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south western federal taxation

Questions and Answers of South Western Federal Taxation

Various defenses to penalties based on the Internal Revenue Code standards of compliance are available to taxpayers. One of these is the reasonable basis standard. Which of the following statements
On April 3, 2021, Luis filed his 2020 income tax return, which showed a tax due of $75,000. On June 1, 2023, he filed an amended return for 2020 that showed an additional tax of $10,000. Luis paid
Prepare a list of points to guide a discussion about how the time value of money affects the application of the Federal unified transfer taxes.
In 2021, some members of Congress proposed the Ultra-Millionaire Tax Act (H.R. 1459 and S.510). Make a list of three arguments in favor and three arguments against the proposed legislation.
Elizabeth made taxable gifts of $3,000,000 in 2020 and $14,000,000 in 2022. She paid no gift tax on the 2020 transfer. On what amount is the Federal gift tax computed for the 2022 gift?
In 2015 and with $200,000, Alice purchases a CD at State Bank listing title as follows: “Alice, payable on proof of death to Clark.” Alice dies in 2022, and Clark (Alice’s nephew) redeems the
Which of the following distributions meets the qualifications of a simple trust?a. The trust distributes all of the current year’s income to the beneficiaries.b. The trust distributes part of the
Which of the following is a characteristic of a complex trust, rather than a simple trust?a. A complex trust must distribute all of the income earned by trust assets to the beneficiaries each year.b.
For 2022, the Guess Trust retains all of its income items, which include only $100,000 of net investment income and $140,000 of profits from an active business operation. Guess incurs an additional
Roberto is one of the income beneficiaries of the Carol LeMans Estate. This year, as directed by the will, Roberto received all of the sales commissions that were earned and payable to Carol (cash
Valeria and Trey are married and file a joint tax return. For 2022, they have $4,800 of nonbusiness capital gains, $2,300 of nonbusiness capital losses, $500 of interest income, and no itemized
Heather owns a two-story building. The building is used 40% for business use and 60% for personal use. During 2022, a fire caused major damage to the building and its contents. Heather purchased the
Build an Excel spreadsheet that calculates annual cost recovery and end-ofyear adjusted basis for MACRS 3-, 5-, and 7-year assets. Begin by constructing a table that incorporates the relevant MACRS
Janice Morgan, age 24, is single and has no dependents. She is a freelance writer. In January 2021, Janice opened her own office located at 2751 Waldham Road, Pleasant Hill, NM 88135. She called her
Joey, who is single, is not covered by another qualified retirement plan and earns $131,000 at his job in 2022. How much can he contribute to a traditional IRA in 2022?
During 2022, Stork Associates paid $60,000 for a 20-seat skybox at Veterans Stadium for eight professional football games. Regular seats to these games range from $80 to $250 each. At one game, an
During 2022, José, a self-employed technology consultant, made gifts in the following amounts:In addition, on professional assistants’ day, José takes Haley to lunch at a local restaurant at a
Robin inherits 1,000 shares of Walmart stock from her aunt Julieta in 2022. According to the information received from the executor of Julieta’s estate, Robin’s adjusted basis for the stock is
Bob is notified by the city public housing authority on May 3, 2022, that his apartment building is going to be condemned as part of a commercial development project. On June 1, 2022, Stella offers
Walters, an individual, received the following in 2016:Considering only the above, what is Walters’ 2016 gross income?a. $35,000b. $36,250c. $15,000d. $16,250
Your client owns a life insurance policy on his life. He has paid $6,800 in premiums, and the cash surrender value of the policy is $30,000. He borrowed $30,000 from the insurance company, using the
Vito is the sole shareholder of Vito, Inc. He is also employed by the corporation. On June 30, 2016, Vito borrowed $8,000 from Vito, Inc., and on July 1, 2017, he borrowed an additional $10,000. Both
Indicate whether the imputed interest rules should apply in the following situations. Assume that all of the loans were made at the beginning of the tax year unless otherwise indicated.a. Mike loaned
Ridge is a generous individual. During the year, he made interest-free loans to various family members when the Federal rate was 3%. What are the tax consequences of the following loans by Ridge:a.
Roy decides to buy a personal residence and goes to the bank for a $150,000 loan. The bank tells him that he can borrow the funds at 4% if his father will guarantee the debt. Roy’s father, Hal,
Your client is a partnership, ARP Associates, which is an engineering consulting firm. Generally, ARP bills clients for services at the end of each month. Client billings are about $50,000 each
The divorce agreement requires Alice to pay her former spouse $50,000 a year for the next ten years. Will the payments qualify as alimony? Why or why not?
The divorce agreement requires Alice to pay her former spouse $50,000 a year for the next ten years. Will the payments qualify as alimony? Why or why not?
Which of the below prevents a married couple from filing a joint tax return?I. The spouses have different accounting methodsII. The spouses have different tax years, provided that both spouses are
John and Janet Baker are married and maintain a household in which the following persons live: Calvin and Florence Carter and Darin, Andrea, and Morgan Baker.• Calvin and Florence are Janet’s
Determine the amount of the 2016 standard deduction allowed in the following independent situations. In each case, assume that the taxpayer is claimed as another person’s dependent.a. Curtis, age
Compute Emily’s 2016 taxable income on the basis of the following information. Her filing status is single.
Paul and Sonja, who are married, reported 2016 itemized deductions of $8,200 and $400, respectively. Paul suggests that they file their Federal income tax returns separately—he will itemize his
Rank the following items from the lowest to highest authority in the Federal tax law system:a. Interpretive Regulation.b. Legislative Regulation.c. Letter ruling.d. Revenue Ruling.e. Internal Revenue
In the citation Notice 90–20, 1990–1 C.B. 328, to what do the 20 and the 328 refer?
Brianna, a calendar year taxpayer, files her income tax return for 2021 on February 3, 2022. Although she makes repeated inquiries, she does not receive her refund from the IRS until May 28, 2022. Is
In May 2022, Hernando, a resident of California, has his 2020 Federal income tax return audited by the IRS. An assessment of additional tax is made because he inadvertently omitted some rental
Regarding the statute of limitations on additional assessments of tax by the IRS, determine the applicable period in each of the following situations. As- sume a calendar year individual with no
Rita files her income tax return 35 days after the due date of the return without obtaining an extension from the IRS. Along with the return, she remits a check for $40,000, which is the balance of
For tax year 2020, 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?
In March 2022, Kuni asks you to prepare his Federal income tax returns for tax years 2019, 2020, and 2021. In discussing this matter with him, you discover that he also has not filed for tax year
A client who is a small independent oil and gas producer asks you to determine whether the business qualifies for percentage depletion. The client is worried that it may be classified as a refiner.
Imani and Doug were divorced on December 31, 2022, after 10 years of marriage. Their current year’s income received before the divorce was as follows:Determine Imani’s and Doug’s separate gross
Daniel B. Butler and his spouse Freida C. Butler file a joint return. The Butlers live at 625 Oak Street in Corbin, KY 40701. Dan’s Social Security number is 111-11-1112, and Freida’s is
How does the tax benefit rule apply in the following cases? a. In 2020, the Orange Furniture Store, an accrual method sole proprietorship, sold furniture on credit for $1,000 to Sammy. The cost of
Alfred E. Old and Beulah A. Crane, each age 42, married on September 7, 2019. Alfred and Beulah will file a joint return for 2021. Alfred’s Social Security number is 111-11- 1109. Beulah’s Social
Rex and Agnes Harrell purchased a beach house at Duck, North Carolina, in early 2022. Although they intended to use the beach house occasionally for recreational purposes, to help pay the mortgage
A new client comes to you in June 2022 and indicates that she instructed her previous accountant in a letter dated January 2021 to file an S election for 2021. It now appears that the prior
Which of the following are requirements to be an S corporation?a. Is limited to an absolute maximum of 100 shareholders.b. Has no resident alien shareholders.c. Has only one class of stock.d. Cannot
The 2020 Coronavirus Aid, Relief, and Economic Security Act (CARES Act) created the Paycheck Protection Program (PPP) allowing S corporations and others to receive loans that may be forgiven. Is the
On March 5, 2022, the two 50% shareholders of a calendar year corporation decide to elect S status. Shareholder Mila purchased her stock from a previous shareholder (a nonresident alien) on January
XYZ Inc. was a C corporation through the end of year 6. Starting at the beginning of year 7, XYZ elected S corporation status. At the end of year 6, XYZ had accumulated earnings and profits (E & P)
On March 4, Year 1, Miqdadi Corporation, a calendar year corporation, elected S status, and all of its shareholders consented to the election. All of the eligibility requirements had been met by the
One of your clients is considering electing S status. Texas, Inc., is a six-year-old manufacturing company with two equal shareholders, both of whom paid $30,000 for their stock. Going into 2022,
Send your instructor a table of the number of recognized taxexempt organizations under § 501(c). Organize your list by paragraph number [e.g., § 501(c)(7)]. Show only the paragraphs with the five
Orange, Inc., a calendar year corporation, elects S corporation status for 2022. The company generated a $74,000 NOL in 2021 and another NOL of $43,000 in 2022. Orange recorded no other transactions
Matulis, Inc., a calendar year C corporation, owns a single asset with a basis of $325,000 and a fair market value of $800,000. Matulis holds a positive E & P balance. The entity elects S corporation
Lonergan, Inc., a calendar year S corporation in Athens, Georgia, had a balance in AAA of $200,000 and AEP of $110,000 on December 31, 2022. During 2023, Lonergan, Inc., distributes $140,000 to its
Which of the following organizations does not qualify as a § 501(c)(3) tax-exempt organization?a. Churches.b. Schools.c. Charitable hospitals.d. Political parties.
For which of the following types of tax-exempt organizations are contributions deductible on the donor’s Federal income tax return?a. A § 501(c)(1) Federal credit union.b. A § 501(c)(2)
Dorothy acquired a 100% interest in two passive activities: Activity A in January 2017 and Activity B in 2018. Through 2020, Activity A was profitable, but it produced losses of $200,000 in 2021 and
In 2022, 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 capital
A number of years ago, Kayla acquired an interest in a partnership in which she is not a material participant. Kayla’s basis in her partnership interest at the beginning of 2021 is $40,000.
The IRS provides a web-based tool to help taxpayers determine whether they are eligible for the earned income tax credit. Locate the EITC Assistant at the IRS website. Then apply the facts related to
In 2022, Madison and Nick Koz have two children, ages 8 and 10. Both children meet the definition of qualifying child. The Koz family has adjusted gross income of $300,000. What is the amount of the
Describe the exposure (i.e., wage base and tax rate) of a self-employed individual to the self-employment tax for 2022.
During 2022, Lincoln Company hires seven individuals who are certified to be members of a qualifying targeted group. Each employee works in excess of 600 hours and is paid wages of $7,500 during the
Samuel and Annamaria are married, file a joint return, and have three qualifying children. In 2022, they earn wages of $34,000 and no other income. Determine the amount of their earned income credit
In 2022, Henri, a U.S. citizen and calendar year taxpayer, reports $30,000 of income from France, which imposes a 10% income tax, and $50,000 from Italy, which imposes a 40% tax. In addition, Henri
In 2022, Santiago and Amy are married and file a joint tax return. They have three dependent children, ages 12, 14, and 19. All parties are U.S. citizens. The couple’s AGI is $140,000. Determine
In 2022, Ivanna, who has three children under age 13, worked full-time while her spouse, Sergio, was attending college for nine months during the year. Ivanna earned $47,000 and incurred $6,400 of
Ava and her husband, Leo, file a joint return and are in the 24% tax bracket in 2022. Ava’s employer offers a child and dependent care reimbursement plan that allows up to $5,000 of qualifying
In 2022, Bianca earned a salary of $164,000 from her employer. Determine the amount of FICA taxes and Medicare taxes withheld from her salary.
In 2022, Miranda records net earnings from self-employment of $168,500. She has no other income. Determine the amount of Miranda’s self-employment tax and her for AGI income tax deduction.
Green Corporation hires six individuals on January 4, 2022, all of whom qualify for the work opportunity credit. Three of these individuals receive wages of $8,500 during 2022, and each individual
Which of the following individuals qualifies for the earned income credit for 2022?a. Thomas is single, is 21 years of age, and has no qualifying children. His income consists of $9,000 in wages.b.
Jason, a single parent, lives in an apartment with his three minor children, whom he supports. Jason earned $27,400 during 2022 and uses the standard deduction. Calculate the amount, if any, of
Joyce, a single parent, lives in an apartment with her two minor children (ages 8 and 10), whom she supports. Joyce earns $33,000 during 2022. She uses the standard deduction and files as a head of
Kim, a U.S. citizen and resident, owns and operates a novelty goods business. During 2022, Kim reports taxable income of $115,000: $50,000 from foreign sources and $65,000 from U.S. sources. In
In 2022, Joshua and Ellen are married and file a joint return. Three individuals qualify as their dependents: their two children, ages 5 years and 6 months, and Ellen’s son from a previous
Paul and Karen Kent are married, and both are employed (Paul earns $44,000 and Karen earns $9,000 during 2022). Paul and Karen have two dependent children, both under the age of 13 (Samuel and Joy).
Jenna, a longtime client of yours, is employed as an architect and is the president of the local Rotary chapter. To keep up to date with developments in her profession, she attends continuing
During 2022, Greg Cruz (1401 Orangedale Road, Troy, MI 48084) works for Maple Corporation and Gray Company. He earns $96,000 at Maple Corporation, where he is a full-time employee. Greg also works
In each of the following independent situations, determine the amount of FICA that should be withheld from the employee’s 2022 salary by the employer.a. Harry earns a $50,000 salary and files a
Julie, a self-employed individual, is required to make estimated payments of her tax liability for the year. Her tax liability for 2021 was $25,000, and her AGI was less than $150,000. For 2022,
a. In 2022, Maria records self-employed earnings of $135,000. Using the format illustrated in the text, compute Maria’s self-employment tax liability and the allowable income tax deduction for the
Ruth Ames died on January 10, 2022. In filing the estate tax return, her executor, Melvin Sims, elects the primary valuation date and amount (fair market value on the date of death). On March 12,
Arthur Wesson, an unmarried individual who is age 58, reports taxable income of $510,000 in 2022. His AMTI is $625,000, and his regular tax liability in 2022 is $152,253.a. What is Arthur’s AMT?b.
Renee and Sanjeev Patel, who are married, reported taxable income of $1,008,000 for 2022. They incurred positive AMT modifications of $142,500.a. Compute the Patels’ AMTI for 2022.b. Compute their
Suki and Dave each purchase 100 shares of stock of Burgundy, Inc., a publicly owned corporation, in July for $10,000 each. Suki sells her stock on December 31 for $8,000. Because Burgundy’s stock
Randall owns an office building (adjusted basis of $250,000) that he has been renting to a group of physicians. During negotiations over a new seven-year lease, the physicians offer to purchase the
On July 16, 2022, Logan acquires land and a building for $500,000 to use in his sole proprietorship. Of the purchase price, $400,000 is allocated to the building, and $100,000 is allocated to the
On July 1, 2022, Katrina purchased tax-exempt bonds (face value of $75,000) for $82,000. The bonds mature in five years, and the annual interest rate is 3%. Discuss the tax reporting implications of
Thelma inherited land from Sadie on June 7, 2022. The land appreciated in value by 100% during the six months Sadie owned it. The value has remained stable during the three months Thelma has owned
Comment on the following transactions.a. Mort owns 500 shares of Pear, Inc. stock with an adjusted basis of $22,000. On July 28, 2022, he sells 100 shares for $3,000. On August 16, 2022, he purchases
Reba, a calendar year taxpayer, owns an office building that she uses in her business. The building is involuntarily converted on November 15, 2022. On January 5, 2023, Reba receives enough proceeds
In June 2022, Sue exchanges a sport-utility vehicle (adjusted basis of $16,000; fair market value of $19,500) for cash of $2,000 and a pickup truck (fair market value of $17,500). Both vehicles are
On June 5, 2022, Brown, Inc., a calendar year taxpayer, receives cash of $750,000 from the county upon condemnation of its warehouse building (adjusted basis of $500,000 and fair market value of
On February 24, 2022, Allison’s building, with an adjusted basis of $1,300,000 (and used in her trade or business), is destroyed by fire. On March 31, 2022, she receives an insurance reimbursement
The Fiscal Year 2022 priorities for the Tax Exempt & Government Entities (TE/GE) Division of the IRS are available on the IRS website (irs.gov/pub/ irs-pdf/p5313.pdf). One of the priorities for the

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