jim
LO.2 Determine the amount of the standard deduction allowed for 2012 in the following independent situations. In each case, assume that the taxpayer is claimed as another person’s dependent.a.
LO.1, 2, 3, 4 Compute the taxable income for 2012 for Aiden on the basis of the following information. Aiden is married but has not seen or heard from his wife since 2010.Salary $ 80,000 Interest on
LO.1, 2, 3, 4 Compute the taxable income for 2012 for Andrea on the basis of the following information. Her filing status is single.Salary $90,000 Interest income from bonds issued by IBM 3,000
LO.1, 2, 3, 4 Compute the taxable income for 2012 in each of the following independent situations:a. Drew and Meg, ages 40 and 41, respectively, are married and file a joint return. In addition to
LO.7 Swallow, Inc., will purchase either the stock or the assets of Platium Corporation.All of the Platium stock is owned by Charley. Bill Evans, Swallow’s CFO, and Charley agree that Platium is
LO.7 Vladimir owns all of the stock of Ruby Corporation. The fair market value of the stock (and Ruby’s assets) is about four times his adjusted basis for the stock. Vladimir is negotiating with an
LO.7 Hector and Walt are purchasing the Copper Partnership from Jan and Gail for$700,000; Hector and Walt will be equal partners. During the negotiations, Jan and Gail succeeded in having the
LO.7 Gail and Harry own the GH Partnership. They have conducted the business as a partnership for 10 years. The bases for their partnership interests are as follows.Gail Harry$100,000 $150,000 GH
LO.7 Linda is the owner of a sole proprietorship. The entity has the following assets.Asset Basis FMV Cash $10,000 $10,000 Accounts receivable –0– 25,000 Office furniture and fixtures* 15,000
LO.7 Emily and Freda are negotiating with George to purchase the business he operates in corporate form (Pelican, Inc.). The assets of Pelican, Inc., a C corporation, are as follows.Asset Basis FMV
LO.5 Sanjay contributes land to a business entity in January 2012 for a 30% ownership interest. Sanjay’s basis for the land is $60,000, and the fair market value is $100,000. The business entity
LO.5 Megan owns 55% and Vern owns 45% of a business entity. The owners would like to use the entity to share profits (55% for Megan and 45% for Vern) and to share losses(80% for Vern and 20% for
LO.5 Jo and Velma are equal owners of the JV Partnership. Jo invests $500,000 cash in the partnership. Velma contributes land and a building (basis to her of $125,000, fair market value of $500,000).
LO.5 Bishop contributes undeveloped land to a business entity in January for a 40% ownership interest. Bishop’s basis for the land is $140,000, and the fair market value is$600,000. The business
LO.5 Rosa contributes $50,000 to FlipCo, in exchange for a 10% ownership interest.Rosa materially participates in FlipCo’s business.FlipCo incurs a loss of $900,000 for 2012. Entity liabilities at
LO.5 Indigo, Inc., a personal service corporation, has the following types of income and losses.Active income $325,000 Portfolio income 49,000 Passive activity loss 333,000a. Calculate Indigo’s
LO.5 Swift Corporation distributes land (basis of $55,000 and fair market value of$120,000) to Sam and cash ($240,000) to Allison in exchange for part of their stock.Other shareholders do not redeem
LO.5 The Coffee Company engages in the following transactions during the taxable year.• Sells stock held for three years as an investment for $30,000 (adjusted basis of$20,000).• Sells land used
LO.5 Melinda holds a 30% interest in a business to which she contributed $180,000 as part of the initial ownership group. During the life of the business, the following have occurred.• $250,000
LO.5 ListCo reports the following income for the current tax year.Operations $92,000 Tax-exempt interest income 19,000 Long-term capital gain 60,000 ListCo holds earnings and profits (AAA for an S
LO.5 Eloise contributes $40,000 to MeldCo in exchange for a 30% ownership interest.During the first year of operations, MeldCo earns a profit of $200,000. At the end of that year, MeldCo holds
LO.5 Agnes, Becky, and Carol form a business entity with each contributing the following.Adjusted Basis Fair Market Value Agnes: Cash $100,000 $100,000 Becky: Land 60,000 120,000 Carol: Services
LO.5 Andrew and Evans form ServiceCo. Each contributes the following property.Andrew Evans Cash $400,000 Land $400,000** Fair market value. Evans’s adjusted basis is $125,000.Three months later,
LO.4 Clay Corporation has been an electing S corporation since its incorporation 10 years ago. During the first three years of operations, it incurred total losses of $250,000.Since then, Clay has
LO.4 Tammy and Willy own 40% of the stock of Roadrunner, an S corporation. The other 60% is owned by 99 other shareholders, all of whom are single and unrelated.Tammy and Willy have agreed to a
LO.4 Oscar created Lavender Corporation four years ago. The C corporation has paid Oscar as president a salary of $200,000 each year. Annual earnings after taxes approximate$700,000 each year.
LO.4 Since Garnet Corporation was formed five years ago, its stock has been held as follows: 525 shares by Frank and 175 shares by Grace. Their basis in the stock is $350,000 for Frank and $150,000
LO.3, 4 Flower, Inc., a C corporation, reports taxable income of $800,000 for 2012.Flower has been in business for many years and long ago used up its accumulated earnings credit. Flower has no

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South Western Federal Taxation Taxation Of Business Entities 16th Edition Smith, James E., Raabe, William A., Maloney, David M. - Solutions

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