In each of the following situations, indicate if the business expense described is fixed, determinable, and if
Question:
In each of the following situations, indicate if the business expense described is fixed, determinable, and if economic performance occurred for purposes of the 2020 tax return. Rely on the general rule when you answer, not an exception to the general rule. Assume all taxpayers are calendar year accrual-based taxpayers. Clearly highlight Yes (Y) or No (N) to indicate your answer.
Situation | Fixed | Determinable | Economic Performance |
Star corporation has won awards for employee safety. However, they maintain an account for accrued worker’s compensation expenses. On 12/31/20 the balance in the account is $50,000. Two employees made a claim in December and they were paid in January of 2021. | Y or N | Y or N | Y or N |
Deuce agrees to a one year $6,000 contract with Ace Advertising. Ace agreed that Deuce would owe nothing unless his sales increased a minimum of 25% over the six months following the start of the campaign. Deuce signs the contract on December 15, 2020 and accrued the expense on their financial statements. | Y or N | Y or N | Y or N |
Each year Baxter, Inc. issues rebate coupons to random customers who made purchases during the year. They mail the rebates on 12/31/20 so customer will have a nice surprise when they get their mail in January. Baxter records an accrued expense of $60,000 on their 2020 financial statement based on many years of history of knowing what will be redeemed in 2021. | Y or N | Y or N | Y or N |
Indicate if the following independent items are ordinary income (O) or separately stated items (S) for purposes of partnership reporting by highlighting the respective letter choice. If an item is both, highlight both (O) and (S).
O or S | Sales revenue | O or S | LT capital gains and losses | |
O or S | Interest expense – working capital loan | O or S | Charitable contributions | |
O or S | Salary expense | O or S | MACRS depreciation | |
O or S | Net rental real estate income | O or S | Guaranteed payments | |
O or S | Office rent expense | O or S | Administrative expenses | |
O or S | ST capital gains and losses | O or S | §179 depreciation |
Carrie is the sole shareholder of Big, Inc. On July 31, Big distributed $12,000 to Carrie. Carrie’s adjusted basis in her stock at the beginning of the year is $3,700. In each of the following independent situations, determine the following tax implications to Carrie as a result of the distribution. The balance in current and accumulated E&P is as follows:
- Current $4,000
Accumulated $3,000
- Current ($12,000)
Accumulated 9,000
- Current ($6,000)
Accumulated ($10,000)
Reduce: Current E&P | Reduce: Accum. E&P | Dividend | Return of Capital | Capital Gain | |
A | |||||
B | |||||
C |
South Western Federal Taxation 2015
ISBN: 9781305310810
38th edition
Authors: William H. Hoffman, William A. Raabe, David M. Maloney, James C. Young