Hi everyone,

Welcome back from Spring Break. I hope that you had a relaxing week off.

Attached is the actual tax return assignment for Tax Year 2015 that provides the facts you need to prepare a Form 1040 return for Fransisco and Eva Martinez. The instructions are indicated at the bottom of the assignment.

Instructions to keep in mind:

1.This assignment is to be done independently or can be completed in groups of up to 5 students to give you a chance to pull together the concepts that we have been learning in preparing a tax return.

2. Remember to do the assignment by hand so you can see how the numbers from the supporting schedules flow to pg 1 of the return and please complete the return with a blue pen. (Make a copy of the completed return to keep for your records). This Tax Return Assignment is due on Monday4/17/17 (in order to receive a grade). This due date was extended one week from original due date) by 4:30PM to be turned in to the School of Accounting and given to secretary. The assignment can also be mailed in by the due date if not convenient to come to campus but make sure that you have a tracking number such as by UPS or FedEx in case there is an issue with timely receipt. Include a cover page with the following:TAX 4001 Sec #, your name or names and Panther ID. Also, please make sure that you sign the log in sheet there unless mailing.

3. The necessary schedules for Tax Year 2015 can be accessed and printed from the IRS website by clicking on the Forms tab at their website.

4. Include a supporting schedule to show how calculations were made for anything not readily apparent.

TAX 4001 Spring 2017 Tax Return Assignment

Facts:

Francisco E. and Eva A. Martinez are married and live at 46 Milano Street, Raleigh, NC 27513. They file a joint return and are calendar year, cash basis taxpayers.

Francisco is a self-employed accountant (professional activity code is 541213). He maintains an office at 65 Oreo Way, Suite 105, Raleigh, NC 27514. Franciscos work-related expenses for 2015 are as follows:

Office rent (prepaid 12 months on 6/1/2015) $18,000

Utilities 2,400

Office expenses (supplies, , etc.) 4,800

Fines issued by Raleigh zoning department related to business 300

Tolls (business related) 550

Parking expense (business related) 250

State and local license fees 600

Renters insurance (prepaid 18 months on 6/1/2015) 1,800

Replacement of reception room furnishings (10/5/2015) 3,000

Purchased Apple iMac (business related) 2,500

Meals 1,400

Entertainment (Carolina Panthers tickets with clients) 3,000

Travel 1,800

As is the case with all of Franciscos business transactions, the meals and entertainment expenses are properly documented and supported by receipts. The meals and entertainment expense relates to taking clients out to eat and discussing business during the meals. Francisco would then take the client/clients across the street to see home Carolina Panthers football games. No business was discussed during or after the games. Francisco uses MACRS and bonus depreciation for expensing computer and furniture. Francisco traveled to Orlando for a 2 day accounting convention and stayed an extra 3 days for sightseeing. Travel expense is composed of the following ($400 airfare round-trip; $200/night hotel which offers free meals, $50/day rental car, $30/day incidental expenses). Of 14,000 total miles driven in 2015, Francisco drove his truck (a Toyota Tundra purchased on 8/1/2012) 7,500 miles for business (not including commuting). The Martinezs use the automatic mileage method of claiming automobile expenses.

2. Eva works as a sales executive for Avis rental cars. She receives several fringe benefits including group health insurance for her family. She purchased a new Mercedes from Avis for $50,000 when the FMV was $80,000. The purchase cost for Avis from Mercedes was $60,000. Evas company offers free group term life insurance for all their employees. Eva received $100,000 in life insurance coverage in 2015 that cost Avis $10 per $1,000 of coverage. Eva drives to various sales meetings away from her primary place of business. As a result she drove 18,000 miles in 2015 of which 7,000 was business related. Eva uses standard mileage deduction. She also incurred $500 in tolls. Evas company uses an accountable plan and reimbursed her for her mileage and tolls.

3. On September 1, 2012 the Martinezs purchased a house in Augusta, GA located on the National Golf Club of Augusta, home of the Masters Golf Championship. The house is held as a rental investment. The property cost $900,000 (of which $400,000 is allocated to the land) and is located at 1606 Jack Nicklaus Way, Augusta, GA 30904. The Martinez family resided in the house for personal recreation totaling 30 days and rented the house out 160 days in 2015. $48,000 in gross rental receipts was collected in 2015. The Martinezs allocate rental expenses per the IRS Method. They use MACRS straight-line depreciation, assuming the mid-month convention.

Information regarding the rental property expenses for 2015 are summarized below:

Refundable damage deposit 4,000

Property taxes 9,800

Interest on mortgage 14,500

Repairs 4,800

Insurance 2,500

Utilities 3,000

Maintenance $8,800

Francisco bought 400 shares of Apple stock on January 1, 2013 for $200 per share with a brokerage fee of $1,000. Francisco sold 100 shares for $140 per share on November 12, 2015. Francisco then purchased 100 shares of the same type of Apple stock on December 10, 2015 for $138 share. No brokerage fee was incurred on the 2015 transactions.

Eva had the following stock sales in 2015:

	Date Purchased	Basis	Date Sold	Amount Realized
Stock 1	3/16/1996	$7,850	7/22/2015	$6,500
Stock 2	2/12/2015	15,000	9/13/2015	19,500
Stock 3	6/25/2011	11,750	10/12/2015	15,600
Stock 4	7/19/2006	8,250	10/12/2015	12,800
Stock 5	9/18/2015	9,400	11/26/2015	4,500

Besides those previously noted, the Martinezs had the following receipts for 2015:

Payment for services rendered as an accountant

(as supported on Forms 1099 issued by several

payor client companies) $110,000

Evas W-2 wages (total includes $30,000 in 401K plan) $180,000

Golf cart (see information below)

Income tax refunds for tax year 2014

Federal tax $6,400

State tax 7,800 $14,200

Interest income--

CitiBank $4,800

Raleigh Durham municipality 6,600

$11,400

Gambling income $3,200

Francisco performed accounting services for a client in exchange for a used golf cart. The accounting services performed would have been charged at $4,000 to the client. The clients golf cart had a FMV of $3,500 and he had previously paid $5,000 for the cart. So the transaction was a barter.

6. In addition to any items previously noted, the Martinezs had the following expenses for 2015:

Medical and dental expenses not covered by

Insurance $7,000

Real estate tax on personal residence 4,600

Interest

Home mortgage $6,800

Interest on home equity loan 2,200 9,000

Charitable contributions (See information below)

Gambling expenses (with proof of payment) 4,500

Of the $7,000 in medical expenses, $2,000 was used to pay for an urgent care clinic visit for Benjamin Martinez, Franciscos brother who is not a dependent. Benjamin was visiting Francisco and injured his back while assisting in cleaning out the garage. The remaining $4,700 was used to cover co-payments and uninsured medical and dental procedures for Eva and their children. The remaining $300 was for purchases of over the counter medications.

During 2015, Francisco borrowed $90,000 through a home equity loan to pay off other debts and take his family on a 3 week trip to Pebble Beach, CA. At the time of this loan the FMV of their home was $420,000 and the outstanding home mortgage was $340,000.

The charitable contributions were all made to qualified charitable organizations as follows: $10,000 cash donated to their church; The Martinezs also donated a Ford 150 truck to their sons school. The trucks basis was $25,000 and the FMV at the time of donation was $16,000.

7. The Martinezs household includes their three children: Diego, Victoria, and Thomas. Victoria and Thomas are full-time students and live fulltime at their home. Diego lived at home all year and is attending University of North Carolina full time and he also works doing tile and pavement cleaning and earned $8,000 in 2015. The Martinezs provide more than half of each of the childrens living expenses.

8.Evas Form W-2 from Marriott, Inc. shows $40,000 withheld for Federal income tax and $9,941 for state income tax. Francisco made equal quarterly payments of $7,000 (Federal) and $1,000 (state). Relevant Social Security numbers are noted below.

Social Security

Name Number Birth Date

Francisco L. Martinez 123-45-6789 07/01/1967

Eva S. Martinez 123-45-6782 06/27/1968

Diego Martinez 123-45-6786 04/09/1992

Victoria Martinez 123-45-6783 12/06/1999

Thomas Martinez 123-45-6781 07/29/2000

Prepare an income tax return by hand in blue pen (no tax software) with provided schedules that were obtained from the IRS website (irs.gov) for the Martinezs for 2015. In doing this, use the following guidelines:

You may complete assignment individually or in groups up to 5 people. Place all participating student names on cover sheet.

Make necessary assumptions for information not given in the problem but needed to complete the return. Be aware of the possible application of certain tax credits.

The taxpayers have the necessary substantiation (e.g., records, receipts) to support the transactions involved.

If a refund results, the taxpayers want it sent to them.

The Martinezs do not wish to contribute to the Presidential Election Campaign fund.

In the past several years, the Martinezs have itemized their deductions from AGI (have not claimed the standard deduction option). In 2014 they claimed $19,600 in itemized expenses.