Questions and Answers of South-Western Federal

As to the alternate valuation date for asset transfers at death, comment on the following. a. The justification for the election. b. The main heir prefers the date of death value. c.
Kaitlin donated a painting to the local art museum. Because she is subject to a 35% marginal tax rate, she needs a large charitable contribution deduction for the year. She engaged Vargas (who was
Eggers Corporation filed an amended Form 1120, claiming an additional $400,000 deduction for payments to a contractor for a prior tax year. The amended return was based on the entity’s
Singh, a qualified appraiser of fine art and other collectibles, was advising Colleen when she was determining the amount of the charitable contribution deduction for a gift of a sculpture to a
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
Martinho is a citizen of Brazil and lives there year-round. He has invested in a plot of Illinois farmland with a tax basis to him of $1 million. Martinho has no other business or investment
IrishCo, a manufacturing corporation resident in Ireland, distributes products through a U.S. office. Current-year taxable income from such sales in the United States is $12,000,000. IrishCo’s U.S.
Assume the same facts as in Problem 31, except that both states employ a three-factor formula, under which sales are double-weighted. The property factor in A is computed using historical cost; this
5 Assume the same facts as in Problem 31, except that both states employ a three-factor formula, under which sales are double-weighted. The property factor in A is computed using historical cost;
Assume the same facts as in Problem 31, except that A uses a single-factor apportionment formula that consists solely of sales and B uses a three-factor apportionment formula that equally weights
Isle Corporation’s entire operations are located in State A. Of Isle’s $600,000 sales, 60% are made in State A and 40% are made in State B. Isle’s solicitation of sales in State B is limited to
Fish, Inc., an exempt organization, reports unrelated business income of $500,000 (before any charitable contribution deduction). During the year, Fish makes charitable contributions of $54,000, of
Helpers, Inc., a qualifying § 501(c)(3) organization, incurs lobbying expenditures of $250,000 for the taxable year and grass roots expenditures of $0. Exempt purpose expenditures for the taxable
Sean Moon is president, secretary, treasurer, sole director, and sole shareholder of Streetz, an S corporation real estate company. He manages all aspects of the company’s operations, and he is the
At the beginning of the year, Ann and Becky own equally all of the stock of Whitman, Inc., an S corporation. Whitman generates a $120,000 loss for the year (not a leap year). On the 189th day of the
Assume the same facts as in Problem 40, except that Jeff’s share of corporate taxable income is only $8,000 and there is no cash distribution. However, the corporation repays the $10,000 loan
Assume the same facts as in Problem 40, except that there is no cash distribution, but the corporation repays the loan principal to Jeff. Discuss the tax effects. Data From Problem 40Jeff, a 52%
Money, Inc., a calendar year S corporation in Denton, Texas, has two unrelated shareholders, each owning 50% of the stock. Both shareholders record a $400,000 stock basis as of January 1. At the
Zebra, Inc., a calendar year S corporation, incurred the following items this year.Sammy is a 40% Zebra shareholder throughout the year.Operating income ..........................................
The profit and loss statement of Kitsch Ltd., an S corporation, shows $100,000 book income. Kitsch is owned equally by four shareholders. From supplemental data, you obtain the following information
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
BDD Partnership is a service-oriented partnership that has three equal general partners. One of them, Barry Evans, sells his interest to another partner, Dale Allen, on December 31 (the last day of
Consider each of the following independent situations, and answer the following questions. For each fact pattern, indicate:• Whether the partner recognizes gain or loss. • Whether the
When Teri’s outside basis in the TMF Partnership is $80,000, the partnership distributes to her $30,000 of cash, an account receivable (fair market value of $60,000, inside basis to the partnership
Bryan and Cody each contributed $120,000 to the newly formed BC Partnership in exchange for a 50% interest. The partnership used the available funds to acquire equipment costing $200,000 and to fund
Bryan and Cody each contributed $120,000 to the newly formed BC Partnership in exchange for a 50% interest. The partnership used the available funds to acquire equipment costing $200,000 and to fund
home Law Business Law Suzy contributed business-related assets valued at $360,000 (basis of $200,000)Suzy contributed business-related assets valued at $360,000 (basis of
The KL Partnership is owned equally by Kayla and Lisa. Kayla’s basis is $20,000 at the beginning of the tax year. Lisa’s basis is $16,000 at the beginning of the year. Assume partnership debt did
Amy and Mitchell share equally in the profits, losses, and capital of the accrual basis AM Products LLC. Amy is a managing member of the LLC (treated as a general partner) and is a U.S. person. At
Tom and Missy form TM Partnership, Ltd. (a limited partnership), to own and operate certain real estate. Tom contributed land, and Missy contributed cash to be used for setting up the entity and
Liz and John formed the equal LJ Partnership on January 1 of the current year. Liz contributed $80,000 of cash and land with a fair market value of $90,000 and an adjusted basis of $75,000. John
Emma and Laine form the equal EL Partnership. Emma contributes cash of $100,000. Laine contributes property with an adjusted basis of $40,000 and a fair market value of $100,000. a. How much
Tobias is a 50% member in Solomon LLC, which does not invest in real estate. On January 1, Tobias’s adjusted basis for his LLC interest is $130,000, and his at-risk amount is $105,000. His share of
This year, the Tastee Partnership reported income before guaranteed payments of $92,000. Stella owns a 90% profits interest and works 1,600 hours per year in the business. Euclid owns a 10% profits
Enercio contributes $100,000 in exchange for a 40% interest in the calendar year ABC LLC, which is taxed as a partnership. This year, the LLC generates $80,000 of ordinary taxable income and has no
What is a guaranteed payment? How is it reported on Form 1065 and its various schedules? How is it reported to and by the partner? Describe ways in which a guaranteed payment for services differs
Quail Corporation was created six years ago through contributions from Kasha ($900,000) and Frank ($100,000). In a transaction qualifying as a reorganization, Quail exchanges all of its assets
Stork Corporation (E & P of $850,000) has 1,000 shares of common stock outstanding. The shares are owned by the following individuals: Lana Johnson, 400 shares; Lori Jones (Lana’s mother), 200
How would your answer to parts (a) and (b) of Problem 49 differ if Julio were a corporate shareholder rather than an individual shareholder and the stock ownership in Gray Corporation represented a
Sam Upchurch, a single taxpayer, acquired stock in Hummer Corporation that qualified as a small business corporation under § 1244 at a cost of $100,000 three years ago. He sells the stock for
Rhonda owns 50% of the stock of Peach Corporation. She and the other 50% shareholder, Rachel, have decided that additional contributions of capital are needed if Peach is to remain successful in its
Dan Knight and Patricia Chen, who are good friends, form Crane Corporation. Dan transfers land (worth $200,000, basis of $60,000) for 50% of the stock in Crane. Patricia transfers machinery (worth
Tom and Gail form Owl Corporation with the following consideration:The installment note has a face amount of $350,000 and was acquired last year from the sale of land held for investment purposes
Find the most recent IRS Tax Statistics (irs.gov/statistics) report for Corporation Income Tax Returns. Based solely on this report, prepare an outline highlighting the top three industries based on
Swallow Company is a large real estate construction company that has made an S election. The company reports its income using the percentage of completion method. In 2020, the company completed a
Kay, who is not a real estate dealer, sold an apartment house to Polly during the current year (2019). The closing statement for the sale is as follows. During 2019, Kay collected $9,000 in
What accounting method (cash or accrual) would you recommend for the following businesses? a. A gift shop with average annual gross receipts of $900,000. b. An accounting partnership with
The deduction for qualified business income has received praise and criticism in the press from the time it was introduced. Summarize at least two arguments for and against the QBI deduction. Explain
Assume the same facts as in Problem 35, except that the business is a “specified services” business (e.g., a consulting firm) owned equally by Elliot and Conrad (an unrelated individual) in a
Assume the same facts as in Problem 31, except that Susan’s business pays $60,000 of W–2 wages and reports qualified business income of $200,000. Susan also has a part-time job earning wages of
Assume the same facts as in Problem 31, except that Susan’s QBI is $150,000. What is Susan’s QBI deduction? Data From Problem 31.Susan, a single taxpayer, owns and operates a bakery as a
Marsha exchanged land in Florida with an FMV of $72,700 and an adjusted basis of $40,000 for land in Iowa with an FMV of $57,700. Marsha also paid $5,000 cash in the transaction and received an
Chad owned an office building that was destroyed in a tornado. The adjusted basis of the building at the time was $890,000. After the deductible, Chad received an insurance check for $850,000. He
Tom and Alice Honeycutt, ages 45 and 46, respectively, live at 101 Glass Road, Delton, MI 49046. Tom is a county employee, and Alice is a self-employed accountant. Tom’s Social Security number is
Devon Bishop, age 45, is single. He lives at 1507 Rose Lane, Albuquerque, NM 87131. His Social Security number is 111-11-1117. 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 2018, they received Social Security benefits of $10,000. Both
Cabel’s warehouse, which has an adjusted basis of $380,000 and a fair market value of $490,000, is condemned by an agency of the Federal government to make way for a highway interchange. The
Tom Howard and Frank Peters are good friends (and former college roommates). Each owns investment property in the other’s hometown (Tom lives in Kalamazoo, MI; Frank lives in Austin, TX). To make
Surendra’s personal residence originally cost $340,000 (ignore land). After living in the house for five years, he converts it to rental property. At the date of conversion, the fair market value
Peyton sells an office building and the associated land on May 1 of the current year. Under the terms of the sales contract, Peyton is to receive $1,600,000 in cash. The purchaser is to assume
Juliana purchased land three years ago for $50,000. She gave the land to Tom, her brother, in the current year, when the fair market value was $70,000. No gift tax is paid on the transfer. Tom
Sebastian purchases two pieces of equipment for $100,000. Appraisals of the equipment indicate that the fair market value of the first piece of equipment is $72,000 and that of the second piece of
Sally owns real property for which the annual property taxes are $9,000. She sells the property to Kate on March 9, 2019, for $550,000. Kate pays the real property taxes for the entire year on
Tim and Sarah Lawrence are married and file a joint return. Tim’s Social Security number is 123-45-6789, and Sarah’s Social Security number is 111-11-1112. They reside at 100 Olive Lane,
Emily spent $135,000 to rehabilitate a certified historic building (adjusted basis of $90,000) that originally had been placed in service in 1935. Compute Emily’s credit for rehabilitation
Helen Derby borrowed $150,000 to acquire a parcel of land to be held for investment purposes. During the current year, she reported AGI of $90,000 and paid interest of $12,000 on the loan. Other
Emily has $100,000 that she wants to invest and is considering the following two options:• Option A: Investment in Redbird Mutual Fund, which is expected to produce interest income of $8,000 per
Noah Yobs, who has $62,000 of AGI (solely from wages) before considering rental activities, has $70,000 of losses from a real estate rental activity in which he actively participates. He also
Zhou owns a nonrental business with two separate departments. Department A generates net income of $70,000, and Department B generates a net loss of $58,000. Zhou participates 800 hours in the
In August 2018, the Treasury Department published proposed Regulations covering the so-called SALT workaround (see text Section 10-4a). Find the status of these proposed Regulations, and if
Paul and Donna Decker are married taxpayers, ages 44 and 42, respectively, who file a joint return for 2019. The Deckers live at 1121 College Avenue, Carmel, IN 46032. Paul is an assistant manager at
Tabitha sells real estate on March 2 for $260,000. The buyer, Ramona, pays the real estate taxes of $5,200 for the calendar year, which is the real estate property tax year. Assume that this is not a
The city of Lawrence recently was hit by a tornado, leaving many families in need of food, clothing, shelter, and other necessities. Betty contributed $500 to a family whose home was completely
Addison Parker (Social Security number 123-45-6785), single and age 32, lives at 3218 Columbia Drive, Spokane, WA 99210. She is employed as regional sales manager by VITA Corporation, a manufacturer
Review the advantages and disadvantages of the Simplified Method for determining the office in the home deduction. Create a brief summary of your findings, and e-mail it to your instructor.
Your client, Dave’s Sport Shop, sells sports equipment and clothing in three retail outlets in New York City. During 2019, the CFO decided that keeping track of inventory using a combination of
John Smith, age 31, is single and has no dependents. At the beginning of 2019, John started his own excavation business and named it Earth Movers. John lives at 1045 Center Street, Lindon, UT, and
Lori, who is single, purchased 5-year class property for $200,000 and 7-year class property for $420,000 on May 20, 2019. Lori expects the taxable income derived from her business (without regard to
Discuss the computation of cost recovery in the year an asset is placed in service when the mid quarter convention is being used.
Discuss the difference between personal property and personal use property.
Mason Phillips, age 45, and his wife, Ruth, live at 230 Wood Lane, Salt Lake City, UT 84101. Mason’s Social Security number is 111-11-1111. Ruth’s Social Security number is 123-45-6789. Mason and
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
Timothy Gates and Prada Singh decide to form a new company, TGPS LLC (a multimember LLC that will report its operations as a partnership). Timothy is married, and Prada is single. Each contributes
Olaf lives in the state of Minnesota. In 2019, a tornado hit the area and damaged his home and automobile. Applicable information is as follows:Because of the extensive damage caused by the tornado,
Which of the following is not a deduction for AGI?a. Alimony paid for a divorce finalized in 2018.b. Business rent on a self-employed business.c. Property taxes paid on your primary residence.d. One
Which of the following is a deduction for AGI?a. Charitable contributions.b. Alimony paid for a divorce finalized in 2015.c. Tax preparation fees.d. Mortgage interest paid on your primary residence.
Mona viewed herself as a creative individual who had chosen to go to law school for economic reasons. Mona’s undergraduate majors were creative writing and American Indian studies.Mona was very
Rex and Agnes Harrell purchased a beach house at Duck, North Carolina, in early 2019. Although they intended to use the beach house occasionally for recreational purposes, to help pay the mortgage
John and Mary Jane Diaz are married, filing jointly. Their address is 204 Shoe Lane, Blacksburg, VA 24061. John is age 35, and Mary Jane is age 30. They are expecting their first child in early 2020.
Brittany Callihan sold stock (basis of $184,000) to her son, Ridge, for $160,000, the fair market value.a. What are the tax consequences to Brittany?b. What are the tax consequences to Ridge if he
Elisa and Clyde operate a retail sports memorabilia shop. For the current year, sales revenue is $55,000 and expenses are as follows:Cost of goods sold ........................ $21,000Advertising
Terry traveled to a neighboring state to investigate the purchase of two hardware stores. His expenses included travel, legal, accounting, and miscellaneous expenses. The total was $52,000. He
Amber, a publicly held corporation, currently pays its president an annual salary of $900,000. As a means of increasing company profitability, the board of directors increased the president’s
Fynn incurred and paid the following expenses during 2019:• $50 for a ticket for running a red light while he was commuting to work.• $100 for a ticket for parking in a handicapped parking
In 2019, Larry and Susan each invest $10,000 in separate investment activities. They each incur deductible expenses of $800 associated with their respective investments. Explain why Larry’s
Classify each of the following expenditures paid in 2019 as a deduction for AGI, a deduction from AGI, or not deductible:a. Barak contributes to his H.R. 10 plan (i.e., a retirement plan for a
Classify each of the following expenditures paid in 2019 as a deduction for AGI, a deduction from AGI, or not deductible:a. Roberto gives cash to his father as a birthday gift.b. Sandra gives cash to
Your client, John Butler, is an avid Houston Astros fan. Last March at the Astros’ home opener, as a result of a random drawing of those in attendance at the game, John won 300 Shipley Do-Nut
Martin S. Albert (Social Security number 111-11-1111) is 39 years old and is married to Michele R. Albert (Social Security number 123-45-6789). The Alberts live at 512 Ferry Road, Newport News, VA
Myrna and Geoffrey filed a joint tax return in 2018. Their AGI was $85,000, and itemized deductions were $24,700, which included $7,000 in state income tax and no other state or local taxes. In 2019,

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