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south western federal taxation

Questions and Answers of South Western Federal Taxation

While the requirements for a § 332 parent-subsidiary liquidation are fairly straightforward, some planning and reporting issues must be addressed to ensure the proper outcome. Using the Internet as
Assume in Problem 23 that the land had a fair market value of $630,000 on the date of its transfer to the corporation. On the date of the liquidation, the land’s fair market value has decreased to
Why do the tax laws often dictate the legal form of corporate reorganizations? Be specific.
Buy-sell agreements are frequently used to address the disposition of a retiring or deceased shareholder’s stock in a closely held corporation. Using the Internet as your sole research source,
Your firm has a new individual client, Carla Navarro, who has been assigned to you for preparation of the current year’s tax return. Upon review of Carla’s tax returns from prior years, you
Kenny Merinoff and his son, John, own all of the outstanding stock of Flamingo Corporation. Both John and Kenny are officers in the corporation and, together with John’s uncle, Ira, comprise the
Sparrow Corporation (a calendar year, accrual basis taxpayer) had the following transactions in 2014, its second year of operation.Sparrow uses the LIFO inventory method, and its LIFO recapture
On September 30, Silver Corporation, a calendar year taxpayer, sold a parcel of land (basis of $400,000) for a $1 million note. The note is payable in five installments, with the first payment due
Cardinal Corporation, a calendar year taxpayer, receives dividend income of $250,000 from a corporation in which it holds a 10% interest. Cardinal also receives interest income of $35,000 from
How do the § 318 stock attribution rules apply to partnerships and their partners?
Owners and financiers of businesses often have reasons to structure their investments as either debt or equity. Locate the July 11, 2011, report prepared by the Staff of the Joint Committee on
Emily Patrick (36 Paradise Road, Northampton, MA 01060) formed Teal Corporation a number of years ago with an investment of $200,000 cash, for which she received $20,000 in stock and $180,000 in
Jane, Jon, and Clyde incorporate their respective businesses and form Starling Corporation. On March 1 of the current year, Jane exchanges her property (basis of $50,000 and value of $150,000) for
Sarah incorporates her small business but does not transfer the machinery and equipment the business uses to the corporation. Subsequently, the machinery and equipment are leased to the corporation
In determining a corporation’s debt-equity ratio, should the book value or the fair market value of the assets be used? Explain.
Tern Corporation, a calendar year C corporation, is solely owned by Jessica Ramirez. Tern’s only business since its incorporation in 2011 has been land surveying services. In Tern’s state of
Using the facts of Problem 49, determine the 2014 end-of-year balance in Prance’s deferred tax asset and deferred tax liability balance sheet accounts.Data From Problem 49:Prance, Inc., earns
Your client sold a capital asset in June 2012 for which payment is to be made in June 2014. He did not charge interest on the deferred payment, and you need to make the imputed interest computations.
Kay, who is not a dealer, sold an apartment house to Polly during the current year (2014). The closing statement for the sale is as follows:
In December 2014, Nell, Inc., an accrual basis taxpayer, paid $12,000 for insurance premiums for her business for the 2015 calendar year. How much of the premiums can Nell, Inc., deduct in 2014?
Go to a tax blog and post a comment on one of the following items relative to individuals who are subject to the AMT.a. Interest deductions on vacation homes.b. Personal and dependency exemptions.c.
Locate a current proposal to modify the structure or scope of the Federal AMT on individuals. In an e-mail to your instructor:a. Describe the proposal.b. Indicate the entity making the proposal.c.
Jacob M. and Jane R. Brewster live at 1802 College Avenue, Carmel, IN 46032. Jacob is age 48, and Jane is age 37. They are married and file a joint return for 2014. The Brewsters have two dependent
Robert A. Kliesh, age 41, is single and has no dependents. Robert’s Social Security number is 111-11-1111. His address is 201 Front Street, Missoula, MT 59812. He is independently wealthy as a
Aqua, Inc., a calendar year corporation, records the following gross receipts and taxable income for 2011–2014. Aqua’s first year of operations was 2011. Is Aqua exempt from AMT in any of its
Pat, who is age 66 and single with no dependents, received a salary of $90,000. She reports interest income of $1,000, dividend income of $5,000, gambling winnings of $4,000, and interest income from
Calculate the 2014 AMT for the following cases. The taxpayer reports regular taxable income of $450,000 and does not claim any tax credits.
Alex owns a mineral deposit that qualifies for a 15% statutory depletion rate. Under what circumstances will the depletion deduction for regular income tax and AMT purposes differ?
Identify which of the following are AMT preferences.a. Exclusion for qualified employee discount provided by employer.b. Exclusion to employee on the employer’s contribution to the employee’s
Identify which of the following are AMT preferences.a. Seven percent of the exclusion associated with gains on the sale of certain small business stock.b. Exclusion on the receipt of property by gift
Clyde had worked for many years as the chief executive of Red Industries, Inc., and had been a major shareholder. Clyde and the company had a falling out, and Clyde was terminated. Clyde and Red
Justin Stone was an employee of DataCare Services, Inc. His salary was $45,000 through November 10, 2013, when he was laid off. He received $7,000 of unemployment compensation from November 11, 2013,
Ashley Panda lives at 1310 Meadow Lane, Wayne, OH 43466, and her Social Security number is 123-45-6789. Ashley is single and has a 20-year-old son, Bill. His Social Security number is 111-11-1111.
Carla was the owner of vacant land that she was holding for investment. She paid $1 million for the land in 2012. Raymond was an investor in vacant land. He thought Carla’s land might be the site
Desiree contributes to her wholly owned corporation some tangible personal property that she had used in her sole proprietorship business and depreciated. At the date of the contribution, the
Thomas receives tangible personal property as an inheritance from a decedent who died in 2014. The property was depreciated by the deceased, and Thomas will also depreciate it. At the date of the
Nonresidential real estate leasehold improvements are sold at a loss. In what circumstances would the loss be subject to § 1250 depreciation recapture?
A taxpayer owns depreciable business real property held for the short-term holding period. What would have to be true for the real property to generate a § 1231 loss when it is sold?
An individual taxpayer had a net § 1231 loss in 2014. Could any of this loss be treated as a long-term capital loss? Why or why not?
Tony receives $58,000 from a real estate developer for an option to purchase land Tony is holding for homesite development. Fourteen months later, the option expires unexercised. How is the $58,000
Devon Bishop, age 45, is single. He lives at 1507 Rose Lane, Albuquerque, NM 87131. His Social Security number is 111-11-1111. Devon does not want $3 to go to the Presidential Election Campaign
Alton Newman, age 67, is married and files a joint return with his wife, Clair, age 65. Alton and Clair are both retired, and during 2013, they received Social Security benefits of $10,000. Alton’s
Tanya Fletcher owns undeveloped land (adjusted basis of $80,000 and fair market value of $92,000) on the East Coast. On January 4, 2014, she exchanges it with Lisa Martin (an unrelated party) for
When does the holding period begin for replacement property acquired in an involuntary conversion? For property received in a like-kind exchange?
Find at least two news stories or government reports that document the incentive effects of any of the Federal tax law’s renewable energy credits (biodiesel/ alternative fuels, solar, wind,
The IRS makes available a web-based tool to help taxpayers determine whether they are eligible for the earned income credit. Locate this tool at the IRS website; then apply the facts related to at
Ashby and Curtis, a young professional couple, have a 2-year-old son, Jason. Curtis works full-time as an electrical engineer, but Ashby has not worked outside the home since Jason was born. As Jason
Beth R. Jordan lives at 2322 Skyview Road, Mesa, AZ 85201. She is a tax accountant with Mesa Manufacturing Company, 1203 Western Avenue, Mesa, AZ 85201 (employer identification number 11-1111111).
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
Paul and Karen are married, and both are employed (Paul earned $44,000 and Karen earned $9,000). Paul and Karen have two dependent children, both under the age of 13. Paul and Karen pay $3,800 to
Ann and Bill were on the list of a local adoption agency for several years seeking to adopt a child. Finally, in 2013, good news comes their way and an adoption seems imminent. They pay qualified
Tom, a calendar year taxpayer, informs you that during the year, he incurs expenditures of $40,000 that qualify for the incremental research activities credit. In addition, Tom’s research-credit
Oak Corporation holds the following general business credit carryovers.2010
Charles generated a tentative general business credit of $42,000 for the current year. His net regular tax liability before the general business credit is $107,000, and his tentative minimum tax is
Can the earned income credit be characterized as a form of negative income tax? Why or why not?
In a recent Tax Court decision, a taxpayer argued that he met the 750-hour requirement for materially participating in his rental real estate activities. The taxpayer, James Moss, asserted that
Ida, who has AGI of $80,000 before considering rental activities, is active in three separate real estate rental activities and is in the 28% tax bracket. She has $12,000 of losses from Activity A,
Five years ago Gerald invested $150,000 in a passive activity, his sole investment venture. On January 1, 2013, his amount at risk in the activity was $30,000. His shares of the income and losses
Pamela owns a passive activity acquired several years ago that has incurred losses since its acquisition. This is the only passive activity she has ever owned. How will these passive losses affect
David R. and Ella M. Cole (ages 39 and 38, respectively) are husband and wife who live at 1820 Elk Avenue, Denver, CO 80202. David is a regional sales manager for Wren Industries, a national
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
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. Lily is single and is employed
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 to
Janice Morgan, age 32, is single and has no dependents. She is a freelance writer. In January 2013, Janice opened her own office located at 2751 Waldham Road, Pleasant Hill, NM 88135. She called her
As a condition of leasing a 10-year-old warehouse, Martha was required to make capital improvements to the interior of the building to accommodate the lessee. These improvements cost Martha $300,000.
During March 2014, Sam constructed new agricultural fences on his farm. The cost of the fencing was $80,000. Sam does not elect immediate expensing under § 179, and he does not claim any available
On April 20, 2014, Ralph purchased used equipment to be used in his farming business. The cost of the equipment is $150,000. Ralph does not elect immediate expensing under § 179, nor does he elect
A professional consulting business sells professional tools and equipment and provides associated services, such as repair and maintenance, to its customer base. The company’s employees include
Discuss whether § 179 expensing may be taken on qualified property used in a transaction entered into for profit.
Discuss the cost recovery periods and methods to be used on leasehold improvement property owned by the lessor.
Discuss whether § 179 is applicable when a farmer uses ADS computations for depreciable assets.
Discuss the definition of residential rental real estate
Discuss what property qualifies for additional first-year depreciation.
Discuss whether the date that an asset is placed in service is important in determining whether the mid-quarter convention applies for personalty.
Esther owns a large home on the East Coast. Her home is surrounded by large, mature oak trees that significantly increase the value of her home. In August 2013, a hurricane damaged many of the trees
Jane Smith, age 40, is single and has no dependents. She is employed as a legal secretary by Legal Services, Inc. She owns and operates Typing Services located near the campus of Florida Atlantic
Barbara, a calendar year taxpayer, owns and operates a company that manufactures toys. For 2014, she has modified AGI of $500,000 and QPAI of $550,000. Ignoring the W–2 wage limitation, calculate
Discuss the tax treatment of capitalized research and experimental expenditures.
Kelly decided to invest in Lime, Inc. common stock after reviewing Lime’s public disclosures, including recent financial statements and a number of press releases issued by Lime. On August 7, 2012,
Discuss the treatment of a loss on rental property under the following facts:Basis
Discuss the tax consequences of not making an insurance claim when insured business use property is subject to a loss.
Discuss the measurement rule for the theft of property used in a transaction entered into for profit.
Bob owns a collection agency. He purchases uncollected accounts receivable from other businesses at 60% of their face value and then attempts to collect these accounts. During the current year, Bob
Sarah was contemplating making a contribution to her traditional IRA in 2013. She determined she would contribute $5,000 in December 2013, but forgot about making the contribution until she was
Roberta Santos, age 41, is single and lives at 120 Sanborne Avenue, Springfield, IL 60781. Her Social Security number is 123-45-6789. Roberta has been divorced from her former husband, Wayne, for
Roberta Santos, age 41, is single and lives at 120 Sanborne Avenue, Springfield, IL 60781. Her Social Security number is 123-45-6789. Roberta has been divorced from her former husband, Wayne, for
The Robin Corporation is owned as follows:Isabelle
Alex, who is single, conducts an activity in 2014 that is appropriately classified as a hobby. The activity produces the following revenues and expenses:Revenue
Why is the reserve method not allowed to be used for Federal income tax purposes?
The parsonage allowance in § 107(2) allows clergymen and clergywome to exclude from gross income any rental allowance paid to them as compensation, as long as that allowance is used to rent or buy a
Alfred E. Old and Beulah A. Crane, each age 42, married on September 7, 2011. Alfred and Beulah will file a joint return for 2013. Alfred’s Social Security number is 111-11- 1111. Beulah’s Social
How does the tax benefit rule apply in the following cases?a. In 2012, the Orange Furniture Store, an accrual method taxpayer, sold furniture on credit for $1,000 to Sammy. The cost of the furniture
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 insurance.
Tim is the vice president of western operations for Maroon Oil Company and is stationed in San Francisco. He is required to live in an employer-owned home, which is three blocks from his company
Tammy, a resident of Virginia, is considering purchasing a North Carolina bond that yields 4.6% before tax. She is in the 35% Federal marginal tax bracket and the 5% state marginal tax bracket. She
Melba’s employer provides a flexible spending plan for medical and dental expenses not covered by insurance. Melba contributed $1,500 during 2014, but by the end of December 2014, she still had
Tranquility Funeral Home, Inc., your client, is an accrual basis taxpayer that sells preneed funeral contracts. Under these contracts, the customer pays in advance for goods and services to be
Daniel B. Butler and Freida C. Butler, husband and wife, file a joint return. The Butlers live at 625 Oak Street in Corbin, KY 40701. Dan’s Social Security number is 111-11-1111, and Freida’s is
Trip Garage, Inc. (459 Ellis Avenue, Harrisburg, PA 17111), is an accrual basis taxpayer that repairs automobiles. In late December 2014, the company repaired Samuel Mosley’s car and charged him
Al is a medical doctor who conducts his practice as a sole proprietor. During 2014, he received cash of $280,000 for medical services. Of the amount collected, $40,000 was for services provided in

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