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south western federal taxation

Questions and Answers of South Western Federal Taxation

LO.5, 12 Damon owns a 20% interest as a general partner in the Vermillion Partnership, which provides consulting services. The partnership distributes $60,000 cash to Damon in complete liquidation of
LO.6 RBP Partnership is a service-oriented partnership that has three equal general partners. One of them, Barry, sells his interest to another partner, Dale, for $90,000 cash and the assumption of
LO.6, 8 Diana, a partner in the cash basis HDA Partnership, has a one-third interest in partnership profits and losses. The partnership’s balance sheet at the end of the current year is as
LO.6, 7, 9 Briefly discuss how your responses in Problem 45 would change if the BJJM Partnership had $360,000 of unrealized receivables at the end of the current year, including the § 1245 recapture
LO.9 For each of the following independent fact patterns, indicate whether a termination of the partnership has occurred for tax purposes. Assume that no other partnership interests are sold either
LO.10 Fred and Samuel, father and son, operate a local restaurant as an LLC. The FS, LLC earned a profit of $120,000 in the current year. Samuel’s equal partnership interest was acquired by gift
LO.1 Why are certain organizations either partially or completely exempt from Federal income tax?
LO.1 Identify the statutory authority under which each of the following is exempt from Federal income tax.a. Kingsmill Country Club.b. Shady Lawn Cemetery.c. Amber Credit Union.d. Veterans of Foreign
LO.2 What are the common characteristics shared by many exempt organizations?
LO.3 Walter contributes $3,000 to an exempt organization. Addie contributes $3,000 to a different exempt organization. Why might Addie be permitted a $3,000 charitable contribution deduction in
LO.3 Can a church make an election that will enable it to engage in lobbying on a limited basis without incurring any negative tax consequences? Explain.
LO.3 Under what circumstances can an exempt organization engage in lobbying activities?What types of exempt organizations are eligible for this treatment?
LO.3 Service, Inc., an exempt organization, owns all of the stock of Blue, Inc., a retailer of boating supplies. Blue remits all of its profits to Service. According to a policy adopted by
LO.3 What types of activities are not subject to the tax imposed on feeder organizations?
LO.4, 5 What is a private foundation? What are the disadvantages of an exempt organization being classified as a private foundation?
LO.4 Describe the external support test and the internal support test for a private foundation.
LO.5 What types of taxes may be levied on a private foundation? Why are the taxes levied?
LO.5 Sunset, Inc., a § 501(c)(3) exempt organization that is classified as a private foundation, generates investment income of $600,000 for the current tax year. This amount represents 20% of
LO.5 At the end of the tax year, Matte, a private foundation, owns $500,000 of the stock of Kipper, Inc., a publicly traded corporation. This represents 40% of Kipper’s outstanding shares.a. What
LO.5 During the tax year, Amethyst, Inc., a private foundation, makes speculative investments of $725,000 that are classified as jeopardizing investments. What are the tax consequences to Amethyst?
LO.5 Shining Day, Inc., a private foundation, has taxable expenditures of $800,000.What are the tax consequences to Shining Day?
LO.6 Less, Inc., a § 501(c)(3) organization, has unrelated business taxable income of$600,000 and total earnings of $1 million. Why is only the $600,000 subject to Federal income tax? What is the
LO.6 An exempt municipal hospital operates a pharmacy that is staffed by a pharmacist 24 hours per day. The pharmacy serves only hospital patients. Is the pharmacy an unrelated trade or business?
LO.6, 8 Second Church is going to operate a gift shop and bookshop that will include only religious articles in its inventory. The shop will be staffed by employees who are not church members. These
LO.6 Sight, Inc., a tax-exempt organization that trains the visually impaired to restore and tune pianos, receives pianos as contributions. When the number of pianos on hand exceeds 15, Sight sells
LO.1, 7 Tom is the treasurer of the City Garden Club, a new garden club. A friend who is the treasurer of the garden club in a neighboring community tells Tom that it is not necessary for the garden
LO.7 Robin, Inc., a private foundation, generated $22,000 of gross receipts this year.a. Must Robin file an annual information return? If so, what form should be used?b. Assume instead that Robin is
LO.1 Match the following exempt organizations with the statutory authority under which exempt status is granted. The statutory authority may apply to more than one exempt organization.Exempt
LO.2, 3 Innovation, Inc., a § 501(c)(3) medical research organization, makes lobbying expenditures of $1.1 million. Innovation incurs exempt purpose expenditures of $15 million in carrying out its
LO.3, 6, 8 Roadrunner, Inc., is an exempt medical organization. Quail, Inc., a sporting goods retailer, is a wholly owned subsidiary of Roadrunner. Roadrunner inherited the Quail stock last year from
LO.3 Respond, Inc., a § 501(c)(3) organization, receives the following revenues and incurs the following expenses.Grant from Gates Foundation $ 60,000 Charitable contributions received 700,000
LO.5 Egret, Inc., a private foundation, has been in existence for 10 years. During this period, Egret has been unable to satisfy the requirements for classification as a private operating foundation.
LO.6 The Open Museum is an exempt organization that operates a gift shop. The museum’s annual operations budget is $3.2 million. Gift shop sales generate a profit of$900,000. Another $600,000 of
LO.6 Upward and Onward, Inc., a § 501(c)(3) organization that provides training programs for welfare recipients, reports the following income and expenses from the sale of products associated with
LO.6 Ongoing Forward, Inc., an exempt organization, reports gross unrelated business income of $22,000 and unrelated business expenses of $15,000. Calculate the amount of any UBIT.
LO.6 Fish, Inc., an exempt organization, reports unrelated business taxable income of$500,000 (excluding the deduction for charitable contributions). During the year, Fish makes charitable
LO.6 Tranquility, Inc., an exempt organization, leases factory equipment to Blouses, Inc.Blouses is a taxable entity that manufactures women’s clothing for distribution through upscale department
LO.6 Kind, Inc., an exempt organization, leases land, a building, and factory equipment to Shirts, Inc. Shirts is a taxable entity that manufactures shirts for distribution through its factory outlet
LO.6 Assistance, Inc., an exempt organization, sells the following assets during the tax year. Determine the effect of these transactions on Assistance’s unrelated business taxable income.Asset
LO.6 Medical, Inc., an exempt organization, has unrelated business taxable income of$450,000 (excluding any modifications associated with charitable contributions). Of total charitable contributions
LO.6 Crow, Inc., an exempt organization, owns a building that cost $800,000. Depreciation of $300,000 has been deducted. The building is mortgaged for $600,000. The mortgage was incurred at the
LO.6 Benevolent, Inc., an exempt organization, owns the following properties. Calculate the adjusted basis to Benevolent of its debt-financed property.Property Basis Acquisition Indebtedness% Used in
LO.7 Seagull, Inc., a § 501(c)(3) exempt organization, uses a tax year that ends on October
Seagull’s gross receipts are $600,000, and related expenses are $580,000.a. Is Seagull required to file an annual Form 990?b. If so, what is the due date?
LO.7 Education, Inc., a § 501(c)(3) organization, is a private foundation with a tax year that ends on May
LO.1 Identify three or more of the duties of the IRS’s Chief Counsel.
LO.1 Review Figure 17.1, and identify the following.a. The title of the IRS’s chief executive officer.b. The title of the “IRS’s attorney.”c. The names of the four major operating divisions
LO.2 Your client is litigating in the Tax Court concerning a tax credit that she claimed and the IRS has denied. Who bears the burden of proof regarding the litigation?
LO.1 An article in USA TODAY refers to the “audit lottery” and how one’s chances of being audited are higher under the current IRS leadership. What is the audit lottery?How should a tax
LO.2 Describe the process the IRS uses to collect the tax that is found to be due after an audit is completed. Assume that the IRS findings are not appealed but that the taxpayer does not pay the
LO.1 Where does the IRS “fit” in the operations of the Federal government? Summarize its responsibilities to the government and to the taxpayers.
LO.1 Tax professionals should show an interest in the organizational structure of the IRS and in the various processes that are necessary to work with the agency. What is the payback to the tax
LO.3 Gloria and Maria work together in an insurance office. Gloria’s Form 1040 seems to be audited two out of every three years, while Maria never has been audited. How does the IRS select tax
LO.9 Prepare a PowerPoint presentation (maximum of six slides) entitled “Planning Principles for Our Multistate Clients.” The slides will be used to lead a 20-minute discussion with colleagues in
LO.3 When can an individual taxpayer feel certain that his or her tax return will not be audited by the IRS? One year after it is filed? Two years? Five years? Explain.
LO.8 Wayne Corporation is subject to State A’s franchise tax. The tax is imposed at a rate of 1.2% of the corporation’s net worth that is apportioned to the state by use of a two-factor formula
LO.3, 4 Lori wants to establish that her niece Suzette actually qualifies for a dependency exemption. After the issue is raised by the IRS on audit, Lori could argue the matter with the agent, an IRS
LO.8 As a retailer, Granite Corporation sells software programs manufactured and packaged by other parties. Granite also purchases computer parts, assembles them as specified by a customer in a
LO.8 Using the following information from the books and records of Grande Corporation, determine Grande’s total sales that are subject to State C’s sales tax. Grande operates a retail hardware
LO.3 Describe the three broad types of IRS audits. Give an example of an issue that each type of audit might address, and indicate how frequently such audits are conducted by the IRS.
LO.7 Hernandez, which has been an S corporation since inception, is subject to tax in States Y and Z. On Schedule K of its Federal Form 1120S, Hernandez reported ordinary income of $500,000 from its
LO.4 Your client Raphael is in the midst of a dispute with the IRS, and it does not look like he will reach a settlement using the agency’s internal channels. He would consider litigating the
LO.6 Chang Corporation is part of a three-corporation unitary business. The group has a water’s edge election in effect with respect to unitary State Q. State B does not apply the unitary concept
LO.6, 9 True Corporation, a wholly owned subsidiary of Trumaine Corporation, generated a $400,000 taxable loss in its first year of operations. True’s activities and sales are restricted to State
LO.4 Describe the conditions under which your client Lee Anne might approach the IRS with an offer in compromise.
LO.5 Assume the same facts as in Problem 48, except that nonbusiness income is apportionable in B.
LO.5 Kim Corporation, a calendar year taxpayer, has manufacturing facilities in States A and B. A summary of Kim’s property holdings follows.Beginning of Year State A State B Total Inventory $
LO.5 Justine Corporation operates manufacturing facilities in State G and State H. In addition, the corporation owns nonbusiness rental property in H. Justine incurred the following compensation
LO.5 Judy, a regional sales manager, has her office in State U. Her region includes several states, as indicated in the sales report below. Judy is compensated through straight commissions on the
LO.6 Define the following terms in the context of tax law enforcement.a. Civil penalty.b. Criminal penalty.c. Ad valorem penalty.d. Assessable penalty.e. Deductible penalty.
LO.6 Which of the valuation penalties is likely to arise when an aggressive taxpayer reports:a. A charitable contribution?b. A business deduction?c. A decedent’s taxable estate?
LO.5, 9 Quinn Corporation is subject to tax in States G, H, and I. Quinn’s compensation expense includes the following.State G State H State I Total Salaries and wages for nonofficers $200,000
LO.5, 9 State E applies a throwback rule to sales, while State F does not. State G has not adopted an income tax to date. Orange Corporation, headquartered in E, reported the following sales for the
LO.6 The IRS assesses special penalties when a taxpayer misreports the value of property that was the subject of a deduction or that was subject to a gift/estate tax. How are these penalties
LO.5 Tootie Corporation operates in two states, as indicated below. All goods are manufactured in State A. Determine the sales to be assigned to both states in computing Tootie’s sales factor for
LO.5 McKay Corporation operates in two states, as indicated below. This year’s operations generated $300,000 of apportionable income.State A State B Total Sales $600,000 $400,000 $1,000,000
LO.5 Assume the same facts as in Problem 39, except that both states employ a threefactor formula, under which sales are double-weighted. The basis of the property factor in A is historical cost,
LO.6 Yonkers Corporation recomputes its research credit for the prior tax year and, as a result, claims a $100,000 refund. The IRS reviews the claim and allows only $20,000 of the requested refund.
LO.5 Dillman Corporation has nexus in States A and B. Dillman’s activities for the year are summarized below.State A State B Total Sales $1,200,000 $ 400,000 $1,600,000 Property Average cost
LO.4, 5 Assume the same facts as in Problem 37, except that under the statutes of both D and E, only business income is subject to apportionment.
LO.6 On October 30, Cameron determines that his tax for the year will total $10,000.If his employer is scheduled to withhold only $6,500 in Federal income taxes, what can Cameron do to avoid any
LO.4, 5 Jest Corporation owns and operates two facilities that manufacture paper products. One of the facilities is located in State D, and the other is located in State E. Jest generated $2.8
LO.4, 5, 7 Indicate whether each of the following statements is true or false.a. The government never pays a taxpayer interest on an overpayment of tax.b. The IRS can compromise on the amount of tax
LO.1 Flip Corporation is subject to tax only in State X. Flip generated the following income and deductions. State income taxes are not deductible for X income tax purposes.Sales $4,000,000 Cost of
LO.1 For each of the following independent cases, indicate whether the circumstances call for an addition modification (A), a subtraction modification (S), or no modification(N) in computing state
LO.4, 6 In each of the following cases, distinguish between the terms.a. Offer in compromise and closing agreement.b. Failure to file and failure to pay.c. 90-day letter and 30-day letter.d.
LO.1 Use Figure 16.1 to provide the required information for Warbler Corporation, whose Federal taxable income totals $10 million.Warbler apportions 60% of its business income to State C. Warbler
LO.1 Use Figure 16.1 to compute Balboa Corporation’s State F taxable income for the year.Addition modifications $29,000 Allocated income (total) $25,000 Allocated income (State F) $3,000 Allocated
LO.9 As the director of the multistate tax planning department of a consulting firm, you are developing a brochure to highlight the services it can provide. Part of the brochure is a list of five or
LO.9 Sherri has acquired a franchise to operate a QuickClip hair salon in her home state Y. QuickClip’s corporate offices are located in State Z, and all financial transactions of the franchisees
LO.7 Why should the taxpayer be “let off the hook” and no longer be subject to audit exposure once the applicable statute of limitations has expired? Do statutes of limitations protect the
LO.2, 9 Your client, Ecru Limited, is considering an expansion of its sales operations, but it fears adverse resulting tax consequences. Write a memo for the tax research file identifying the
LO.9 Your client, HillTop, is a retailer of women’s clothing. It has increased sales during the holiday season by advertising gift cards for in-store and online use. HillTop has found that gift
LO.8 List three or more taxes, other than the income and sales/use tax, that a state or local jurisdiction might levy.
LO.8 What is the Streamlined Sales Tax Project? What tax problems does it address?
LO.8 HernandezCo wants to avoid the creation of sales/use tax nexus with State G.The HernandezCo sales representatives believe that they will lose customers because of an increase in their
LO.7 The Quail LLC operates solely in State W. As a pass-through entity, Quail does not pay any W taxes. Evaluate this statement.
LO.7 Evaluate this statement: An S corporation can facilitate the meeting of its state income tax filing obligations by developing a common spreadsheet that allocates and apportions income among the
LO.7 Chip and Dale are the only shareholders of VisitTime, a medical transportation firm that is organized as an S corporation. VisitTime makes quarterly estimated income tax payments, related to
LO.6 Carmina operates a multinational business from Colorado, a state that applies the unitary theory and requires combined state income tax reporting. Most of her offshore customers are located in

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