Questions and Answers of South-Western Federal

Enders, Inc., a domestic corporation, reports $290,000 total taxable income for the year, consisting of $208,800 in U.S.-source business profits and $81,200 of income from foreign investment
Cordero, Inc., is a calendar year taxpayer and a CFC for the entire tax year. Yancy Company, a U.S. corporation, owns 75% of Cordero's one class of stock for the entire year. Cordero's Subpart F
After a corporation's status as an S corporation is revoked or terminated, how many years is the corporation required to wait before making a new S election, in the absence of IRS consent to an
The Manhew Corporation, an S corporation, is equally owned by three shareholders Emily, Alejandra, and Kristina. The corporation is on the calendar year basis for tax and financial purposes. On April
Zinco Corp. was a calendar year S corporation. Zinco's S status terminated on April 1, year 6, when Case Corp. became a shareholder. During year 6 (365-day calendar year), Zinco had nonseparately
The Haas Corp., a calendar year S corporation, has two equal shareholders. For the year ended December 31, year 6, Haas had net income of $60,000, which included $50,000 from operations and $10,000
Rosa's employer has instituted a flexible benefits program. Rosa will use the plan to pay for her daughter's dental expenses and other medical expenses that are not covered by health insurance. Rosa
Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe, NM 87501. Lance works for the convention bureau of the local Chamber of Commerce, while Wanda is employed part-time as a
Terri, age 16, is a dependent of her parents in 2018. During the year, Terri earned $5,000 in interest income and $3,000 from part-time jobs.a. What is Terri's taxable income?b. What is Terri's net
Paige, age 17, is a dependent of her parents in 2018. During 2018, Paige earned $3,900 pet sitting and $4,100 in interest on a savings account. What are Paige's taxable income and tax liability for
Jayden calculates his 2018 income tax by using both the Tax Tables and the Tax Rate Schedules. Because the Tax Rate Schedules yield a slightly lower tax liability, he plans to pay this amount.a. Why
Roy and Brandi are engaged and plan to get married. During 2018, Roy is a full-time student and earns $9,000 from a part-time job. With this income, student loans, savings, and nontaxable
Which of the following individuals are required to file a tax return for 2018? Should any of these individuals file a return even if filing is not required? Why or why not?a. Patricia, age 19, is a
Bob and Carol have been in and out of marital counseling for the past few years. Early in 2018, they decide to separate. However, because they are barely able to get by on their current incomes, they
Morgan (age 45) is single and provides more than 50% of the support of Rosalyn (a family friend), Flo (a niece, age 18), and Jerold (a nephew, age 18). Both Rosalyn and Flo live with Morgan, but
Charlotte (age 40) is a surviving spouse and provides all of the support of her four minor children who live with her. She also maintains the household in which her parents live and furnished 60% of
Taylor, age 18, is a dependent of her parents. For 2018, she has the following income: $4,000 of wages from a summer job, $1,800 of interest from a money market account, and $2,000 of interest from
Wesley and Camilla (ages 90 and 88, respectively) live in an assisted care facility and for 2017 and 2018 received their support from the following sources:
For tax year 2018, determine who is considered a dependent of another taxpayer in each of the following independent situations:a. Leo and Amanda (ages 48 and 46, respectively) are husband and wife
Determine the amount of the standard deduction allowed for 2018 in the following independent situations. In each case, assume that the taxpayer is the dependent of another taxpayer.a. Curtis, age 18,
In 2018, David is age 78, is a widower, and is a dependent of his son. How does this situation affect the following?a. David's own individual filing requirement.b. The standard deduction allowed to
Compute the taxable income for 2018 for Aiden on the basis of the following information. Aiden is married but has not seen or heard from his wife since 2016.Salary
Compute the taxable income for 2018 for Emily on the basis of the following information. Her filing status is single.Salary
Compute the taxable income for 2018 in each of the following independent situations:a. Drew and Meg, ages 40 and 41, respectively, are married and file a joint return. In addition to four dependent
In late 2018, the Polks come to you for tax adv ice. They are considering selling some stock investments for a loss and making a contribution to a traditional IRA. In reviewing their situation, you
In 2018, Simon, age 12, has interest income of $4,800 and no earned income. He has no investment expenses. Determine Simon's net unearned income and total tax liability.
Compute the 2018 tax liability and the Marginal and average tax rates for die following taxpayers (use me 2018 tax rate schedules in Appendix A for this purpose).a. Chandler, who files as a single
Cerulean Corporation has two equal shareholders, Marco and Avery. Marco acquired his Cerulean stock three years ago by transferring property worth $700,000, basis of $300,000, for 70 shares of the
At the beginning of the year, Teal Corporation held accumulated E & P of $210,000. On March 30, Teal sold an asset at a loss of $200,000. For the calendar year, Teal incurred a deficit in current
Penguin Corporation (a cash basis, calendar year taxpayer) recorded the following income and expenses in the current year.Income from services
In determining Blue Corporation's current E & P for the current tax year, how should taxable income be adjusted as a result of the following transactions?a. A capital loss carryover from one year
Compute current E & P for Sparrow Corporation (a calendar year, accrual basis taxpayer). Sparrow reported the following transactions during 2018, its second year of operation.Taxable income
At the beginning of the year, Myrna Corporation (a calendar year taxpayer) holds E & P of $32,000. The corporation generates no additional E & P during the year. On December 31, the
Tim is a real estate broker who specializes in commercial real estate. Although he usually buys and sells on behalf of others, he also maintains a portfolio of property of his own. He holds this
On your review of the books and records of Ridge Corporation, you note the following information pertaining to its tax provision:Net income per books .......................................
Charles is planning to invest $10,000 in a venture whose management is undecided as to whether it should be structured as a regular corporation or as a partnership. Charles will hold a 10% interest
On November 1, 2008, Janet Morton and Kim Wong formed Pet Kingdom, Inc., to sell pets and pet supplies. Pertinent information regarding Pet Kingdom is summarized as follows.Pet Kingdom's business
Dove Corporation, a calendar year C corporation, had the following information for 2018:Net income per books (after-tax) ......................................................
Emerald Corporation, a calendar year and accrual method taxpayer, provides the following information and asks you to prepare Schedule M-1 for 2018:Net income per books (after-tax)
Gull Corporation, a cash method, calendar year C corporation, was formed and began business on November 1, 2018. Gull incurred the following expenses during its first year of operations (November 1,
Red Corporation wants to set up a manufacturing facility in a midwestern state. After considerable negotiations with a small town in Ohio, Red accepts the following offer: land (fair market value of
Tom and Gail form Owl Corporation with the following consideration:The installment note has a face amount of $350,000 and was acquired last year from the sale of land held for investment purposes
Seth, Pete, Cara, and Jen form Kingfisher Corporation with the following consideration:Assume that the value of each share of Kingfisher stock is $3,000. As to these transactions, provide the
Sarah incorporates her small business but does not transfer the machinery and equipment used by the business to the corporation. Instead, the machinery and equipment are leased to the corporation for
In the current year, Azure Company has $350,000 of net operating income before deducting any compensation or other payments to its sole owner, Sasha. In addition, Azure has interest on municipal
David R. and Ella M. Cole (ages 39 and 38, respectively) are husband and wife who live at 1820 Elk Avenue, Denver, CO 80202. David is a self-employed consultant, specializing in retail management and
Beth R. Jordan lives at 2322 Skyview Road, Mesa, AZ 85201. She is a tax accountant with Mesa Manufacturing Company, 1203 Western Avenue, Mesa, AZ 85201 (employer identification number 11-1111111).
In 2018, Susan's sole proprietorship earns $300,000 of self-employment net income (after the deduction for one-half of self-employment tax). Calculate the maximum amount Susan can deduct for
Janet, age 29, is unmarried and is an active participant in a qualified retirement plan. Her modified AG! is $65,000 in 2018.a. Calculate the amount Janet can contribute to a traditional IRA and the
Joyce, a widow, lives in an apartment with her two minor children (ages 8 and 10), whom she supports. Joyce earns $33,000 during 2018. She uses the standard deduction.a. Calculate the amount, if any,
Jenna, a longtime client of yours, is an architect and the president of the local Rotary chapter. To keep up to date with the latest developments in her profession, she attends continuing education
Jim and Mary Jean are married and have two dependent children under the age of 13. Both parents are employed outside the home and, during 2018, earn salaries as follows: $16,000 (Jim) and $5,200
Paul and Karen Kent are married, and both are employed (Paul earns $44,000 and Karen earns $9,000 during 2018). Paul and Karen have two dependent children, both under the age of 13 (Samuel and Joy).
Ann and Bill were on the list of a local adoption agency for several years, seeking to adopt a child. Finally, in 2017, good news comes their way, and an adoption seems imminent. They paid qualified
Linda, age 37, who files as a single taxpayer, had AGI of $280,000 for 2018. She incurred the following expenses and losses during the year:Medical expenses (before the 7.5%-of-AGI limitation)
Norma, who is single and uses the cash method of accounting, lives in a state that imposes an income tax. In April 2018, she files her state income tax return for 2017 and pays an additional $1,000
Herbert was employed for the first six months of 2018 and earned $90,000 in salary. During the next six months, he collected $8,800 of unemployment compensation, borrowed $12,000 (using his personal
Patrick and Eva are planning to divorce in 2018. Patrick has offered to pay Eva $12,000 each year until their 11-year-old daughter reaches age 21. Alternatively, Patrick will transfer to Eva
In late 2017, Randy and Rachel Erwin paid $7,000 in legal fees, adoption fees, and other expenses directly related to the adoption of an infant son, Jameson. In 2018, the year in which the adoption
Casper and Cecile divorced in 2018. As part of the divorce settlement, Casper transferred stock to Cecile. Casper purchased the stock for $25,000, and it had a market value of $43,000 on the date of
Kathy and Brett Ouray married in 2000. They began to experience marital difficulties in 2014 and, in the current year, although they are not legally separated, consider themselves completely
Wesley, who is single, listed his personal residence with a real estate agent on March 3, 2018, at a price of $390,000. He rejected several offers in the $350,000 range during the summer. Finally, on
Mitchell, a calendar year taxpayer, is the sole proprietor of a fast-food restaurant. His adjusted basis for the building and the related land is $450,000. On March 12, 2018, state authorities notify
Jiu has $105,000 of losses from a real estate rental activity in which she actively participates. She has other rent income of $25,000 and other passive activity income of $32,000. Her AG! before
Kristin Graf (123 Baskerville Mill Road, Jamison, PA 18929) is trying to decide how to invest a $10,000 inheritance. One option is to make an additional investment in Rocky Road Excursions in which
Jorge owns two passive investments, Activity A and Activity B. He plans to dispose of Activity A in the current year or next year. Juanita has offered to buy Activity A this year for an amount that
In 2015, John opened an investment account with Randy Hansen, who held himself out to the public as an investment adviser and securities broker. John contributed $200,000 to the account in 2015. John
Mario, a single taxpayer with two dependent children, has the following items of income and expense during 2018:Gross receipts from business ............................... $144,000 Business
Olaf lives in the state of Minnesota. A tornado hit the area and damaged his home and automobile. Applicable information is as follows:Because of the extensive damage caused by the tornado, the
Randall owns an office building (adjusted basis of $250,000) that he has been renting to a group of physicians. During negotiations over a new seven-year lease, the physicians offer to purchase the
Tom Howard and Frank Peters are good friends (and former college roommates). Each owns investment property in the other's hometown (Tom lives in Kalamazoo, MI; Frank lives in Austin, TX). To make
Steve owns real estate (adjusted basis of $12,000 and fair market value of $15,000), which he uses in his business. Steve sells the real estate for $15,000 to Aubry (a dealer) and then purchases a
Sarah exchanges a building and land (used in its business) for Tyler's land and building and some equipment (used in its business). The assets have the following characteristics:a. What are Sarah's
Tanya Fletcher owns undeveloped land (adjusted basis of $80,000 and fair market value of $92,000) on the East Coast. On January 4, 2018, she exchanges Communications it with Lisa Martin (an unrelated
Juan, a sole proprietor, acquires a new 5-year class asset on March 14, 2018, for $200,000. This is the only asset Juan acquired during the year. He does not elect immediate expensing under § 179.
Joseph Thompson is president and sole shareholder of Jay Corporation. In December 2018, Joe asks your advice regarding a charitable contribution he plans to have the corporation make to the
On December 23, 2018, 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
Dan Simms is the president and sole shareholder of Simms Corporation, 1121 Madison Street, Seattle, WA 98121. Dan plans for the corporation to make a charitable contribution to the University of
In 2018, Gray Corporation, a calendar year C corporation, holds a $75,000 charitable contribution carryover from a gift made in 2012. Gray is contemplating a gift of land to a qualified charity in
Amber, a publicly held corporation, had been paying its chief executive officer (CEO) an annual salary of $900,000. Amber instituted a performance-based compensation plan, effective January 1, 2017,
Angelo, an agent for Waxwing Corporation, which is an airline manufacturer, is negotiating a sale with a representative of the U.S. government and with a representative of a developing country.
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
Lupe, a cash basis taxpayer, owns 55% of the stock of Jasper Corporation, a calendar year accrual basis C corporation. On December 31, 2018, Jasper accrues a performance bonus of $100,000 to Lupe
Duck, an accrual basis corporation, sponsored a rock concert on December 29, 2018. Gross receipts were $300,000. The following expenses were incurred and paid as indicated:Because the coliseum was
In 2018, McKenzie purchased qualifying equipment for his business that cost $212,000. The taxable income of the business for the year is $5,600 before consideration of any §179 deduction.a.
Lopez acquired a building on June 1, 2012, for $1 million. Calculate Lopez's cost recovery deduction for 2018 if the building is:a. Classified as residential rental real estate.b. Classified as
Harper is considering three alternative investments of $10,000. Harper is in the 24% marginal tax bracket for ordinary income and 15% for qualifying capital gains in all tax years. The selected
Paul and Sonja, who are married, had itemized deductions of $13,200 and $400, respectively, during 2018. Paul suggests that they file separately-he will itemize his deductions from AGI, and she will
Ali owns 100 shares of Brown Corporation stock. He purchased the stock at five different times and at five different prices per share as indicated.On April 28, 2018, Ali will sell 40 shares of Brown
Larry is the sole proprietor of a trampoline shop. During 2018, the following transactions occurred.Unimproved land adjacent to the store was condemned by the city on February 1. The condemnation
Siena Industries (a sole proprietorship) sold three § 1231 assets on October 10, 2018. Data on these property dispositions are as follows.a. Determine the amount and the character of the recognized
Geranium, Inc., has the following net § 1231 results for each of the years shown. What is the nature of the net gain in 2017 and 2018? Tax Year Net 5 1231 Loss Net 5 1231 Gain $18,000 2013 2014
Elaine Case (single with no dependents) has the following transactions in 2018:AGI (exclusive of capital gains and losses) ............................ $240,000Long-term capital gain
Eagle Partners meets all of the requirements of§ 1237 (subdivided realty). In 2018, Eagle Partners begins selling lots and sells four separate lots to four different purchasers. Eagle Partners also
In a § 1031 like-kind exchange, Rafael exchanges a business building that originally cost $200,000. On the date of the exchange, die building given up has an adjusted basis of $85,000 and a fair
An apartment building was acquired in 2009 by an individual taxpayer. The depreciation taken on the building was $123,000, and the building was sold for a $34,000 gain. What is the maximum amount of
Rick purchased 100 shares of XYZ stock on April 4, year 4, for $8,600. He sold 50 shares on February 8, year 5, for $3,000. He then bought another 50 shares of XYZ on March 1, year 5, for $3,200. How
Ted and Marvin Brown purchased an apartment building in 2007 as equal tenants in common. After a hectic decade of co-ownership, the brothers decided that their business association should be
Ruth Ames died on January 10, 2018. In filing the estate tax return, her executor, Melvin Sims, elects the primary valuation date and amount (fair market value on the date of death). On March 12,
How does the tax benefit rule apply in the following cases'a. In 2016, the Orange Furniture Store, an accrual method taxpayer, sold furniture on credit for $1,000 to Sammy. Orange's cost of the

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