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business
taxation of individuals

Questions and Answers of Taxation of Individuals

LO.10 Sam Jones owns a granite stone quarry. When he acquired the land, Sam allocated $800,000 of the purchase price to the quarry's recoverable mineral reserves, which were estimated at 10 million
LO.9 Mike Saxon is negotiating the purchase of a business. The final purchase price has been agreed upon, but the allocation of the purchase price to the assets is still being discussed. Appraisals
LO.8 On May 28, 2018, Mary purchased and placed in service a new $20,000 car. The car was used 60% for business, 20% for production of income, and 20% for personal use in 2018. In 2019, the usage
LO.8 On June 5, 2017, Leo purchased and placed in service a new car that cost $20,000. The business use percentage for the car is always 100%. Leo claims any available additional first-year
LO.8 On October 15, 2018, Jon purchased and placed in service a used car. The purchase price was $25,000. This was the only business use asset Jon acquired in 2018. He used the car 80% of the time
LO.8 Jabari Johnson is considering acquiring an automobile at the beginning of 2019 that he will use 100% of the time as a taxi. The purchase price of the automobile is $35,000. Johnson has heard of
LO.7 Jamie purchased $100,000 of new office furniture for her business in June of the current year. Jamie understands that if she elects to use ADS to compute her regular income tax, there will be no
LO.7 In 2018, Muhammad purchased a new computer for $16,000. The computer is used 100% for business. Muhammad did not make a 179 election with respect to the computer. He does not claim any available
LO.7 On June 5, 2017, Javier Sanchez purchased and placed in service a 7-year class asset costing $560,000 for use in his landscaping business, which he oper- ates as a single member LLC (Sanchez
LO.7 Olga is the proprietor of a small business. In 2018, the business's income, before consideration of any cost recovery or $ 179 deduction, is $250,000. Olga spends $620,000 on new 7-year class
LO.7 Lori, who is single, purchased 5-year class property for $200,000 and 7-year class property for $420,000 on May 20, 2018. Lori expects the taxable income derived from her business (without
LO.7 Janice acquired an apartment building on June 4, 2018, for $1.6 million. The value of the land is $300,000. Janice sold the apartment building on November 29, 2024.a. Determine Janice's cost
LO.7 On May 5, 2018, Christy purchased and placed in service a hotel. The hotel cost $10.8 million. Calculate Christy's cost recovery deductions for 2018 and for 2028.
LO.7 Debra acquired the following new assets during 2018: Date April 11 July 28 November 3 Asset Cost Furniture $40,000 Trucks Computers 40,000 70,000 Determine Debra's cost recovery deductions for
LO.7 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.
LO.7 On November 4, 2016, Blue Company acquired an asset (27.5-year residential real property) for $200,000 for use in its business. In 2016 and 2017, respec- tively, Blue took $642 and $5,128 of
LO.6 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
LO.6 Aquamarine Corporation, a calendar year C corporation, makes the following donations to qualified charitable organizations during the current year: Adjusted Basis Fair Market Value Painting held
L0.6 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
LO.6 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
LO.6 In 2018, Gray Corporation, a calendar year C corporation, holds a $75,000 charitable contribution carryover from a gift made in 2012. Gray is contem- plating a gift of land to a qualified
LO.4 Blue Corporation, a manufacturing company, decided to develop a new line of merchandise. The project began in 2018. Blue had the following expenses in connection with the project: 2018 2019
LO.3 In 2018, UNA Corporation has $500,000 of adjusted taxable income, $22,000 of business interest income, and $120,000 of business interest expense. It has average annual gross receipts of more
LO.3 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,
LO.3 Henrietta, the owner of a very successful hotel chain in the Southeast, is exploring the possibility of expanding the chain into a city in the Northeast. She incurs $35,000 of expenses
LO.3 Egret Corporation, a calendar year C corporation, was formed on March 6, 2018, and opened for business on July 1, 2018. After its formation but prior to opening for business, Egret incurred the
LO.3 Jarret owns City of Charleston bonds with an adjusted basis of $190,000. Dur- ing the year, he receives interest payments of $3,800. Jarret partially financed the purchase of the bonds by
LO.3 Ella owns 60% of the stock of Peach, Inc. The stock has declined in value since she purchased it five years ago. She is going to sell 5% of the stock to a relative. Ella is also going to make a
LO.3 Melissa, the owner of a sole proprietorship, does not provide health insurance for her 20 employees. She plans to spend $1,500 lobbying in opposition to legislation that would require her to
LO.3 Quail Corporation anticipates that being positively perceived by the indi- vidual who is elected mayor will be beneficial for business. Therefore, Quail contributes to the campaigns of both the
LO.3 Cardinal Corporation is a trucking firm that operates in the mid-Atlantic states. One of Cardinal's major customers frequently ships goods between Charlotte and Baltimore. Occasionally, the
LO.3 Linda operates an illegal gambling operation and incurs the following expenses. Which of these expenses can reduce her taxable income?a. Bribes paid to city employees.b. Salaries to employees.c.
LO.3 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.
LO.2, 3 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
LO.2, 3 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
LO.2, 3 For each of the following independent transactions, calculate the recog- nized gain or loss to the seller and the adjusted basis to the buyer.a. Kiera sells Parchment, Inc. stock (adjusted
LO.2,3 Brittany Callihan sold stock (basis of $184,000) to her son, Ridge, for $160,000, the fair market value.a. What are the tax consequences to Brittany?b. What are the tax consequences to Ridge
LO.2, 3 Robin Corporation is owned as follows: Isabelle Peter, Isabelle's husband Sonya, Isabelle's mother Reggie, Isabelle's father Quinn, an unrelated party 26% 19% 15% 25% 15%Robin is on the
LO.2 Which of the following are related parties under $ 267? Father Brother Niece Uncle Cousin Grandson Corporation and a 45% shareholder Corporation and a 55% shareholder
LO.2 Duck, an accrual basis corporation, sponsored a rock concert on Decem- ber 29, 2018. Gross receipts were $300,000. The following expenses were incurred and paid as indicated: Expense Payment
LO.10 Jebali Company reports gross income of $340,000 and other property-related expenses of $229,000 and uses a depletion rate of 14%. Calculate Jebali's depletion allowance for the current year.
LO.8 On April 5, 2018, Kinsey places in service a new automobile that cost $36,000. He does not elect 179 expensing, and he elects not to take any available additional first-year depreciation. The
LO.7 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.
LO.7 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
LO.7 Hamlet acquires a 7-year class asset on November 23, 2018, for $100,000. Hamlet does not elect immediate expensing under 179. He does not claim any available additional first-year depreciation.
LO.6 Tabitha sells real estate on March 2 for $260,000. The buyer, Ramona, pays the real estate taxes of $5,200 for the calendar year, which is the real estate property tax year. Assume that this is
LO.4 Sandstorm Corporation decides to develop a new line of paints. The project begins in 2018. Sandstorm incurs the following expenses in 2018 in connec tion with the project: Salaries Materials
LO.3 Stanford owns and operates two dry cleaning businesses. He travels to Boston to discuss acquiring a restaurant. Later in the month, he travels to New York to discuss acquiring a bakery. Stanford
LO.3 Vella owns and operates an illegal gambling establishment. In connection with this activity, he has the following expenses during the year: Rent Bribes $24,000 40,000 Travel expenses 4,000
LO.1 Shanna, a calendar year and cash basis taxpayer, rents property from Janice. As part of the rental agreement, Shanna pays $8,400 rent on April 1, 2018, for the 12 months ending March 31, 2019.a.
Determine the amount of depletion expense and specify the alternative tax treatments for intangible drilling and development costs.
Identify intangible assets that are eligible for amortization and calculate the amount of the deduction.
Identify and apply the cost recovery limitations applicable to automobiles and property used for personal purposes, including listed property.
Determine the amount and timing of cost recovery available under MACRS, including additional cost recovery available in the year an asset is placed in service.
Identify and measure deductible charitable contributions and determine corporate limitations on the contribution deduction.
Identify several other common business deductions.
State and calculate the alternative tax treatments of research and experimental expenditures.
Recognize and apply a variety of Internal Revenue Code deduction disallowance provisions.
Describe and apply the cash and accrual methods of accounting for business deductions.
Explain the meaning and application of the ordinary, necessary, and reasonableness requirements for the deduction of business expenses.
Find one instance of each of the following using a nonsubscrip- tion site on the Web or an online library at your school. In an e-mail to your profes- sor, give a full citation for the document and
Find three blogs related to tax practice. In a one-page docu- ment, list the URLs for each blog and the general topical areas addressed at each. Pick one posting from one of the blogs and summarize
Find Kathryn Bernal, 120 T.C. 102 (2003), and answer the fol- lowing questions.a. What was the docket number?b. When was the dispute filed? c Who is the respondent?d. Who was the attorney for the
Can a Tax Court Small Cases decision be treated as a precedent by other taxpayers? Explain. Partial list of research aids: $7463(b). Maria Antionette Walton Mitchell, T.C. Summary Opinion 2001-160.
Locate the following Tax Court case: Thomas J. Green, Jr., 59 T.C. 456 (1972). Briefly describe the issue in the case, and explain what the Tax Court said about using IRS publications to support a
Determine the missing data in these court decisions and rulings.a. Higgins v. Comm., 312 U.S.(1941).b. Talen v. U.S., 355 F.Supp.2d 22 (D.C. D.C., -c. Rev. Rul. 2008-18, 2008-13 I.R.B -). (2001).d.
Locate the following Regulations, and give a brief topical descrip- tion of each. Summarize your comments in an e-mail to your instructor.a. Reg. $ 1.170A-4A(b)(2)(ii)(C).b. Reg. $1.672(b)-1.c. Reg.
708(a).b. 1371(a).c. 2503(a).Research Problem
Locate the following Code citations, and list the subchapter, part, and subpart in which it is located. Then give a brief topical description of each.
Locate the following items, and e-mail to your professor a brief summary of the results.a. Terrell, T.C.Memo. 2016-85.b. Ltr. Rul. 200231003.c. Action on Decision, 2000-004, May 10, 2000. Research
LO.2,3 Locate the following Code provisions, and give a brief description of each Communications in an e-mail to your instructor.a. 61(a)(13).b. 643(a)(2).c. 2503(g)(2)(A).Research Problem
LO.1,4 Go to the U.S. Tax Court website.a. What different types of cases can be found on the site?b. What is a Summary Opinion? Find one. C. What is a Memorandum decision? Find one.d. Find the
LO.2 An accountant friend of yours tells you that he "almost never" does any tax research because he believes that "research usually reveals that some tax planning idea has already been thought up
LO.1 Is there an automatic right to appeal to the U.S. Supreme Court? If so, what is the process?
LO.1,2 In the citation Schuster's Express, Inc., 66 T.C. 588 (1976), aff'd 562 F.2d 39 (CA-2, 1977), nonacq., to what do the 66, 39, and nonacq. refer?
LO.1,2 To locate an IRS Revenue Procedure that was issued during the past week. which source would you consult?a. Federal Register.b. Internal Revenue Bulletin.c. Internal Revenue Code.d. Some other
LO.1 In which Subchapter of the Internal Revenue Code would one find informa- tion about corporate distributions?a. Subchapter S.b. Subchapter C.c. Subchapter P.d. Subchapter K.e. Subchapter M.
LO.1,2 Using the legend provided, classify each of the following tax sources. Legend P Primary tax source S-Secondary tax source B-Both N-Neithera. Sixteenth Amendment to the U.S. Constitution.b. Tax
LO.1,2 Using the legend provided, classify each of the following citations as to the type of court.Legend D-District Court T-Tax Court C-Court of Federal Claims A Circuit Court of Appeals U-Supreme
LO.1 Using the legend provided, classify each of the following statements (more than one answer per statement may be appropriate). Legend D=Applies to the District Court T-Applies to the Tax Court
LO.1,2 Tom, an individual taxpayer, has been audited by the IRS and, as a result, has been assessed a substantial deficiency (which has not yet been paid) in additional income taxes. In preparing his
LO.2,4 For her tax class, Yvonne is preparing a research paper discussing the tax aspects of qualified stock options. Explain to Yvonne how she can research the provisions on this topic.
LO.2 Answer the following questions based upon this citation: United Draperies, Inc. v. Comm., 340 F.2d 936 (CA-7, 1964), affg 41 TC. 457 (1963), cert. denied 382 U.S. 813 (1965).a. In which court
LO.2 Which of the following items may be found in the Internal Revenue Bulletin?a. Action on Decision.b. Small Cases Division of the Tax Court decision. C. Letter ruling.d. Revenue Procedure.e. Final
LO.2 Interpret each of the following citations.a. 14 T.C. 74 (1950).b. 592 F.2d 1251 (CA-5, 1979).c. 95-1 USTC $50,104 (CA-6, 1995).d. 75 AFTR 2d 95-110 (CA-6, 1995).e. 223 F.Supp. 663 (W.D. Tex.,
LO.2 Referring to the citation only, determine which tax law source issued these documents.a. 716 F.2d 693 (CA-9, 1983).b. 92 TC 400 (1998). C. 70 U.S. 224 (1935).d. 3 B.T.A. 1042 (1926).e. T.C.Memo,
LO.1 Explain the following abbreviations.a. CA-2.b. Fed.Clc. affd.d. rev'd.e. rem'd.f. Cert. denied. k. F.3d. g. acq. L F.Supp. h. B.T.A. m. USSC. i. USTC. j. AFTR. n. S.Ct. O. D.CL.
LO.1,2 In assessing the validity of a prior court decision, discuss the significance of the following on the taxpayer's issue.a. The decision was rendered by the U.S. District Court of Wyoming.
LO.1 What is meant by the term petitioner
LO.1 A taxpayer living in the following states would appeal a decision of the U.S. District Court to which Court of Appeals?a. Wyoming.b. Nebraska.c. Idaho.d. Louisiana.e. Illinois.
LO.1 For the Tax Court, the District Court, and the Court of Federal Claims, indicate the following.a. Number of regular judges per court.b. Availability of a jury trial.c. Whether the deficiency
LO.1 A taxpayer lives in Michigan. In a controversy with the IRS, the taxpayer loses at the trial court level. Describe the appeal procedure for each of the follow- ing trial courts.a. Small Cases
LO.1,3 Eddy Falls is considering litigating a tax deficiency of approximately $229,030 in the court system. He asks you to provide him with a short description of his litigation alternatives,
LO.1 List an advantage and a disadvantage of using the U.S. Court of Federal Claims as the trial court for Federal tax litigation.
LO.1 Interpret each of the following citations.a. Temp.Reg. $ 1.956-2T.b. Rev. Rul. 2012-15, 2012-23 I.R.B. 975.c. Ltr. Rul. 200204051.
LO.1,2 Rank the following items from the lowest to highest authority in the Federal tax law system.a. Interpretive Regulation.b. Legislative Regulation.c. Letter ruling.d. Revenue Ruling.e. Internal
LO.1 Distinguish between the following.a. Treasury Regulations and Revenue Rulings.b. Revenue Rulings and Revenue Procedures.c. Revenue Rulings and letter rulings.d. Letter rulings and determination
LO.1,3 Sonja Bishop operates a small international firm named Tile, Inc. A new treaty between the United States and Spain conflicts with a Section of the Internal Revenue Code. Sonja asks you for
LO.1 What precedents must each of these courts follow?a. U.S. Tax Court.b. U.S. Court of Federal Claims.c. U.S. District Court.
Employ a strategy for applying tax research skills in taking the CPA exam.

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