Taxation For Decision Makers 2012 Edition Shirley Dennis Escoffier - Solutions

46. If a taxpayer has $120,000 of employee salary, how much will be withheld for the Social Security and Medicare taxes in 2011? How much additional Social Security and Medicare taxes is the taxpayer paying this year over those he would have paid in 2010 on his $120,000 of wages?
47. Evaluate the sales tax and the income tax using Adam Smith’s four canons of taxation.
51. Do you believe that a progressive, proportional, or regressive tax is the most fair? Explain your answer.
52. What is the after-tax cost in 2011 of deductible interest expense of $9,000 and property taxes of $2,500 for a single taxpayer with gross income of$80,000? The taxpayer’s only other itemized deduction is a $2,000 charitable contribution.
54. Is a property tax generally a progressive, proportional, or a regressive tax?Explain.
55. Refer to the information in problem 36. Complete the solution to this problem considering both income and employment taxes. (Employment taxes for employees and self-employed individuals are discussed in Chapter 4.)
56. Refer to the information in problem 37. Complete the solution to this problem considering both income and employment taxes. (Employment taxes for employees and self-employed individuals are discussed in Chapter 4.) How would your answers change if the distributions made by the S and C
58. William, age 25, left his studies for the priesthood and moved back into his parents’ home and has lived there this entire year. He had only $4,000 in income from a part-time job that he used to purchase a used auto. His parents provided all of the other money necessary for his support.
60. Clifford owns 75 percent of AFK, a C corporation. He spends little time in the business, but takes a salary of $750,000.
61. Briefly describe the statistical information available when you search for statistics.
62. How do you make a comment or ask a question about the tax statistics provided by the IRS?
63. What subheadings appear under the “Statistics of Income”?
64. Where would you find information about the IRS history and structure?
65. Go to www.taxfoundation.org (the Web site for the Tax Foundation).a. What is Tax Freedom Day?b. When were Tax Freedom Days in 2009 and 2010?
66. John and Martha are planning to be married. Both are professionals each with gross incomes of $100,000 annually. They are deciding on a wedding date. They have two dates to choose from: December 14, 2011, or January 11, 2012. If they marry on December 14, 2011, they will have to choose between
68. Marla and Joe are a married couple who are very thrifty and generous, donating 10 percent of their income to various charities. They have no itemized deductions except their charitable contributions and normally file a joint income tax return. In 2011 their income is $100,000 and it is expected
69. A corporation is in the 34 percent tax bracket. It has $1,000,000 in excess cash that it plans to hold and invest for future expansion of its facilities. It can invest in tax-exempt bonds that pay 4.5 percent interest or it can invest in taxable bonds that pay 6 percent interest. Which
1. Distinguish tax planning from tax compliance.
4. Maria is a single individual with taxable income of $75,000 in 2011. What marginal tax rate should she use to determine the tax savings from a$2,000 deductible expense?
5. Identify three tax planning strategies.
6. Explain the business purpose doctrine.
9. Why are committee reports useful to a tax researcher?
10. What uniquely numbered part of the Internal Revenue Code does a tax researcher usually cite?
11. In the citation Reg. §1.247-3, what do the 1 and the 247 indicate?
12. What is the difference between a legislative regulation and an interpretative regulation?
13. What is the difference between proposed and temporary regulations?What weight do they carry?
14. What is the difference between a letter ruling and a revenue ruling?
15. What is a tax service?
16. What is the purpose of the DIF formula? What happens if someone has a high DIF score?
17. Describe the various types of audits.
19. What alternatives are available to a taxpayer who receives a 90-day letter?
20. Explain the meaning of hazards of litigation.
23. Do taxpayer penalties consist of only monetary fines or can a taxpayer be sentenced to jail?
24. What is a statute of limitations? What is its significance to taxpayers?
25. What is the difference between tax avoidance and tax evasion?
26. Can tax return preparers be assessed penalties?
27. Name three sources of guidance for tax professionals.
28. What are the Statements on Standards for Tax Services? Who issues them?
32. Kimo Corporation, a cash basis calendar-year taxpayer, is in the 25 percent marginal tax bracket this year. Kimo owes a $15,000 expense that it may pay before the end of this year or in January of next year.a. If it expects its marginal tax rate to be 25 percent next year, should it pay the
33. Cynthia and Howard, married taxpayers filing a joint return, have$100,000 in taxable income in 2011. They have 4 children (ages 4 through 12) who have no taxable income. If they can legally shift $1,800 in taxable income to each child, how much does the family save in taxes?
37. Denise filed her 2010 tax return on February 4, 2011. There was no material understatement of income on her return and the return was properly signed and filed. When will the statute of limitations expire for Denise’s tax return?
38. Kevin deliberately omitted $40,000 of gross income from the restaurant that he owned from his 2010 tax return. The return indicated gross income of $200,000 when it was filed on April 14, 2011. As of what date can the IRS no longer pursue Kevin with the threat of collection of the related tax,
39. Alison accidentally omitted $40,000 of gross income from the restaurant she owned from her 2010 tax return. The return indicated gross income of$150,000 when it was filed on October 15, 2011. As of what date can the IRS no longer pursue Alison with the threat of collection of the related tax,
40. Thomas received $30,000 in a legal settlement in 2011. The tax treatment of the item is not certain. Thomas’s research results were ambiguous so he is not sure if the income is taxable. Because some doubt remained and because he did not think he would be audited, Thomas took the position that
41. Tax law provisions change over time. Explain how this might affect tax planning and tax research.
44. How do rulings issued by the IRS benefit both the IRS and taxpayers?
48. Two months before the due date for his tax return, Simon provides his accountant with all the information necessary for filing his return. The accountant was overworked during tax season and files the return after its due date.
49. Jennifer did not file a tax return for 2002 because she honestly believed that no tax was due. In 2011, the IRS audits Jennifer and the agent proposes a deficiency of $500.
50. On his 2006 tax return, Stewart inadvertently overstates deductions in excess of 25 percent of the adjusted gross income on his return. In 2011, the IRS audits Stewart and the agent proposes a deficiency of $1,000.
56. Your client, Ms. I. M. Gorgeous, is an aspiring actress. She has managed to earn a living doing television commercials but was unable to get the acting parts she really wanted. She decided to have botox injections in her forehead and collagen enhancements to her lips. After these procedures,
57. Last year your client, Barney Bumluck, worked part-time for Timely Tax Return Preparation Service. Barney was promised an hourly wage plus a commission. He worked under this arrangement from early February until April 15. His accrued pay amounted to $900 plus $120 of commissions.When he went to
58. Your clients, Sonny and his wife, Honey, believe in worshiping Ta-Ra, the Sun God. To practice their religious beliefs, they take a weeklong trip to Hawaii to worship Ta-Ra. The cost of this pilgrimage (including airfare, hotel, and meals) is $2,800. Sonny wants to know if he can deduct the
59. Fred Fisher is a licensed scuba diver who lives in Key Largo. He is employed full-time as an engineer. Five years ago he had been employed as a professional diver for a salvage company. While working for the salvage company, he became interested in marine archaeology and treasure hunting. Until
62. Go to www.irs.gov (the IRS Web site) and search for Careers at IRS. Look under Students & Recent Grads and then look under Accounting, Budget& Finance to learn more about Internal Revenue Agent positions.a. What are the basic requirements to work for the IRS as an Internal Revenue Agent at
63. Go to www.ustaxcourt.gov (the Tax Court site). What is the filing fee to file a small tax case?
68. Go to www.irs.gov/pub/irs-pdf/pcir230.pdf or to the general IRS site(www.irs.gov) and under Tax Professionals locate “Circular No. 230.”Download a copy of Treasury Circular 230: Regulations Governing the Practice of Attorneys, Certified Public Accountants, Enrolled Agents.a. Read §10.33
69. Go to www.aicpa.org (the AICPA’s Web site) and search for SSTS. Read the history section of the most recent version of the Statements on Standards for Tax Services. What reasons were provided for revising the SSTS?
70. Jessica plans to invest $150,000 in her own small business. She expects to generate a 12 percent before-tax return on her investment the first year.Her marginal tax rate is 35 percent because she has a significant amount of income from other sources. She needs to decide whether to establish her
71. Richard plans to invest $100,000 for a 50 percent interest in a small business.His friend Jack will also invest $100,000 for the remaining 50 percent interest. They expect to generate a 10 percent before-tax return on their investment the first year. Richard’s marginal tax rate is 33 percent,
3. Elio (age 66) is retired. His wife, Mary (age 64) still works part-time. They have income from the following sources and plan to file a joint tax return.Mary’s salary $10,000 Elio’s retirement annuity (all contributions 15,000 made by his employer)Elio’s Social Security benefits 5,000
4. Cindy was awarded a $6,000 scholarship to attend the state university.She spent $4,000 for tuition, $500 for required textbooks, and $1,500 for room and board. She works part-time on campus earning $5,000 which covers the balance of her room and board and other expenses. How much of these
5. Marcus sells a parcel of land that he has held for investment purposes.His basis in the land is $16,000 and the selling price is $20,000. Marcus is to receive the $20,000 at the rate of $5,000 per year for four years, plus interest on the unpaid balance. How much of each payment will be
7. Virginia gives her 14-year-old grandson, Tommy, $10,000 in common stock. One month later, a $100 dividend is paid to Tommy on the stock.How much income is taxed to Tommy and how much is taxed to Virginia?
8. Why is interest income on state and local bonds tax-exempt?
9. In year 1, Lauderhill Corporation issues three-year bonds. Martha, a cash-basis taxpayer, purchased a $10,000 bond at its issue price of$7,000. In year 1, $840 of interest accrues. How much income does Martha report in year 1?
11. What is the rationale for taxing unemployment compensation?
12. Are the recipients of gifts and inheritances subject to double taxation?
13. What is a buy–sell agreement, and how does life insurance facilitate it?
14. Compare how the United States taxes a U.S. citizen and a nonresident alien.
15. What is the purpose of the United States establishing a tax treaty with a foreign country?
16. What is the purpose of the foreign tax credit?
17. What is nexus?
19. What is a long-term contract? Briefly describe the two possible accounting treatments for long-term contracts.
25. Jessica has $10,000 invested in corporate bonds with a stated interest rate of 8 percent and $10,000 in tax-exempt municipal bonds issued for governmental activities with a stated interest rate of 6 percent. Calculate her after-tax cash flow from each investment if:a. her marginal tax rate is
40. Myra receives a $20,000 gift from her cousin and inherits $80,000 in corporate bonds from her aunt at the beginning of the current year. Myra receives $7,000 in interest income from the bonds at the end of the current year. How much does Myra include in gross income?
50. Congress has the power to tax income “from whatever source derived.” Do you believe that this allows Congress the discretion to tax municipal bond interest (or other tax-exempt income) earned throughout a tax year retroactively if the law to make this income taxable is not enacted until the
55. Jason owns a computer repair shop. Jason needs some repair work done on his company car, so he agrees to repair the computer at Bob’s Auto Repairs in exchange for fixing the car.
56. A landlord requires tenants to pay at the beginning of their lease an amount equal to 3 months of rent. He informs the tenants that this is for the first month’s rent, the last month’s rent, and a refundable security deposit equal to one month’s rent.
57. In December, year 1, Sid’s Body Shop (an accrual-basis taxpayer) did repair work on Lisa’s car and was to be paid $2,000 by her insurance company. Lisa was not satisfied with the repair job but finally agreed that her insurance company should pay $1,700 for the repair work, subject to
58. Ken receives interest income from Province of Ontario (Canada) bonds.
59. While diving in the Florida Keys on vacation, Gillian finds a gold bar from a sunken ship.
62. Thomas ran for Congress, raising $2 million for his campaign. Six months after losing the election, auditors discovered that Thomas kept $160,000 of the campaign funds and used the money to purchase a vacation home.What are the tax consequences of this use of campaign funds?
63. Samantha has been unemployed for some time and is very short of money. She learned that the local blood bank has a severe shortage of her type of blood and is therefore willing to pay $120 for each blood donation.Samantha gives blood twice a week for 12 weeks and receives $120 for each
66. Go to the IRS Web site (www.irs.gov) and locate Publication 537:Installment Sales. Which form is used to report an installment sale?
69. Go to www.legalbitstream.com (or www.irs.gov/irb/ and start with IRB 2006–47) and locate Notice 2006–101. Read the appendix of Notice 2006–101 and determine if dividend income received from foreign corporations located in the following four jurisdictions will be treated as qualified
1. Sarah, a cash-basis, calendar-year individual, is president and owns 80 percent of SRS Corporation’s stock. SRS is an accrual-basis, calendar-year C corporation. In December year 1, SRS Corporation accrued a $50,000 bonus payable to Sarah and $120,000 in bonuses payable to other employees. The
3. Mike received two job offers to start in 2012. Friendly Corporation would like to hire him as an employee at a salary of $50,000 and would pay the premiums for comprehensive medical insurance. Micro Corporation would like to hire him as an independent contractor. Mike would earn $55,000 annually
4. In year 1, Incentive Corporation grants Jessica, an employee, an ISO to buy 1,000 shares of Incentive stock for $28 per share at any time during the next seven years. On the grant date, Incentive stock is selling for $26 per share. In year 5, when the stock is selling for $38 per share, Jessica
5. During 2011, Robin has net income from his sole proprietorship of$25,000. He also earned $84,800 as an employee in 2011. How much must Robin pay for self-employment tax?a. $1,913b. $2,958c. $3,532d. $3,825
3. John is a single individual who works for Auto Rental Cars in Japan during the entire calendar year. His salary is $100,000. How much of this salary can he exclude?
6. In which of the following cases should the employees report the benefit received as gross income?a. The employer provides an annual picnic for employees and their families to celebrate Independence Day.b. Employees can use the company photocopier for small amounts of personal copying as long as
8. What is the difference between an NQSO and an ISO?
9. Gabor Family Enterprises, a closely-held family corporation, would like to offer a stock option plan as an incentive to its employees, but it does not want its stock owned by anyone who is not a member of the Gabor family.What type of plan should Gabor consider?
11. What are the advantages of a qualified retirement plan?
12. Discuss why corporations frequently offer both qualified and nonqualified retirement plans to their employees.
17. Charlie, who is in the 35 percent marginal tax bracket, is the president and sole owner of Charlie Corporation (a C corporation in the 34 percent tax bracket). His current salary is $700,000 per year. What are the income and FICA tax consequences if the IRS determines that $200,000 of his
20. Priscilla, an employee of Choice Corporation, receives an annual salary of$70,000. Choice has a cafeteria plan that allows all employees to choose an amount equal to 8 percent of their annual salary from a menu of nontaxable fringe benefits or to take cash. Priscilla selects $50,000 of group
21. Jennifer elects to reduce her salary by $3,500 so she can participate in her employer’s flexible spending arrangement. Her salary reduction is allocated as follows: $2,400 for medical and dental expenses and $1,100 for child care expenses. During the year, Jennifer uses $2,000 of her salary
22. Clark works all year at the front desk of the Dew Drop Inn and earns a salary of $30,000. He is offered the option of a $400-per-month living allowance or rent-free use of a room at the Dew Drop Inn. Clark chooses to live at the inn in a room that normally rents for $400 per month. How much
32. Nick, age 53, is single and has AGI of $58,000. He contributes $5,000 to his IRA in 2011.a. How much can Nick deduct if he is not covered by an employer-sponsored qualified retirement plan?b. How much can Nick deduct if he is covered by an employer-sponsored qualified retirement plan?

Showing 400 - 500 of 951

Taxation For Decision Makers 2012 Edition Shirley Dennis Escoffier - Solutions

Step by Step Answers