2. Larry and Lisa Williams, both 33 years old, have been married for 9 years. They live at 638 Arctic Way, Fairbanks, AK 99701. Lisa’s Social Security number is 445-81-1423 and Larry’s is 798-09-8526. Larry is the president of Arctic Birch Corporation located in Fairbanks. The Arctic Birch stock is owned 40 percent by Larry, 40 percent by Lisa, and 20 percent by Larry’s father. Larry’s Arctic Birch wages and income tax withholding for 2010 are:

Earnings from Arctic Birch $152,000 Federal tax withheld 10,000 State tax withheld 0 The Williams’s other income includes interest on a savings account at Alaska National Bank of $500. In April, Larry canceled a small certificate of deposit at Alaska National Bank and had to pay a $360 penalty on this early withdrawal of savings.

During the year, Larry and Lisa paid the following amounts (all of which can be substantiated):

Home mortgage interest $35,000 Real estate taxes on personal residence 5,600 Auto loan interest 4,800 Medical insurance 3,400 Other medical expenses 3,600 Income tax preparation fee 750 Charitable contributions:

A painting to the Fairbanks Museum of Arts for exhibition (fair market value established by qualified appraisal) 40,000 Church 2,000 Tree Huggers Foundation (a qualified charity) 3,000 University of Alaska, Fairbanks 5,000 Safe-deposit box 300 Sales tax actually paid in 2010 1,700 The tax basis for the donated painting is $25,000 and the painting has been owned by Larry and Lisa for 5 years.

During the year, Larry sold land to Arctic Birch Corporation for $75,000. He acquired the land 5 years ago for $160,000.

Arctic Birch Corporation does not have a qualified pension plan or Section 401(k)

plan for its employees. Therefore, Larry deposited $10,000 ($5,000 each) into traditional IRA accounts for Lisa and himself.

Required: Complete the Williams’s federal tax return for 2010. Use Form 1040, Schedule A, Schedule B, Schedule D, and Schedule M from pages 7-45 through 7-50 to complete this tax return. Make realistic assumptions about any missing data. Do not complete Form 8283.