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south western federal taxation

Questions and Answers of South Western Federal Taxation

Mark and Lisa were divorced in 2016. In 2017, Mark has custody of their children, but Lisa provides nearly all of their support. Who is entitled to claim the children as dependents?
Heather, age 12, lives in the same household with her mother, grandmother, and uncle.a. Who can qualify for the dependency exemption?b. Who takes precedence?
Patsy maintains a household that includes a son (age 30) and a cousin (age 28). She can claim the cousin as a dependent but not her son. Explain.
Using the legend provided, classify each of the following statements:LegendA = Tax avoidanceE = Tax evasionN = Neithera. Sue writes a $707 check for a charitable contribution on December 28, 2017,
Using the legend provided, classify each of the following tax sources:LegendP = Primary tax sourceS = Secondary tax sourceB = BothN = Neithera. Sixteenth Amendment to the U.S. Constitution.b. Tax
For the U.S. Tax Court, U.S. District Court, and U.S. Court of Federal Claims, indicate the following:a. Number of regular judges per court.b. Availability of a jury trial.c. Whether the deficiency
A taxpayer lives in Michigan. In a controversy with the IRS, the taxpayer loses at the trial court level. Describe the appeal procedure under the following different assumptions:a. The trial court
Sri is considering writing the IRS to find out whether a possible stock redemption would be a qualified stock redemption. Outline some relevant tax issues Sri faces in determining whether to request
Use www.congress.gov or another reliable website to find a proposal for a carbon tax or a financial transactions tax. Draft a summary of the tax, and analyze it against five of the principles of good
Using information from this chapter as well as information from the tax agency in your state (likely called the Department of Revenue) and your local government, find all of the taxes to which a sole
In March 2017, Jim asks you to prepare his Federal income tax returns for tax years 2014, 2015, and 2016. In discussing this matter with him, you discover that he also has not filed for tax year
For tax year 2014, the IRS assesses a deficiency against David for $500,000. Disregarding the interest component, what is David’s penalty if the deficiency is attributable to:a. Negligence?b. Fraud?
Brianna, a calendar year taxpayer, files her income tax return for 2016 on February 3, 2017. Although she makes repeated inquiries, she does not receive her refund from the IRS until May 28, 2017. Is
Regarding the statute of limitations on additional assessments of tax by the IRS, determine the applicable period in each of the following situations. Assume a calendar year individual with no fraud
Serena operates a gift shop. To reduce costs of credit card transactions, she offers customers a discount if they pay in cash. For the holiday rush, she hires some short-term workers, but pays them
Elijah and Anastasia are husband and wife who have five married children and nine minor grandchildren. For 2017, what is the maximum amount they can give to their family (including the sons- and
John Parsons (123-45-6781) and George Smith (123-45-6782) are 70% and 30% owners, respectively, of Premium, Inc. (11-1111111), a candy company located at 1005 16th Street, Cut and Shoot, TX 77303.
On February 12, 2004, Nancy Trout and Delores Lake formed Kingfisher Corporation to sell fishing tackle. Pertinent information regarding Kingfisher is summarized as follows.€¢
On November 1, 2007, Janet Morton and Kim Wong formed Pet Kingdom, Inc., tosell pets and pet supplies. Pertinent information regarding Pet Kingdom is summarized as follows.€¢ Pet
Prepare the 2016 fiduciary income tax return (Form 1041) for the Blue Trust. In addition, determine the amount and character of the income and expense items that each beneficiary must report for the
Which of the following conditions must be true for a trust to be a simple trust?I. The trust distributes all of its income to designated beneficiaries every five years.II. The trust distributes all
Patrick, a cash basis taxpayer, died on February 3 of this year. Through the end of the year, the estate’s executor made cash distributions of $1,500 to Patrick’s brother, the sole heir of the
Don Donovan, a U.S. citizen, died on April 1 this year. In computing the estate’s taxable income for the year, the executor of Don Donovan’s estate could claim a charitable contribution deduction
During 2017, Mitchell, a single individual, made the following cash gifts:Donee
During 2017, Mitchell, a single individual, made the following cash gifts:Donee
Cook made the following gifts during the year:I. $14,000 for medical expenses paid directly to a hospital on behalf of an individualII. $45,000 for tuition paid directly to an accredited university
For 2017, the Wes Trust reports $100,000 of AMT income before the annual exemption. The AMT for the year is:a. $19,734.b. $21,308.c. $26,000.d. $28,000.
For 2017, the Guess Trust retains all of its income items, which include only $100,000 of net investment income and $40,000 of profits from an active business operation. Guess incurs an additional
On February 14 this year, Charlie Crooker created Charlie’s Trust for the benefit of his children. During the year, the assets within the trust earned income of $12,000. What is the amount of the
James A. and Ella R. Polk, ages 70 and 65, are retired physicians who live at 13319 Taylorcrest Street, Houston, Texas 77079. Their three adult children (Benjamin Polk, Michael Polk, and Olivia
Steven B. (age 42) and Debra S. (age 41) Marshall are married and live at 426 East Twin Oaks Road, Sioux Falls, SD 57105. Steven is the regional manager for a restaurant chain (Moveable Feast), and
1. Sargent Pharmaceuticals develops and produces injectable medicines used in chemotherapy treatments for cancer patients. Neil manages the Kansas City facility for an annual salary of $90,000.
Ryan Ross (111-11-1112), Oscar Omega (222-22-2222), Clark Carey (333-33-3333), and Kim Kardigan (444-44-4444) are equal active members in ROCK the Ages LLC. ROCK serves as agents and managers for
Indicate whether each of the following parties could be subject to the tax preparer penalties.a. Tom prepared Sally’s return for $250.b. Theresa prepared her grandmother’s return for no charge.c.
Blair underpaid her taxes by $250,000. A portion of the underpayment was shown to be attributable to Blair’s negligence ($100,000). A court found that the rest of the deficiency constituted civil
Which of the following situations will result in a tax preparer’s penalty?I. At a client’s insistence, the preparer takes and properly discloses a tax position which does not meet the reasonable
In which of the following cases is a CPA not subject to a penalty stemming from a position taken on a tax return?I. The position had a “reasonable chance of being sustained.”II. The position had
Scott is preparing Allison’s Form 1040. Allison’s gross income for the tax year was $75,000. In calculating her deductions to arrive at adjusted gross income (AGI), Allison estimates that she
While preparing Margaret’s Form 1040, John discovers an error on her prior-year tax return, which Margaret prepared herself, in which Margaret’s adjusted gross income (AGI) was understated by
Which of the following parties are not affected by Treasury Circular 230?a. Attorneysb. IRS Agentsc. CPAsd. Enrolled Agents
In 2017, Noah and Sophia want to make a maximum contribution to their state’s qualified tuition program (Code § 529 plan) on behalf of their minor granddaughter, Amanda, without exceeding the
Under Emma’s will, Addison inherits property that generates an estate tax of $800,000. Three years later, Addison dies and the property generates an estate tax of $700,000. To how much of a credit
Which of the following are valid deductions from decedent’s gross estate?I. State death taxesII. Foreign death taxesIII. Medical and funeral expensesa. All of the aboveb. I and II, but not IIIc. I
Bizz, a cash-basis calendar-year taxpayer, died on August 14, 2017. The fair market value of Bizz’s estate at date of death was $10,720,000. What amount of Bizz’s estate is effectively tax-free
Which of the following conditions must be true for the executor to value the estate assets within six months after the decedent’s death?I. The value of the estate must not exceed $5,490,000II. The
Disregarding any extensions, within how many months after the date of death of the decedent is the payment of Federal estate tax due?a. 6b. 9c. 31=2d. 41=2
Roger Crocker, a U.S. citizen, died on July 1, 2017, leaving an adjusted gross estate that included the following assets.Asset
Review Exhibit 26.1, and identify the following.a. The title of the IRS€™s chief executive officer.b. The title of the €œIRS€™s attorney.€c. The names of the
Roger is the pastor at the Third Ecumenical Church in Atlanta. Over lunch with Priscilla, the pastor at another church with whom Roger went to seminary, Roger learns that another friend’s church
Zana Corp is a calendar year S corporation. Pack Corp, a C corporation, became a shareholder in Zana on September 4 (the 247th day of the non-leap calendar year). During the year, Zana reported
An S corporation’s election revocation is effective if it is signed by shareholders owning:a. More than 50% of S corporation’s voting stock only.b. 50% or more of S corporation’s voting stock
An S corporation must separately pass through which of the following items to its shareholders?I. A net Section 1231 lossII. Foreign income taxesIII. Investment interest expensea. All of the aboveb.
Which of the following can be shareholders of an S corporation?a. Partnership.b. Limited liability partnership.c. Corporation.d. One-member limited liability company.
In December 2017, Nell, Inc., an accrual basis taxpayer, paid $12,000 for insurance premiums for her business for the 2018 calendar year. How much of the premiums can Nell, Inc., deduct in 2017?
Osha, a cash basis calendar year partnership, began business on April 1, this year. Osha incurred and paid the following during the year:Legal work associated with formation of the
During formation of Beecky partnership, Sam contributed land with an adjusted basis of $130,000 in exchange for a 25% interest in Beecky. The fair market value of the contributed property was
Which of the following distribution scenarios shows the proper order in which these assets should be considered in a partnership distribution having a total inside basis exceeding the outside basis
Preakness Partnership makes a current distribution to Prasad, consisting of $30,000 in cash, land with a fair market value of $50,000 (partnership basis $55,000), and inventory with a fair market
Pelican Partnership makes a current distribution to Prabhakar, consisting of $30,000 in cash and capital assets worth $10,000 (partnership basis $8,000). Immediately prior to the distribution,
Brooke, Baker, and Bulstrode own 25%, 25%, and 50% interests, respectively, in the BBB Partnership. BBB is a cash basis tax entity with the following balance sheet:Assume that liabilities are shared
Cadwallader has held a 30% interest in C&C Associates, a partnership, since 2010. This year, the partnership liquidated. At that time, Cadwallader received a liquidating distribution of $30,000
Perry Partnership distributed cash of $15,000 and a parcel of land in a liquidating distribution to Gupta, a partner. The land had a fair market value of $50,000 and an inside basis of $52,000 at the
Pettifog Partnership distributes cash of $20,000, hot assets worth $5,000, and a parcel of land (a § 1231 asset to the partnership) in a proportionate liquidating distribution to Gupta, a
Which of these taxes may be incurred by an S corporation?a. Alternative minimum tax.b. Tax on certain built-in gains.c. Property tax assessed by the county.
Which of the following are requirements to be an S corporation?a. Limited to an absolute maximum of 100 shareholders.b. Has no resident alien shareholders.c. Has only one class of stock.d. May have
One shareholder of an S corporation takes a short-term unwritten cash advance of $9,100 during the tax year. Would this arrangement create a second class of stock? Explain.
Andy has operated his moving company, MoveOn, as a sole proprietorship for several years. In the current tax year, MoveOn placed into service $480,000 of property qualifying for immediate expensing
Assume the same facts as in Problems 42 to 44. Prepare Amy’s Schedule K–1 as if you were the preparer of AM Products LLC’s tax return. Provide all information that Amy needs to the extent you
Senior Corp. completely liquidates its 80%-owned subsidiary, Junior Corp. The liquidation results in a distribution to Senior of property with a fair market value of $1,000,000 and an adjusted basis
Calamity Corp. distributes five unimproved parcels of swampland to its shareholders as part of a complete liquidation. The fair market value of each parcel is $25,000, and Calamity’s adjusted basis
Katsu Corp. distributes property to its shareholders as part of a complete liquidation. The fair market value of the property is $500,000, Katsu’s adjusted basis in the property is $150,000, and
Emily, Becky, and Kellye form Whoop! Shotz with the following contributions:Emily............................$25,000Becky...........................$25,000Kellye.................Legal servicesAfter
How does the transfer of mortgaged property to a controlled corporation affect the transferor-shareholder’s basis in stock received? Assume that no gain is recognized on the transfer.
Regarding the domestic production activities deduction (DPAD), which of the following statements is true?a. For C corporations only, the DPAD cannot exceed 50% of allocable W–2 wagesb. Qualified
Identify which of the following cannot function as a pass-through entity for tax purposes.a. Sole proprietorshipb. Limited liability companyc. Partnershipd. S corporation
In 2017, your client, Clear Corporation, changed from the cash to the accrual method of accounting for its radio station. The company had a positive § 481 adjustment of $2.4 million as a result of
On March 31, 2015, Big Boats Company entered into a contract with Vacations Unlimited to produce a state-of-the-art cruise ship, to be completed within three years. Big Boats estimated the total cost
George sold land to an unrelated party in 2016. His basis in the land was $45,000, and the selling price was $120,000—$30,000 payable at closing and $30,000 (plus 10% interest) due January 1, 2017,
On December 30, 2016, Maud sold land to her son, Charles, for $50,000 cash and a 7% installment note for $350,000, payable over 10 years. Maud’s cost of the land was $150,000. In October 2018,
On June 30, 2017, Kelly sold property for $240,000 cash and a $960,000 note due on September 30, 2018. The note will also pay 6% interest, which is slightly higher than the Federal rate. Kelly’s
Compute Mary’s income or deductions for 2017 using (1) the cash basis and (2) the accrual basis for each of the following:a. In May 2017, Mary paid a license fee of $1,200 for the period June 1,
Gold, Inc., is an accrual basis taxpayer. In 2017, an employee accidentally spilled hazardous chemicals on leased property. The chemicals destroyed trees on neighboring property, resulting in $30,000
In 2017, Skylar sold an apartment building for $20,000 cash and a $300,000 note due in two years. Skylar’s cost of the property was $250,000, and he had deducted depreciation of $150,000, $60,000
On December 30, 2017, Whitney sold a piece of property for $85,000. Her basis in the property was $40,000, and she incurred $1,200 in selling expenses. The buyer paid $5,000 down with the balance
For 2017, Essence Company, a calendar year taxpayer, will change from using the cash method for tax purposes to the accrual method. At the end of2016, Essence had the following items:Accounts
In 2017, Chaya Corporation, an accrual basis, calendar year taxpayer, provided services to clients and earned $25,000. The clients signed notes receivable to Chaya that have a fair market value of
In 2017, Aurora received a $25,000 bonus computed as a percentage of profits. In 2018, Aurora’s employer determined that the 2017 profits had been incorrectly computed, and Aurora had to refund the
In December 2017, Carl Corporation sold land it held as an investment. The corporation received $50,000 in 2017 and a note payable (with adequate interest) for $150,000 to be paid in 2019. Carl
On June 1, 2015, Father sold land to Son for $300,000. Father reported the gain by the installment method, with the gain to be spread over five years. In May 2017, Son received an offer of $400,000
In 2016, the taxpayer became ineligible to use the cash method of accounting. At the beginning of the year, accounts receivable totaled $240,000, accounts payable for merchandise totaled $80,000,
Herman, a single individual, formed a corporation in year 1 by way of a qualifying § 351 tax-free asset transfer, in which he transferred property having an adjusted basis of $250,000 and a fair
How does a shareholder treat the gain on a redemption of stock that qualifies as a redemption to pay death taxes under § 303?a. As a tax-free transactionb. Partly as capital gain and partly as a
Calliope Corp. has outstanding 400 shares of common stock of which Yak, So, Day, and Ren each own 100 shares, or 25%. No stock is considered constructively owned by any of the shareholders under §
Callow Corp. has 400 shares of stock outstanding. Callow exchanges $150,000 cash for 100 of the shares in a qualifying stock redemption. Just prior to the redemption, Callow had earnings and profits
In the following independent situations, is the tax position of the taxpayer likely to change? Explain why or why not.a. John started renting out a spare room in his home.b. Theresa quit her job as a
Jane, a tax practitioner, has reviewed the law on how State X’s income tax applies to a client’s web-based consulting business, but is unable to reach a conclusion for which she has a high level
As to those states that impose an income tax, comment on the following:a. “Piggyback” approach and possible “decoupling” from this approach.b. Using IRS audit results as part of a state tax
In May 2017, Hernando, a resident of California, has his 2015 Federal income tax return audited by the IRS. An assessment of additional tax is made because he had inadvertently omitted some rental
Megan is an accountant for KnoxCo. She is a telecommuter and works most days from her home in Tennessee. Twice a month, she travels to Georgia for a staff meeting at the employer's Atlanta
Regarding the apportionment formula used to compute state taxable income, does each of the following independent characterizations describe a taxpayer that is based in-state or out-of-state?

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