Questions and Answers of Principles Taxation Business

Mr. Sheraton suffers from severe arthritis. His physician advised him to swim for at least one hour every day in a heated pool. Because such a facility is not conveniently located in his area, he
Mr. Ruskin, a CPA who charges $150 per hour for his professional services, keeps the financial records for a local charity. Although he spends at least 10 hours each month at this task, he doesn’t
Mr. and Mrs. Fitch bought $500 worth of Girl Scout cookies from their godchild. Because they don’t eat sweets, they gave away every box to various friends and family members.
Mr. Dix borrowed $600,000 to purchase 62 acres of undeveloped land and secured the debt with the land. He converted a three-room log cabin on the land to his principal residence. This year, he paid
Ms. Seagram paid $155,000 for a house that she occupied as her principal residence until February 1, when she moved out and converted the house to rental property. The appraised FMV of the house was
Mr. and Mrs. Ayala purchased their home one year ago. This year, a local government attempted to seize the home because the former residents had failed to pay their property taxes for 12 years. Mr.
On January 12, 2017, Mr. and Mrs. Nixon moved out of their old residence (where they had lived for 22 years) and into a new residence purchased nine days earlier on January 3. They finally sold their
Percy Wilson is a calendar year taxpayer. What is the unextended filing date of Percy Wilson’s 2019 federal income tax return if: a. Percy Wilson Inc. is a corporation? b. Mr. Percy
On April 3, Mr. and Mrs. Rath traveled to Japan. They made the trip because their son, who lives in Tokyo, was injured in an accident and needed their care. After nursing their son back to health,
Mr. Rouse’s tax situation for the year is very complicated. He engaged in several multi-million dollar investment transactions involving unresolved tax issues. He has instructed his accountant to
On July 2, Mrs. Nation received a notice assessing a $10,861 tax deficiency. She was short of funds, so she did not pay her tax bill within 10 days as required by the notice. Instead, she waited
Nunoz Inc., a calendar year taxpayer, incurred a net operating loss in 2018 that it carried back as a deduction against 2016 income. Nunoz’s treasurer filed a claim for a $712,600 refund of 2016
Mr. Tillotson has not paid income tax or filed a tax return for the last eight years. He believes that the IRS can no longer assess back taxes for the first five of those years. Identify the tax
In April 2019, Lenape Corporation completed security, fire, and heating system improvements to existing nonresidential real property with a total cost of $1,275,000. Assuming these improvements are
In 2018, Company W elected under Section 179 to expense $19,300 of the cost of qualifying property. However, it could deduct only $15,000 of the expense because of the taxable income limitation. In
In 2019, Firm L purchased machinery costing $21,300 and elected to expense the entire cost under Section 179. How much of the expense can Firm Ldeduct in each of the following cases? a. Its
Herelt Inc., a calendar year taxpayer, purchased equipment for $383,600 and placed it in service on April 1, 2019. The equipment was seven-year recovery property, and Herelt used the half-year
Firm O purchased two items of business personalty this year. The first item cost $1,035,000 and has a five-year recovery period, and the second item cost $1,061,500 and has a seven-year recovery
In 2017, Firm Z elected to expense the $8,000 cost of a machine, which it reported as the only item of equipment placed in service that year. This year, the IRS audited Firm Z’s 2017 return and
TRW Inc. began business in 2019 and incurred net operating losses for its first two years. In 2021, it became profitable. The following table shows TRW’s taxable income before consideration of
MG is an accrual basis corporation. In 2018, it wrote off a $65,000 account receivable as uncollectible. In 2019, it received a $65,000 check from the creditor in full payment of this
Acme is an accrual basis corporation. Mrs. T, Acme’s chief financial officer, is a cash basis individual. In December 2018, Acme’s board of directors decided that Mrs. T should receive a $20,000
Company N, an accrual basis taxpayer, owes $90,000 to Creditor K. At the end of 2018, Company N accrued $7,740 interest payable on this debt. It didn’t pay this liability until March 3, 2019. Both
In 2018, AS, an accrual basis corporation, contracted with a nationally prominent artist to paint a mural in the lobby of the new corporate headquarters under construction. The artist’s commission
Parmco, a calendar year corporation, made the following accruals for 2019 financial statement purposes. In each case, determine how much of the accrued expense is deductible on Parmco’s 2019
BZD, a calendar year corporation, made the following year-end accruals for 2019 financial statement purposes. In each case, determine how much of the accrued expense is deductible on BZD’s 2019
HomeSafe, an accrual basis, calendar year corporation, sells and installs home alarm systems. The contract price of a system includes four free service calls. HomeSafe’s cost of each call is $75.
Ernlo is an accrual basis corporation with a June 30 fiscal year-end. On June 2, 2019, Ernlo entered into a binding contract to purchase a six-month supply of heating oil from a local distributor at
GreenUp, a calendar year, accrual basis taxpayer, provides landscaping installation and maintenance services to its customers. In August 2019, GreenUp contracted with a university to renovate its
Corporation H’s auditors prepared the following reconciliation between book and taxable income. H’s tax rate is 21 percent. a. Compute Corporation H’s tax expense for financial statement
Wahoo Inc., a calendar year taxpayer, leases equipment to a customer for $4,500 monthly rent. On November 27, 2019, Wahoo received a $36,000 rent payment for the eight-month period beginning on
Warren Company is a calendar year, cash basis firm. On December 6, 2019, Warren paid $7,200 cash to a landscape service business that maintains the lawns and gardens around Warren’s headquarters.
LSG Company is a calendar year, cash basis taxpayer. On November 1, 2019, LSG paid $9,450 cash to the janitorial service firm that cleans LSG’s administrative offices and retail stores. How much of
Brillo Company uses the calendar year and the cash method of accounting. On December 29, 2019, Brillo made the following cash payments. To what extent can Brillo deduct the payment in 2019? a.
Firm F is a cash basis legal firm. In 2018, it performed services for a client, mailed the client a bill for $6,150, and recorded a $6,150 receivable. In 2019, Firm F discovered that the client was
For each of the following actions, indicate in which of the six steps (1 through 6) of the tax research process the action would occur. a. Write an email to the client, requesting additional
In researching the taxability of noncash compensation, a tax researcher identifies a judicial decision that seems to address the issue at hand. However, the decision was rendered in 1978, and the
Following are the six steps of the tax research process, in random order. Please rearrange these steps into the correct order. a. Locate authority. b. Identify the issues. c. Get the
Firm HR is about to implement an aggressive long-term strategy consisting of three phases. It is crucial to the success of the strategy that the IRS accepts Firm HR’s interpretation of the tax
Using an electronic library such as Checkpoint, CCH IntelliConnect, or LexisNexis, find a case that discusses the step transaction doctrine in the opinion and prepare a written summary (brief) of the
Using an electronic library such as Checkpoint, CCH IntelliConnect, or LexisNexis, determine how many federal tax cases decided in 2018 contain the phrase step transaction.
Using the 2019 corporate tax rate: a. What are the tax liability, the marginal tax rate, and the average tax rate for a corporation with $248,300 taxable income? b. What are the tax
Visit the U.S. Treasury’s Public Debt website (www.treasury.gov/resource-center/faqs/markets/pages/nationaldebt.aspx) to find out today’s total national debt to the penny!
Visit the website for the Tax Foundation (www.taxfoundation.org). Select the link “About Us” to read the organization’s mission statement. Select the link “Tax Topics” to research the
Visit the website for the Congressional Budget Office (www.cbo.gov), follow the link to Budget and Economic Information, and look up the most current Monthly Budget Review. What is the CBO’s
Wallis Company produces circuit boards in a foreign country that imposes a 15 percent VAT. This year, Wallis manufactured 8.3 million boards at a $5 material cost per unit. Wallis’s labor and
Mr. and Mrs. Underhill operate a hardware store in a jurisdiction that levies both a sales tax on retail sales of tangible personalty and an annual personal property tax on business tangibles. The
Querrey Inc. and Ronno Inc. conduct business in a foreign country that imposes a 3 percent VAT. Querrey produces entertainment videos at a $6 material cost per unit and sells the videos to Ronno for
Ms. Pike, who lives in California, traveled to Oregon to purchase gold jewelry for $20,000. California has a 7.5 percent sales and use tax, while Oregon has no sales and use tax. a. Compute the
Correll Company, which operates a mail-order clothing business, is physically located in State L. This year, the firm shipped $18 million of merchandise to customers in State R. State R imposes a 6
Mrs. Doyle, a resident of Rhode Island, traveled to Delaware to purchase an oil painting from a local artist. The cost of the painting was $9,400. Rhode Island has a 7 percent sales and use tax,
Mr. Imhoff, age 72, has lived in Los Angeles his entire life. His net worth is estimated at $95 million. Mr. Imhoff is considering renouncing his U.S. citizenship, selling his home in Los Angeles,
Churchill University is located in a small town that depends on real property taxes for revenue. Over the past decade, the university has expanded by purchasing a number of pcommercial buildings and
This year, Lexon Company built a light industrial facility in County G. The assessed property tax value of the facility is $20 million. To convince Lexon to locate within its jurisdiction, the county
Mr. and Mrs. Ahern pay $18,000 annual tuition to a private school for their three children. They also pay $2,300 property tax on their personal residence to support the local public school system.
Mr. Powell owns a residential apartment complex in a suburban area. This year, the local jurisdiction increased the property tax rate on the apartment complex. To offset this additional cost, Mr.
In each of the following cases, determine if the United States has jurisdiction to tax Mr. Tompkin. a. Mr. Tompkin is a U.S. citizen but has been a permanent resident of Belgium since
In each of the following cases, determine if the United States has jurisdiction to tax Mrs. May. a. Mrs. May is a citizen of Brazil but is a permanent resident of Orlando, Florida. b. Mrs.
Mr. Josh Kenney, a U.S. citizen and resident of Vermont, owns 100 percent of the stock of JK Services, which is incorporated under Vermont law and conducts business in four counties in the state. JK
The management of Nixon Company must decide between locating a new branch office in foreign Jurisdiction F or foreign Jurisdiction G. Regardless of location, the branch operation will use tangible
Yarrow Company orders $500,000 of office furniture from Vendor V, which ships the furniture by rail from its manufacturing facility in State V to Yarrow’s corporate headquarters in State Q. State V
For the past 22 years, Mrs. Otis contributed part of her salary to a retirement plan sponsored by her corporate employer. Under federal law, Mrs. Otis did not pay tax on the income she contributed.
Bailey Company, which has offices in six states, owns an airplane that company executives use to travel from office to office. When the plane is not in use, it is stored in a hangar located in a
A local government levies an annual real property tax on the personal residence located at 123 Maple Drive. This tax is assessed on a calendar-year basis, and the homeowner must pay the tax before
In 2015, transportation equipment owned by Corporation ABC was stolen. The adjusted basis in the equipment was $105,000, and ABC received a $400,000 insurance reimbursement. It immediately paid
In 2014, an industrial plant owned by Company C, a calendar year taxpayer, was destroyed in a flood. C’s adjusted basis in the plant was $1.65 million, and the company received a $2 million
In 2014, an office building owned by Firm F was completely destroyed by fire. F’s adjusted basis in the building was $485,000, and its insurance reimbursement was $550,000. On its 2014 tax return,
Ms. Cross didn't request an extension of time to file her 2017 income tax return and didn't mail the completed return to the IRS until August 8, 2018. She enclosed a check for $2,380, the correct
Using an electronic tax library, locate a recent judicial decision involving taxpayer negligence and a different decision involving taxpayer fraud. Describe the actions of the taxpayers that resulted
Go to the Tax Foundation website (http://taxfoundation.org) and locate the State Business Tax Climate Index for fiscal year 2017. Answer the following questions for your state of residence:a. What is
The next time you buy groceries in a supermarket, study your receipt. Which items that you purchased were subject to your state’s sales tax, and which items were exempt from sales tax?
Conduct a search on the Internet to find a brief description of the flat tax. Write a short paragraph describing the flat tax and explaining how it differs from the federal individual income tax.
Visit the website for the Internal Revenue Service (www.irs.gov). What is the name of the commissioner of the IRS? Can you locate the IRS Taxpayer Assistance Center closest to your hometown?
Visit the website for the Federation of Tax Administrators (www.taxadmin.org) to find out if your state has either an individual or a corporate income tax. If so, what is the maximum tax rate?
Refer to the facts in part c of the preceding problem. In 2017, BLS repaid its $8,000 debt to Leo before he restored any basis in the debt. How much gain or loss, if any, will Leo recognize as a
Refer to the facts in the preceding problem. BLS generated $408,000 ordinary business income in 2016.a. How much of Leo’s share of this income is included in his 2016 taxable income?b. Compute
In 2000, Ms. Ennis, a head of household, contributed $50,000 in exchange for 500 shares of Seta stock. Seta is a qualified small business. This year, Ms. Ennis sold all 500 shares for $117,400. Her
Mr. Dunn, who is in a 35 percent marginal tax bracket, recognized a $15,000 capital loss in 2016. Compute the tax savings from this loss assuming that:a. He also recognized an $18,000 short-term
Ms. K, who is in the 35 percent marginal income tax bracket, acquired the following blocks of stock in KDS, a closely held corporation:July 12, 2003.............................................1,400
Mr. X invests in Series EE savings bonds. He projects that his sole proprietorship will generate a sizeable loss, and he wants to accelerate income from other sources to offset it. He could elect to
KP, a calendar year corporation, filed its 2012 return on March 8, 2013. On February 19, 2016, it filed an amended 2012 return reflecting $2.61 million less taxable income than the original return
Corporation N, a calendar year taxpayer, incurred a net operating loss in 2015 that it carried back as a deduction against 2013 income. Corporation N’s treasurer filed a claim for a $712,600 refund
Mr. Leon filed his 2014 Form 1040 by the April 15, 2015, filing date. In 2017, the IRS issued a notice of deficiency to Mr. Leon in which it assessed $7,700 of additional 2014 income tax. Compute the
Mr. and Mrs. Lear filed their 2014 Form 1040 on April 1, 2015. On November 11, 2016, they received a notice of deficiency in which the IRS assessed $19,044 of additional 2014 income tax. Compute the
During the audit of Mr. and Mrs. Jessel’s 2013 and 2014 tax returns, the revenue agent learned that they kept two sets of books for their sole proprietorship. A comparison of the two revealed that
Egolf Corporation failed to include $300,000 of taxable interest income on its 2016 calendar year Form 1120. The gross income reported on the return was $4.7 million, and the return was filed on
Mrs. Fugate, who is divorced, failed to include $28,000 alimony on her 2015 Form 1040. The only gross income she reported was her $78,000 salary. She filed her return on January 19, 2016.a. What is
LZ Corporation uses a fiscal year ending September 30. The controller filed LZ’s Form 1120 for the year ending September 30, 2017, on October 23, 2017.a. What is the last day on which the IRS may
Mr. and Mrs. Wickham did not apply for an extension of time to file their 2015 Form 1040. Because they were vacationing outside the United States, they neglected to file their Form 1040 until July
Mr. and Mrs. Pratt failed to apply for an extension of time to file their 2015 Form 1040 and didn’t mail the return to the IRS until May 29, 2016. Assuming the Pratts had no excuse for filing a
Zucker Inc. uses a fiscal year ending March 31. What is the filing date and the extended filing date for Zucker’s Form 1120 for its fiscal year ending March 31, 2017?
During a field examination of GNT’s income tax returns for 2013 and 2014, the revenue agent discovered that the treasurer had systematically omitted substantial income items and inflated deductions
On January 12, 2014, Mr. and Mrs. Nixon moved out of their old residence (where they had lived for 22 years) and into a new residence purchased nine days earlier on January 3. They finally sold their
Ms. Barstow purchased a limited interest in Quinnel Partnership in 2016. Her share of the partnership’s 2016 business loss was $5,000. Unfortunately, Ms. Barstow could not deduct this loss because
As of November 30, 2016, Ms. B had $12,000 capital losses and no capital gains. She owns 4,900 shares of GG stock with a $15 basis and a $45 FMV per share. Ms. B plans to hold her stock for three
In 2014, Mr. Dale paid $47,600 for 3,400 shares of GKL Mutual Fund and elected to reinvest his year-end dividends in additional shares. In 2014 and 2015, he received Form 1099s reporting the
In 2014, Mrs. Ulm paid $80,000 for a corporate bond with a $100,000 stated redemption value. Based on the bond’s yield to maturity, amortization of the $20,000 discount was $1,512 in 2014, $1,480
Mr. Ballard retired in 2016 at age 69 and made his first withdrawal of $35,000 from his traditional IRA. At year-end, the IRA balance was $441,000. In 2017, he withdrew $60,000 from the IRA. At
Mrs. Shin retired in 2015 at age 63 and made her first withdrawal of $20,000 from her traditional IRA. At year-end, the IRA balance was $89,200. In 2016, she withdrew $22,000 from the IRA. At
Mr. and Mrs. Marlo file a joint tax return. Each spouse contributed $5,000 to a traditional IRA. In each of the following cases, compute the deduction for these contributions. The AGI in each case is

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