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south western federal taxation

Questions and Answers of South Western Federal Taxation

LO.10 Joyce, a widow, lives in an apartment with her two minor children (ages 8 and 10)whom she supports. Joyce earns $33,000 during 2010. She uses the standard deduction.a. Calculate the amount, if
LO.10 For many years, Loretta Johnson, a single mother of three children, has been struggling to make ends meet by working at two jobs that pay barely the minimum wage and together provide just over
LO.10 Briefly discuss the requirements that must be satisfied for a taxpayer to qualify for the earned income tax credit.ETHICS AND EQUITY
LO.10 Bernadette, a longtime client of yours, is an architect and president of the local Rotary chapter. To keep up to date with the latest developments in her profession, she attends continuing
LO.10 Jim and Mary Jean are married and have two dependent children under the age of 13.Both parents are gainfully employed and during 2010 earn salaries as follows:$16,000 (Jim) and $5,200 (Mary
LO.10 Paul and Karen are married, and both are employed (Paul earned $44,000 and Karen earned $7,100 during 2010). Paul and Karen have two dependent children, both under the age of 13.In order to
LO.10 Ann and Bill were on the list of a local adoption agency for several years seeking to adopt a child. Finally, in 2009, good news comes their way and an adoption seems imminent. They pay
LO.9 Ramon had AGI of $180,000 in 2010. He contributed stock in Charlton, Inc. (a DE C I S ION MAKING publicly traded corporation), to the American Heart Association, a qualified charitable
LO.9 In December each year, Alice Young contributes 10% of her gross income to the United Way (a 50% organization). Alice, who is in the 35% marginal tax bracket, is considering the following
LO.9 Pedro contributes a painting to an art museum in October of this year. He has owned the painting for 12 years, and it is worth $130,000 at the time of the donation.Pedro’s adjusted basis for
LO.9 In 2000, Stephen, who is single, purchased a personal residence for $400,000 and COMMUNI CAT IONS took out a mortgage of $250,000 on the property. In May of the current year, when the residence
LO.9 Helen borrowed $200,000 to acquire a parcel of land to be held for investment C R I T I CAL THINKING purposes. During 2010, she paid interest of $20,000 on the loan. She had AGI of $100,000 for
LO.9 In 2010, Rachel Tweardy incurs $25,000 of interest expense related to her investments. Her investment income includes $9,000 of interest, $5,000 of qualified dividends, and an $8,000 net capital
LO.9 Daniel is a self-employed, calendar year taxpayer. He reports on the cash basis.Daniel made the following estimated state income tax payments:Date Amount January 15, 2010 $1,200 (4th payment for
LO.9 Jung suffers from heart problems and, upon the recommendation of a physician, has an elevator installed in his personal residence. In connection with the elevator, Jung incurs and pays the
LO.8, 9 A local ophthalmologist’s advertising campaign included a certificate for free LASIK eye surgery for the lucky winner of a drawing. Ahmad held the winning ticket, which was drawn in
LO.9 Ron, who lives in Phoenix, has a chronic heart problem. He flies to Rochester, Minnesota, several times each year for checkups and treatment at the Mayo Clinic, which has one of the most highly
LO.9 Rita Smith is employed as a computer consultant. For calendar year 2010, she had COMMUNI CAT IONS AGI of $200,000 and paid the following medical expenses:Medical insurance premiums $ 7,400
LO.8 Leigh sued an overzealous bill collector and received the following settlement:Damage to her automobile the collector attempted to repossess $ 1,000 Physical damage to her arm caused by the
LO.8 Alejandro was awarded an academic scholarship to State University for the 2010–2011 academic year. He received $5,000 in August and $6,000 in December 2010.Alejandro had enough personal
LO.8 Linda and Don are married and file a joint return. In 2010, they received $12,000 in Social Security benefits and $35,000 in taxable pension benefits and interest.a. Compute the couple’s
LO.8 For each of the following, determine the amount that should be included in gross income:a. Don was selected as the most valuable player in the World Series. In recognition of this, he was
LO.8 Astia and Rafel are in the process of negotiating a divorce agreement. They both DE C I S ION MAKING worked during the marriage and contributed an equal amount to the marital assets.They own a
LO.9 Each year, the Hundleys normally have itemized deductions of $9,500, including a$3,600 pledge payment to their church. Upon the advice of a friend, they do the following: in early January 2010,
LO.5 Which of the following taxpayers must file a Federal income tax return for 2010?a. Ben, age 19, is a full-time college student. He is claimed as a dependent by his parents. He earned $5,000 in
LO.1, 4, 6 Miles (age 42) is a surviving spouse and provides all of the support of his four minor children who live with him. He also maintains the household in which his parents live and furnished
LO.2, 7 Taylor, age 18, is claimed as a dependent by her parents. For 2010, she has the following income: $4,000 wages from a summer job; $1,900 interest from a money market account; and $1,000
LO.4 For the six years prior to his death in late 2010, Jesse lived with his daughter, Hannah. Because he had no source of income, Jesse was supported by equal contributions from Hannah and his two
LO.3, 4 For tax year 2010, determine the number of personal and dependency exemptions in each of the following independent situations:a. Leo and Amanda (ages 48 and 46) are husband and wife and
LO.4 Using the legend provided below, classify each statement as to the taxpayer for dependency exemption purposes.Legend QC = Could be a qualifying child QR = Could be a qualifying relative B =
LO.2 Determine the amount of the standard deduction allowed for 2010 in the following independent situations. In each case, assume the taxpayer is claimed as another person’s dependent.a. Edward,
LO.1, 2, 3, 4 Compute the taxable income for 2010 for Mattie on the basis of the following information. Mattie ismarried but has not seen or heard from her husband since 2008.Salary $ 60,000 Interest
LO.1, 2, 3, 4 Compute the taxable income for 2010 for Curtis on the basis of the following information. His filing status is single.Salary $90,000 Interest income from bonds issued by the City of San
LO.1, 2, 3, 4 Compute the taxable income for 2010 in each of the following independent situations:a. Drew and Meg, ages 40 and 41, are married and file a joint return. In addition to three dependent
LO.1 When Abigail died in 2012, she owned 2,000 shares of Finch Corporation. The stock is traded in an over-the-counter market. The nearest trades before and after the date of Abigail’s death are
LO.1 Barry creates a trust with property valued at $6 million. Under the terms of the trust instrument, Michelle (age 50) receives a life estate, while Terry (age 25) receives the remainder interest.
LO.1 Arlene creates a trust with assets worth $1 million. Under the terms of the trust, Tracy (age 16) receives the income for seven years, remainder to Dawn (age 35). In the month the trust is
LO.2, 5 A program of lifetime giving can help an estate qualify for the special use election of § 2032A.a. Explain how this objective can be achieved.b. What could go wrong?
LO.8 What is the bypass amount? How can it be utilized effectively through the use of disclaimers in the case of:a. A surviving spouse?b. Nonspousal heirs?
LO.8 In terms of Federal tax consequences, why are lifetime transfers to charity preferable to testamentary transfers?
LO.7 Two years ago, after his wife Esther died, Frank took early retirement. He moved from New York to New Mexico to be near his only daughter, Pamela, and her family.Although he still owns his
LO.1 In 2012, Dale (age 72) creates a trust with assets worth $6 million. Under the terms of the trust, Dale retains a life estate with the remainder passing to Nicole (age 33) upon his death. In the
LO.1 Assume the same facts as in Problem 35.Dale dies four year later when the trust is worth $6.7 million. Nicole is 37, and the applicable interest rate is 4.8%.a. How much as to the trust is
LO.2 In each of the following independent situations occurring in 2012, determine the valuation to be used for estate tax purposes if § 2032A is elected.Decedent Most Suitable Use Value Special Use
LO.7 At the time of her death in 2012, Monica held the following assets.Fair Market Value Personal residence (title listed as “Monica and Peter, tenants by the entirety with right of
LO.3 At her death, Inez owned 60% of the stock in Taupe Corporation, with the balance held by family members. In the past five years, Taupe has earned average net profits of $1.5 million, and on the
LO.6 Last year, Henry sold real estate (basis of $450,000) to Bill (an unrelated party)for $1.8 million, receiving $300,000 in cash and notes for the balance. The notes carry an 8.5% rate of interest
LO.5 Bill and Ellen are husband and wife with five married children and eight grandchildren.Commencing in December 2011, they would like to transfer a tract of land(worth $936,000) equally to their
LO.4 In June 2011, Reba gives Julius a house (basis of $150,000; fair market value of$450,000) to be used as his personal residence. Before his death in May 2012, Julius installs a tennis court in
LO.4, 5, 6 Ted and Marge Dean are married and have always lived in a community property state. Ted (age 92) suffers from numerous disorders and is frequently ill, while Marge (age 70) is in good
LO.4 Clinton gives stock (basis of $600,000 and fair market value of $500,000) to Morgan in 2012. As a result of the transfer, Clinton paid a gift tax of $40,000. Compute Morgan’s gain or loss if
LO.4 Jacob gives stock (basis of $900,000 and fair market value of $2.2 million) to Mandy. As a result of the transfer in 2012, Jacob paid a gift tax of $90,000. Determine Mandy’s gain or loss if
LO.4 Olivia gives real estate (basis of $800,000 and fair market value of $3 million) to Ray. Determine Ray’s income tax basis if the gift occurred in 2012 and Olivia paid a gift tax of $100,000.
LO.3 Assume the same facts as in Problem 39.Eight years after the gift, Kyle dies. At that time, the Blanco stock is worth $4 million for the common and $1.1 million for the preferred. What are
LO.3 Kyle owns all of the stock of Blanco Corporation. The stock has a value of $3 million for the common and $800,000 for the preferred. The preferred is noncumulative, has no redemption value, and
Lynn Jones, Shawn, Walt, and Donna are trying to decide whether they should organize a corporation and transfer their shares of stock in several corporations to this new corporation. All of their
LO.2 Each of the following items was incurred by José, the cash basis, calendar year decedent. Under the terms of the will, Dora took immediate ownership in all of José’s assets, except the
LO.3 The Dailey Estate has $100,000 of DNI, composed of $40,000 in dividends,$20,000 in taxable interest, $15,000 of passive activity income, and $25,000 in tax-exempt interest. The entity’s two
LO.3 The Lane Sisters Trust is required to distribute $60,000 annually equally to its two income beneficiaries, Clare and Renee. If trust income is not sufficient to pay these amounts, the trustee
LO.3 Under the terms of the Lagos Trust instrument, the trustee has discretion to distribute or accumulate income on behalf of Willie, Sylvia, and Doris in equal shares. The trustee also can invade
LO.2, 3 Assume the same facts as in Problem 30, except that the trust instrument allocates the capital gain to income.a. How much income is each beneficiary entitled to receive?b. What is the
LO.2, 3 The Ricardo Trust is a simple trust that correctly uses the calendar year for tax purposes. Its income beneficiaries (Lucy and Ethel) are entitled to the trust’s annual accounting income in
LO.2 Sanchez incurred the following items.Business income $80,000 Tax-exempt interest income 40,000 Payment to charity from 2012 income, paid 3/1/2013 20,000 Complete the following chart, indicating
LO.2 Roberto is one of the income beneficiaries of the Carol LeMans Estate. This year, as directed by the will, Roberto received all of the sales commissions that were earned and payable to Carol
LO.2, 3 Your client, Annie O’Toole (22 Beneficiary Lane, Bowling Green, KY 42101), has come to you for some advice regarding gifts of property. She has just learned that she must undergo major
Is the two-year statute of limitations for the innocent spouse provision contained in Reg.Sec. 1.6015–5(b)(1) valid? Why or why not?
In 2013, dividends become taxable as ordinary income, and the accumulated earnings and personal holding company rates move to 39.6%. What impact will these changes have on closely held corporations?
Prepare a report for a client as to the current administration’s position on the retention of § 199.
Two members of an expanded affiliated group (EAG), which do not file a consolidated Federal tax return, have positive QPAI. Dane, Inc., has taxable income, but Sloane, Inc., has a $230,000 net
An engineering and heavy construction contractor, P, repairs and renovates streets, bridges, airport runways, and other real property that have fallen into disrepair or have been damaged by
Some states assess a corporate income tax or franchise tax on entities formed as S corporations, LLCs, and/or partnerships. To compare the overall tax burdens associated with the various entity
A new client, Southwest Grocers, is a calendar year C corporation that owns and operates a chain of grocery stores. Southwest Grocers is interested in donating food inventory to one or more
Using the Internet, obtain definitions of these terms:a. Rule 155.b. En banc.c. Pro se.d. Dicta.e. Parallel cite.f. Sunset provisions.g. Work product.
Go to each of the following Internet locations:a. Several primary sources of the tax law, including the U.S. Supreme Court, a Court of Appeals, the Internal Revenue Service, the U.S. Tax Court, and
Are Technical Expedited Advice Memoranda (TEAMs) still being issued?
Find the SOI Bulletin, Summer 2010.a. For tax year 2008, how many individuals reported nonfarm sole proprietorship activity?b. Which sector had the largest profit?c. What percentage of all U.S.
LO.1, 2, 3 Complete the following chart, indicating the comparative attributes of the typical trust and estate by answering yes/no or explaining the differences between the entities where
LO.2 Complete the chart below, indicating the Calvet Trust’s entity accounting income for each of the alternatives. For this purpose, use the following information.Interest income, taxable $300,000
LO.1 Some fiduciary entities are known as simple trusts, while others are complex trusts.How does the tax professional know whether a trust is simple or complex? When is this determination made?
LO.1 Define the following terms.a. Income interest.b. Remainder interest.c. Reversionary interest.d. Life tenant.e. Term certain.
LO.1 Trusts and estates are known as fiduciary entities, in that a legal structure is formed to accomplish the financial and other goals of one or more individuals. List the parties who must be
LO.9 At the time of his death in 2012, Clint had an adjusted gross estate of $6.2 million.Included in the estate is a 15% capital interest in a partnership valued at $2.6 million.Except for Clint’s
LO.8 In each of the following independent situations, what bypass (exclusion) amount is available to Ava’s estate when she dies in 2012? Assume that any appropriate procedures are followed, and
LO.8 In terms of tax ramifications, comment on what is accomplished in the following disclaimer situations occurring in 2011.a. Lester dies intestate and is survived by a daughter, Nora, and a
LO.2 Using Figure 20.2 as a guide, describe the computation of a fiduciary entity’s accounting income, taxable income, and distributable net income.
LO.1 The Purple Trust incurred the following items this year.Taxable interest income $75,000 Tax-exempt interest income, not on private activity bonds 60,000 Tax-exempt interest income, on private
LO.1 Compute the Federal income tax liability for the Valerio Trust. The entity reports the following transactions for the 2012 tax year. The trustee accumulates all accounting income for the
LO.1 Complete the following chart, indicating the comparative attributes of the typical simple trust and complex trust by answering yes/no or explaining the differences between the entities where
LO.5 For tax planning purposes, should an estate adopt a calendar or a fiscal tax year?Why?
LO.2 In 2012, the Helpful Trust agreed to make a $90,000 contribution to Local Soup Kitchen, a charitable organization. Helpful’s board agreed to the gift at a November 2012 meeting, but the check
LO.1, 4 The Strauss Trust must file a Form 1041 for the first time, because it has recognized about $18,000 of gross income. Corpus assets are transferred to the trust on August 30.Considering only
LO.5 Making gifts can save on estate taxes. Comment on the relevance of this statement to each of the following.a. The amount of the annual exclusion utilized.b. Subsequent appreciation of the
LO.3 What effect, if any, will each of the following factors have on the valuation of stock in a closely held corporation?a. A minority interest is involved.b. A majority interest is involved.c. The
LO.3 In determining the value of goodwill attributable to stock in a closely held corporation, comment on the following factors.a. The corporation’s average profit figure includes large gains from
LO.2 In connection with § 2032A, comment on the following.a. The reason for the provision.b. Who makes the election.c. Current utility of the election.d. Planning to meet the requirements for making
LO.1 Sophie creates an irrevocable trust, income interest to her granddaughter, Brandi, for six years. After six years, the remainder interest in the trust is to go to Hailey, Sophie’s divorced
LO.1 Comment on the valuation for transfer tax purposes of:a. An annuity contract.b. A life insurance policy.
LO.1 Six years ago, Alvin loaned his prospective brother-in-law, Bruno, $20,000. The money was used to help Bruno pay for the wedding to Alvin’s sister. Shortly after the wedding, it was discovered
LO.3 Buy-sell agreements for a closely held business are sometimes funded with life insurance policies. Explain how such an arrangement would be set up for:a. A cross-purchase type.b. An entity type.
LO.4 Jonathan Rand is distressed about the basis of some land he inherited five years ago and recently sold for a large gain. He thinks that the value placed on the property is too low. Consequently,

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