Set forth below is a background fact paragraph followed by two fact paragraphs with points associated with each fact paragraph. For each fact h identify the relevant federal income tax issues. Points are accumulated based upon your identification of relevant federal income tax issues. Each item identified that is relevant is worth 2 points. Therefore, for each fact paragraph you will be required to identify 5 tax issues. Please write neatly; illegible answers cannot be given points. Please attach extra paper if necessary Background Facts Metro Manufacturing, Inc. is a calendar-year, accrual-method, C corporation operating in the Twin Cities. It is a small to medium sized profitable corporation that has existed since 1967. Metro Manufacturing, Inc. has average annual gross receipts of $7,500,000. Metro Manufacturing, Inc. manufactures several different product lines. Metro Manufacturing, Inc. has various subsidiaries and divisions that it uses to manufacture its different product lines. In addition, flow-through entities that are owned by the shareholders of Metro Manufacturing, Inc. are also used in its manufacturing operations. All of these entities are collectively referred to as the "Metro Group." The Metro Group has over 500 full-time employees. Metro Group is owned equally by Michelle and Mark Mitchell, who are siblings in their late fifties. They inherited the stock from their parents in December of 2016 and began working at Metro Group at that time. Michelle is the President and Mark is the Treasurer of Metro Manufacturing, Inc. Both shareholders have taxable income over $500,000. Metro Group's policy is to choose the alternative that accomplishes its business objectives and minimizes its federal income tax liability. You are the full-time accountant for Metro Group. You were hired on July 1, 2018. In addition to your accounting duties, you are expected to identify federal income tax issues for Metro Group, its two owners, and its employees 15 FACT PARAGRAPH 1.Mark has been reviewing Metro Manufacturing, Inc.'s expenses for 2018. He would like to discuss the following items with you . Metro Manufacturing, Inc. contributed to several state and local political campaigns. In addition, Metro Manufacturing, Inc. accrued a charitable contribution payable to the Metropolitan State University Alumni Foundation in 2018 but will pay the charitable contribution in 2019 The owner of a warehouse that Metro Manufacturing, Inc. leases to store its inventory required Metro Manufacturing, Inc. to sign a new two-year lease agreement in Septermber of 2018. Under the terms of the lease agreement, Metro Manufacturing, Inc. was required to prepay the entire two years of rent in advance to obtain a 10% discount on the rent. Metro Manufacturing, Inc.'s policy on repairs and capital expenditures is to expense all expenditures less than $5,000. (In 2018, these amounts totaled $200,000.) Pursuant to its policy, all repairs and capital expenditures of $5,000 or more are capitalized and recovered over six years. (In 2018, these amounts totaled $600,000.) Mark accrued a $50,000 bonus payable to him and a $50,000 bonus payable to Michelle for all their hard work in the fourth quarter of 2018 These bonuses will be paid in 2018 Mark has booked a trip to San Diego in December for three days of meetings with customers. He plans to take his family along and spend the holidays with them in California . . . Problem 1 Answers: 2. Now that the financial operations for 2018 are nearly complete, Mark has requested a meeting with you to review Metro Group's 2018 federal income tax liabilities and discuss Metro Group's future federal income tax strategies in the wake of current tax reform. Mark has read many news articles about the 2018 Tax Cut and Jobs Act (2018 tax reform) and has asked you to highlight significant changes you believe Metro Group should consider in 2018. What key tax reform changes will you discuss with Mark? Problem 2 Answers