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business
taxation of individuals

Questions and Answers of Taxation of Individuals

How the tax law applies at both the owner level and the entity level (i.e., the multiple taxation problem), and what effective tax rate is assessed on such income.
How should the tax law be used to encourage investments in "green" energy products? In improving access speeds for the internet?
Is the tax law "friendly" to marriage and to families with children?
Does a regressive sales/use tax fall harder on individuals of color?
Would the lack of a charitable contribution deduction impair the ability of charities to raise operating and capital funds?
Should the property tax on real estate be used to finance the local public education system? Why should elderly taxpayers with grown children or parents who send their children to private schools
Describe the role played by the IRS and the courts in the evolution of the Federal tax system.
Explain the economic, social, equity, and political considerations that underlie the tax law.
Identify tax planning opportunities and apply a general framework for tax planning.
Identify and explain the tax systems that apply to business entities and their owners.
Describe the basic tax formula for individuals and taxable business entities.
Identify the various taxes affecting business entities and individuals.
Define and illustrate the components of a tax.
Find a blog posting or discussion thread with comments from tax professionals about Federal income tax consequences that occur when a busi- ness converts from an LLC to an S corporation or when a C
As a result of the dispute, the part- nership distributed only $75,000 to Crane. It placed the disputed $25,000 in escrow. However, Crane's Schedule K-1 from the partnership included the full
Crane is a partner in the Cardinal Partnership. A dispute arose with the partnership regarding Crane's share of current earnings. The partnership contends that the amount is $75,000, while Crane
The Turnaround LLC was formed several years ago. It incurred losses for several years, reducing many of its members' bases in their interests to zero. However, the business recently obtained some new
Assume that Parchment in (1) is a general partnership rather than a corporation. Respond to parts (a), (b), and (c). Would your answer change if Parchment were an LLC that "checked the box" to be
Parchment, Inc., is created with the following asset and liability contributions. Jake and Fran each receive 100 shares of Parchment common stock. Shareholder Jake Fran Assets Cash Land Basis
AAA is an account that relates to this entity.
LO.2, 3, 4, 5, 6 Using the legend provided, indicate which form of business entity each of the following characteristics describes. Some of the charac- teristics may apply to more than one form of
LO.6 Gail and Harry own the GH Partnership. They have conducted the business as a partnership for 10 years. The bases for their partnership interests are as follows. Gail $100,000 Harry $150,000 GH
LO.6 Linda is the owner of a sole proprietorship. The entity has the following assets. Asset Basis FMV Cash $10,000 $10,000 Accounts receivable -0- 25,000 Office furniture and fixtures" 15,000 17,000
LO.6 Emily and Freda are negotiating with George to purchase the business he operates as Pelican, Inc. The assets of Pelican, Inc., a C corporation, are recorded as follows.Asset Cash Accounts
LO.5 Parrott, Inc., a C corporation, is owned by Abner (60%) and Deanna (40%). Abner is the president, and Deanna is the vice president for sales. Parrott, Abner, and Deanna are cash basis taxpayers.
LO.5 Turtle, a C corporation, reports taxable income of $200,000 before paying salaries to the two equal shareholder-employees, Britney and Alan. Turtle follows a policy of distributing all after-tax
LO.4 Sanjay contributes land to a business entity in January of the current year for a 30% ownership interest. Sanjay's basis for the land is $60,000, and the fair market value is $100,000. The
LO.4 Megan owns 55% and Vern owns 45% of a business entity. The owners would like to share profits (55% for Megan and 45% for Vern) and losses (80% for Vern and 20% for Megan) differently if
LO.4 Indigo, Inc., a personal service corporation, incurs the following income and losses. Active income Portfolio income Passive activity loss $325,000 49,000 333,000a. Calculate Indigo's taxable
LO.4 ListCo reports the following income for the current tax year. Operations Tax-exempt interest income $92,000 19,000 60,000 Long-term capital gain ListCo holds earnings and profits (AAA for an S
LO.4 Amy, Becky, and Chau form a business entity with each contributing the following. Amy: Cash Becky: Land Chau: Services Adjusted Basis Fair Market Value $100,000 60,000 $100,000 120,000 50,000
LO.4 Phillip and Evans form a business entity. Each contributes the following property. Cash Land Phillip $600,000 Evans $600,000* *Fair market value. Evans's adjusted basis is $200,000. Three months
LO.3,4 Owl is a closely held corporation owned by eight shareholders (each has 12.5% of the stock). Its taxable income for the most recent year was $6,250,000. Owl's financial records also provides
LO.2,3,4 Duke and Jacquie Coleman, married filing jointly, will establish a manu- facturing business. The couple anticipates that the business will be profit- able immediately due to a patent that
LO.2, 4 Amy and Jeff Barnes will operate their florist shop as a partnership or as an S corporation. After paying salaries of $100,000 to each of the owners, the shop's annual earnings are projected
LO.2 Sea Green Enterprises reports the following assets and liabilities on its balance sheet. Assets Liabilities Net Book Value Fair Market Value $925,000 200,000 $600,000 200,000 Sea Green has just
LO.4 Castle and Dave formed an S corporation; Castle owns 75% of the outstanding shares, and Dave owns the rest. When the entity's AAA balance is $1 million, it distributes an asset to each
Analyze the effects of the disposition of a business on the owners and the entity for each organizational form.
Identify techniques for avoiding double taxation.
Identify the influence of the conduit and entity perspectives on the tax treatment of an entity's operations, including the possibility of the double taxation of business income.
Contrast the conduit and entity approaches to legal organizational forms.
Apply nontax factors in the choice among alternative organizational forms.
Carol reports taxable income of $48,000. Included in that calculation are the fol- lowing items. Real estate taxes on her home Mortgage interest on acquisition indebtedness Charitable contribution
The contract is 20% and 70% complete at the end of years 3 and 4, respectively. What is the alternative minimum tax adjustment required in year 4?a. $16,000b. $40,000c. $56,000d. $80,000
The total profit of the contract is $80,000 and does not change over the life of the contract. The contract will be completed in year
Anthony entered into a long-term construction contract in year
In an e-mail to your instructor, outline an AMT planning oppor- tunity not mentioned in the chapter. In the e-mail, discuss the feasibility of the sug- gested planning opportunity.
The foreign tax credit is especially valuable when a U.S. busi- ness carns income in a country whose income tax rates exceed those of the United States. List five countries whose tax rates on
Teal Company, a single member LLC, owns two warehouses that were placed in service before 1987. This year, accelerated depreciation on Warehouse A is $36,000 (straight-line depreciation would have
Your ophthalmologist, Dr. Hunter Francis (55 Wheatland Drive, Hampton, CT 06247), has been very pleased with the growth of his practice in the 15 years he has been in business. This growth has
During a recent Sunday afternoon excursion, Miriam, an admirer of early twentieth-century architecture, discovers a 1920s-era house in the country- side outside Mobile, Alabama. She wants not only to
For many years, Saul's sole proprietorship and his related Form 1040 have had a number of AMT tax preferences and AMT adjustments. He has made the AMT cal- culation each year, but the calculated
Balm, Inc., has a general business credit for 2018 of $90,000. Balm's regular in- come tax liability before credits is $140,000, and its tentative AMT is $132,000. Calculate the amount of general
LO.7 Renee and Sanjeev Patel, who are married, reported taxable income of $1,008,000 for 2018. They incurred positive AMT adjustments of $75,000 and tax preference items of $67,500. The couple
LO.7 Pat is 40, is single, and has no dependents. She received a salary of $390,000 in 2018. She earned interest income of $11,000, dividend income of $15,000. gambling winnings of $14,000, and
LO.7 Jane and Robert Brown are married and have eight children, all of whom are eligible to be claimed as the couple's dependents. Robert earns $196,000 working as a senior manager in a public
LO.7 In the current year, Dylan earned taxable and tax-exempt interest from the following investments. Investment 10-year municipal bond (issued in 2009) 10-year private activity bond (issued in
LO.7 Included in Alice's regular taxable income and in her AMT base is a $300,000 capital gain on the sale of stock she owned for three years. Alice is in the 20% tax bracket for net capital gains
LO.7 Chuck is single, has no dependents, and does not itemize deductions. In 2018, he reports taxable income of $320,000. His tax preferences total $51,000. What is Chuck's AMTI for 2018?
LO.7 Gabriel, age 40, and Emma, age 33, are married with two dependents. They recorded AGI of $250,000 in 2018 that included net investment income of $3,000 and gambling winnings of $2,500. The
LO.4, 5, 6 Determine whether each of the following transactions is a preference (P). is an adjustment (A), or is not applicable (NA) for purposes of the AMT.a. Depletion in excess of basis.b.
LO.6 Walter, who is single, owns a personal residence in the city. He also owns a cabin near a ski resort in the mountains. He uses the cabin as a vacation home. In the current year, he borrowed
LO.5 Wolfgang, who is age 33, records AGI of $125,000. He incurs the following itemized deductions for 2018. Medical expenses [$15,000 - (7.5% x $125,000)] State income taxes $ 5,625 4,200 Charitable
LO.5 Sammy and Monica, both age 67, incur and pay medical expenses in excess of insurance reimbursements during the year as follows.
LO.5 Flicker, a single member LLC, acquired a passive activity this year. Gross income from operations of the activity was $160,000. Operating expenses, not including depreciation, were $122,000.
LO.S Lilia is going to be subject to the AMT in 2018. She owns an investment build Is ing and is considering disposing of it and investing in other realty. Based on an appraisal of the building's
LO.5 Buford sells an apartment building for $720,000. His adjusted basis is $500,000 for regular income tax purposes and $550,000 for AMT purposes. Calculate Buford's:a. Gain for regular income tax
LO.5 Allie, who was an accounting major in college, is the owner of a medium-size construction limited liability company. She prepares the company's Schedule C each year. Due to reporting a home
LO.5 David is the sole proprietor of a real estate construction business. He uses the completed contract method on a particular contract that requires 16 months to complete. The contract is for
LO.5 In March 2018, Helen Carlon acquired used equipment for her business at a cost of $300,000. The equipment is five-year property for regular tax deprecia- tion purposes.a. If Helen depreciates
LO.6 Falcon has a sole proprietorship that owns a silver mine that she purchased several years ago for $925,000. The adjusted basis at the beginning of the year is $400,000. For the year, Falcon
LO.4 Use the following data to calculate Chiara's AMT base in 2018. Taxable income Positive AMT adjustments Negative AMT adjustments Preferences $248,000 73,000 25,000 30,000 Chiara will itemize
LO.2 Blue Sky, Inc., a U.S. corporation, is a manufacturing concern that sells most of its products in the United States. It also conducts some business in the European Union through various
LO.2 Ahmed Zinna (16 Southside Drive, Charlotte, NC 28204), one of your clients, owns two retail establishments in downtown Charlotte and has come to you seeking advice concerning the tax
LO.2 Tom, a calendar year taxpayer, informs you that during the year, he incurs expenditures of $40,000 that qualify for the incremental research activities credit. In addition, it is determined that
LO.2 Green Corporation hires six individuals on January 4, 2018, all of whom qualify for the work opportunity credit. Three of these individuals receive wages of $8,500 during 2018, and each
LO.2 The tax credit for rehabilitation expenditures is available to help offset the costs related to substantially rehabilitating certain buildings. The credit is cal- culated on the rehabilitation
LO.2 In the current year, Paul Chaing (4522 Fargo Street, Geneva, II. 60134) acquires a qualifying historic structure for $350,000 (excluding the cost of the land) and plans to substantially
LO.2 In January 2017, Iris Corporation purchased and placed in service a certi- fied historic structure building that houses retail businesses. The cost was $300,000, of which $25,000 applied to the
LO.2 Oak Corporation holds the following general business credit carryovers.2014 $ 5,000 2015 15,000 2016 6,000 2017 Total carryovers 19,000 $45,000 If the general business credit generated by
LO.2 Adelyn has a tentative general business credit of $42,000 for the current year. Her net regular tax liability before the general business credit is $107,000, and her tentative minimum tax is
LO.6 Dimitri owns a gold mine that qualifies for a 15% percentage depletion rate. The basis of the property at the beginning of the year, prior to any current-year depletion deduction, is $21,000.
LO.5 Pineview Company, a single member LLC, placed a $5,000 asset that is ineli- gible for full expensing in service on June 1, 2018. The asset has a three-year MACRS class life; no bonus
LO.5 Brennen sold a machine used in his sole proprietorship for $180,000. The machine was purchased eight years ago for $340,000. Depreciation up to the date of the sale for regular income tax
LO.3 In March 2018, Serengeti exercised an ISO that had been granted by his employer, Thunder Corporation, in December 2015. Serengeti acquired 5,000 shares of Thunder stock for the exercise price of
LO.2 Alison incurs the following research expenditures. In-house wages In-house supplies Payment to ABC, Inc., for research $60,000 5,000 80,000a. Determine the amount of qualified research
LO.2 During 2018, Lincoln Company hires seven individuals who are certified to be members of a qualifying targeted group. Each employee works in excess of 600 hours and is paid wages of $7,500 during
LO.2 Emily spent $135,000 to rehabilitate a certified historic building (adjusted basis of $90,000) that originally had been placed in service in 1935. What is Emily's rehabilitation expenditures tax
LO.2 Carlson's general business credit for the current year is $84,000. His net income tax is $190,000, tentative minimum tax is $175,000, and net regular tax liability is $185,000. He has no other
Describe and illustrate the role of the AMT credit in the alternative minimum tax structure.
Compute the AMT.
Identify the preferences that are included in calculating AMTI.
Identify the adjustments made in calculating AMTI.
Present and explain the formula for computing the AMT for individuals.
Explain the rationale for the alternative minimum tax (AMT).
Apply various business-related tax credits.
Explain the difference in the use of credits and deductions as a Federal tax policy tool.
Hart's adjusted basis of his interest in a partnership was $30,000. He received a nonliquidating distribution of $24,000 cash plus a parcel of land with a fair market value and partnership basis of
Peter, a 25% partner in Gold & Stein Partnership, received a $20,000 guaranteed payment in the current year for deductible services rendered to the partner- ship. Guaranteed payments were not made to
A reduction of a partner's share of partnership liabilities will have what effect on the partner's basis in the partnership interest?a. There is no effect on partnership basis.b. The same result

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