Questions and Answers of South-Western Federal

On February 20, 2013, Tom (an executive of Hawk Corporation; a calendar year corporation) purchased 100 shares of Hawk stock (selling at $20 a share) for $10. A condition of the transaction was that
Gene, age 34, and Beth, age 32, have been married for nine years. Gene, who is a college student, works part-time and earns $1,500. Beth is a high school teacher and earns a salary of $34,000. Their
Bonnie, who is single and itemizes deductions, reports a zero taxable income for 2018. She incurs positive timing adjustments of $200,000 and AMT exclusion items of $100,000 for the year. What is
Matt, who is single, always has elected to itemize deductions rather than take the standard deduction . In prior years, his itemized deductions always exceeded the standard deduction by a substantial
For the same states that you used in Research Problem 2, list the number of Federal estate tax returns filed and the estate tax liabilities collected, for the latest year with figures available. Use
Provide the following information about charitable bequests from estates that filed a Form 990 in the latest year with complete data. Provide this data for the United States in the aggregate, for
Send a chart to your instructor concerning three of the last five years for which data are available. Use the latest IRS Data Book to determine the IRS audit rate for estate and trust income tax
Kold Services Corporation estimates that its 2023 taxable income will be $500,000. Given the 21% Federal corporate income tax rate, it will incur a $105,000 liability. For each of the following
Wan’s AGI last year was $200,000. Her Federal income tax came to $65,000, paid through both withholding and estimated payments. This year, her AGI will be $300,000, with a projected tax liability
Olivia, a calendar year taxpayer, does not file her 2021 Form 1040 until December 12, 2022. At this point, she pays the $40,000 balance due on her 2021 tax liability of $70,000. Olivia did not apply
Several taxpayer and preparer penalties depend on whether a tax return has been filed by its due date. Send to your instructor a discussion of no more than two pages about how the Code and
Construct a chart for a specific tax year, showing the audit rate for high-income tax returns, broken down by income ranges such as $200,000 to $400,000 of total positive income, $400,000 to
Fraudulent claims relative to the earned income tax credit appear to be significant in frequency, so the IRS audits at a higher rate the Forms 1040 that include the credit. This leaves the agency
Maureen, a calendar year individual taxpayer, files her 2020 return on November 4, 2022. She did not obtain an extension for filing her return, and the return reflects additional income tax due of
Baez, a cash basis, calendar year taxpayer, filed his Federal income tax return 48 days after the due date. Baez never extended his return, and he paid the taxes that were due when he filed the
Security breaches occur with regularity in today’s world, and the IRS offers tips with which a tax professional can safeguard a client’s data. Find the documents (a) IRS Data Security
On June 15, 2020, Sheridan filed his 2019 income tax return, paying a tax of $10,500. On October 5, 2021, he filed an amended 2019 return showing an additional $6,400 of tax, which he paid with the
At the time of Mateo’s death, he was involved in the transactions described below.• Mateo was a participant in his employer’s contributory qualified pension plan. The plan balance of $2,000,000
Using property she inherited, Lei makes a 2021 gift of $16,200,000 to her adult daughter, Doris. Neither Lei nor her spouse, Greg, have made any prior taxable gifts. Assuming that a flat 40% tax rate
When Rama died in the current year, he owned shares of Orange Corporation, which are traded in the over-the-counter market. Market trades before and after Rama’s date of death occurred as
Linn filed her 2020 Form 1040 on April 4, 2021. What is the date on which the applicable statute of limitations expires in each of the following independent situations?a. Linn incurred a bad debt
The following deaths occurred in 2021.a. Determine the gross estate value for each decedent if the special use valuation is elected.b. Develop a Microsoft Excel formula that will generate the correct
On April 3, 2019, Luis filed his 2018 income tax return, which showed a tax due of $75,000. On June 1, 2021, he filed an amended return for 2018 that showed an additional tax of $10,000. Luis paid
Perkins is a single individual. In 2020, she made a $13,000,000 taxable gift to her brother. Perkins never has been married and has made no prior taxable gifts. Compute Perkins’s Federal gift tax
Elizabeth made taxable gifts of $3,000,000 in 2019 and $14,000,000 in 2021. She paid no gift tax on the 2019 transfer. On what amount is the Federal gift tax computed for the 2021 gift?
In 2014 and with $200,000, Alice purchases a CD at State Bank listing title as follows: “Alice, payable on proof of death to Clark.” Alice dies in 2021, and Clark (Alice’s nephew) redeems the
At the time of her death, Basu owned 60% of the stock of Crane Corporation. Over the past five years, Crane reported an average net profit of $150,000, andthe book value of its stock is $500,000.
In each of the independent situations below, determine the Federal estate and gift tax consequences of what has occurred. a. Mary purchases an insurance policy on Gene’s life and designates
Tavon dies and is survived by his spouse, Marge. Under Tavon’s will, all of his otherwise uncommitted assets pass to Marge. For each of the property interests listed below, determine the marital
Compute the 2020 fiduciary income and Federal income tax for the Blue Trust. Prepare a spreadsheet solution to make your computations. Then complete a Form 1041 for the entity.In addition, determine
Construct a table and send it to your instructor with information about donor-advised funds (DAFs). For any two of the past five years, report the amount of assets held by DAFs, total dollar
Compute the Federal income tax liability for the Valerio Trust. The entity reports the following transactions for the 2021 tax year. The trustee accumulates all accounting income for the year.
The Fuentes family has developed a profitable business in which all adult members participate. They would like to make sure that the business stays in the family in the event of any future negative
At the time of her death, June reported an adjusted gross estate of $16,000,000. Included in the estate were the following business interests.JX has 32 partners, while Silver lists 30 shareholders.
Martín has told the beneficiaries of his Roth and traditional IRAs that they will receive the distributions from these plans free of any tax. Martín bases his advice on the “step-up” in basis
At her death, Chow owned 55% of the stock in Finch Corporation, with the balance held by family members. In the past five years, Finch has earned average net profits of $1,600,000, and on the date of
At the time of his death in 2021, Donald owned a farm (a qualified, closely held business) with a most suitable use value of $5,000,000 and a current use value of $3,500,000.a. If the special-use
Compute the 2020 fiduciary income tax return (Form 1041) and Federal income tax for the Green Trust. Prepare a spreadsheet solution to make your computations. Then complete a Form 1041 for the entity
During 2021, Vasu wants to take advantage of the annual exclusion and make gifts to his 6 married children (plus their spouses) and his 12 minor grandchildren.a. How much property can Vasu give away
In July, Lily gives José a house (basis of $200,000; fair market value of $650,000) to be used as his personal residence. Before his death 11 months later, José installs a tennis court in the
Bill and Ellen are husband and wife with five married children and eight grandchildren. Commencing in December 2021, they would like to transfer a tract of land (worth $1,200,000) equally to their
The Bildge Trust is a simple trust. Crawford is its sole beneficiary. In the current year, the trust earns $3,200 in taxable interest and $8,000 in tax-exempt interest. In addition, the trust
At the time of her death in 2021, Wanda has an adjusted gross estate of $6,500,000. Her estate includes the family farm, with a most suitable use value of $3,300,000 and a current use value of
In terms of the Federal income and transfer taxes, comment on what is accomplished in the following disclaimer situations occurring in 2021.a. Lester dies without a will and is survived by a
In each of the following independent situations, what bypass (exclusion) amount is available to Ava’s estate when she dies in November 2021? Assume that any appropriate procedures are followed and
The Wes Trust reports $100,000 of AMT income before the annual exemption. The entity’s AMT for 2021 is:a. $19,318.b. $20,251.c. $26,000.d. $28,000.
For 2021, the Guess Trust retains all of its income items, which include only $100,000 of net investment income and $140,000 of profits from an active business operation. Guess incurs an additional
In each of the following independent cases, write a memo for the tax research file in preparation for a meeting with Marques. In each memo, explain whether the proposed plan meets his objective of
Woody wants to transfer some of the income from his investment portfolio to his daughter Wendy, age 12. Woody wants the trust to be able to accumulate income on Wendy’s behalf and to meet any
Jung Corporation operates in States A and B as indicated below. All goods are manufactured in State A. Determine the sales to be assigned to both states in computing Jung’s sales factor for the
Blanche Creek (111 Elm Avenue, Plymouth, IN 46563) has engaged your firm because she has been charged with failure to file her 2019 Federal Form 1040. Blanche maintains that the “reasonable
Alvarez Corporation operates in two states, as indicated below. This year’s operations generated $400,000 of apportionable incomeCompute Alvarez’s State A taxable income assuming that State A
The following information for 2021 relates to Sparrow Corporation, a calendar year, accrual method taxpayer:Based on the above information, use Schedule M–1 of Form 1120, which is available on the
Dove Corporation, a calendar year C corporation, had the following information for 2021:Based on the above information, use Schedule M–2 of Form 1120 to determine Dove’s unappropriated retained
Assume the same facts as in Problem 33, except that Kyra’s business pays $60,000 of W–2 wages and generates $200,000 of qualified business income. Kyra also has a part-time job earning wages of
Reiki, Inc., operates stores in Massachusetts and Vermont. Reiki’s payroll, property, and sales by state are as follows.What is Reiki’s apportionment factor for Massachusetts (round to two
Gull Corporation, a cash method, calendar year C corporation, was formed and began business on November 1, 2021. Gull incurred the following expenses during its first year of operations (November 1,
Assume the same facts as in Problem 33, except that Kyra’s business generates $150,000 of qualified business income. What is Kyra’s QBI deduction?Data from Exercises 33Kyra, a single taxpayer,
Which of the following activities will not trigger nexus in a state in which a company operates?a. Providing installation services with the purchase of tangible personal property.b. Acceptance of an
Gbeho Company (GC), a calendar year entity, has one owner, who is in the 37% Federal income tax bracket (any net capital gains or dividends would be taxed at a 20% rate). GC’s gross income is
Kyra, a single taxpayer, owns and operates a bakery (as a sole proprietorship). The business is not a “specified services” business. In 2021, the business pays $100,000 in W–2 wages, has
In 2021, Wilson Enterprises, a calendar year taxpayer, suffers a casualty loss of $90,000. The casualty was attributable to a Federally declared disaster. How much of the casualty loss will be
Juan, an attorney, is the sole shareholder of Carmine Corporation, a C corporation and professional association. The corporation paid Juan a salary of $336,000 during its fiscal year ending September
Broadbill Corporation, a calendar year C corporation, has two unrelated cash method shareholders: Marcia owns 51% of the stock, and Zack owns the remaining 49%. Each shareholder is employed by the
Ben and Molly are married and will file jointly. Ben generates $300,000 of qualified business income from her single member LLC (a law firm). She reports her business as a sole proprietorship. Wages
Purple Company has $200,000 in net income for 2021 before deducting any compensation or other payment to its sole owner, Kirsten. Kirsten is single and she claims the $12,550 standard deduction for
A provision of the Code allows a taxpayer a deduction for Federal income tax purposes for some state and local income taxes paid (with an overall limit of $10,000). Does this provision eliminate the
Interpret each of the following citations:a. 54 T.C. 1514 (1970).b. 491 F.3d 53 (CA–1, 2007).c. 69–1 USTC ¶ 9319 (CA–2, 1969).d. 23 AFTR 2d 69–1090 (CA–2, 1969).e. 775 F.Supp.2d 765 (D.Ct.
Jane and Ben are married and usually file a joint return. They live in a separate property state (rather than a community property state). Jane is a partner in a law firm and typically generates
Thad, a single taxpayer, has taxable income before the QBI deduction of $194,900. Thad, a CPA, operates an accounting practice as a single member LLC (which he reports as a sole proprietorship).
During 2021, Gorilla Corporation, a calendar year C corporation, has net short-term capital gains of $15,000, net long-term capital losses of $105,000, and taxable income from other sources of
Tammy, a single taxpayer, has a part-time job at BigCo, a company in which she has no ownership interest. In addition, she owns and operates LittleCo, a sole proprietorship that is a qualified trade
Elliot operates his clothing store as a single member LLC (which he reports as a sole proprietorship). In 2021, his proprietorship generates qualified business income of $280,000, he pays W–2 wages
Emerald Corporation, a calendar year and accrual method taxpayer, provides the following information and asks you to prepare Schedule M–1 for 2021: Net income per books (after-tax) Federal income
Jennifer is a CPA and a single taxpayer using the standard deduction. In 2021, her CPA practice generates qualified business income of $162,550 and she has no other items of income, deduction, or
Assume the same facts as in Problem 37, 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
In each of the following independent situations, determine the corporation’s income tax liability. Assume that all corporations use a calendar year for tax purposes and that the tax year involved
Which of the following C corporations will be allowed to use the cash method of accounting for 2021? Explain your answers.a. Jade Corporation, which had gross receipts of $26,300,000 in 2018,
Lupe, a cash basis taxpayer, owns 55% of the stock of Jasper Corporation, a calendar year accrual basis C corporation. On December 31, 2021, Jasper accrues a performance bonus of $100,000 to Lupe
Hirsch, Incorporated, is a calendar year corporation that has had revenues of less than $500,000 since inception. In 2021, Hirsch had a net operating loss that was able to be used in full in 2022.
On December 28, 2021, the directors of Partridge Corporation, an accrual basis calendar year taxpayer, authorized a cash contribution of $10,000 to the American Cancer Association. The payment is
The board of directors of Orange Corporation, a calendar year taxpayer, is holding its year-end meeting on December 28, 2021. One topic on the board’s agenda is the approval of a $25,000 gift to a
Egret Corporation, a calendar year C corporation, was formed on March 6, 2021, and opened for business on July 1, 2021. After its formation but prior to opening for business, Egret incurred the
When are C corporations required to make estimated tax payments? How are these payments calculated?
Heron Company purchases commercial realty on November 13, 2003, for $650,000. Straight-line depreciation of $287,492 is claimed before the property is sold on February 22, 2021, for $850,000. What
Goose Corporation, a C corporation, incurs a net capital loss of $12,000 for 2021. It also has ordinary income of $10,000 in 2021. Goose had net capital gains of $2,500 in 2017 and $5,000 in 2020.a.
Aqua Corporation purchases nonresidential real property on May 8, 2018, for $1,000,000. Straight-line cost recovery is taken in the amount of $89,765 before the property is sold on November 27, 2021,
Grouse Corporation, a calendar year C corporation, had taxable income of $1,400,000, $1,200,000, and $700,000 for 2019, 2020, and 2021, respectively. Grouse has taxable income of $1,600,000 for 2022.
In 2021, Gray Corporation, a calendar year C corporation, has a $75,000 charitable contribution carryover from a gift made in 2016. Gray is contemplating a gift of land to a qualified charity in
Julieta Simms is the president and sole shareholder of Simms Corporation (a cash method, calendar year C corporation), 1121 Madison Street, Seattle, WA 98121. Julieta plans for the corporation to
In January 2021, Pelican, Inc., established an allowance for uncollectible accounts (bad debt reserve) of $70,000 on its books and increased the allowance by $120,000 during the year. As a result of
In January 2021, Don and Steve each invested $100,000 cash to form a corporation to conduct business as a retail golf equipment store. On January 6, they paid Bill, an attorney, to draft the
Under what circumstances will a realized gain and/or loss be recognized on a § 351 transfer?
Which of the following is not a requirement about the exclusion of gain for small business stock?a. The corporation must be a C corporation.b. The stock must be issued after August 10, 1993.c. As of
Kenny Merinoff and his daughter, Mia, own all outstanding stock of Flamingo Corporation. Both Mia and Kenny are officers in the corporation and, together with Kenny’s uncle, Ira, comprise the
In determining Blue Corporation’s current E & P for 2021, how should taxable income be adjusted as a result of the following transactions?a. A capital loss carryover from 2020, fully used in
Qualified Opportunity Zones (§ 1400Z–1 and –2) were created by the Tax Cuts and Jobs Act of 2017. These zones are designed to spur economic development and job creation in distressed communities
Yellow Corporation, a calendar year taxpayer, made estimated tax payments of $40,000 for 2021 ($10,000 per quarter). Yellow filed its Federal income tax return for 2021 reflecting a tax liability of
YiLing, the sole shareholder of Brown Corporation, sold her Brown stock to Calvin on July 30 for $270,000. YiLing’s basis in the stock was $200,000 at the beginning of the year. Brown had
Your firm has a new individual client, Carla Navarro, who has been assigned to you for preparation of the current year’s tax return. Upon review of Carla’s tax returns from prior years, you

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