Note: This problem is divided into four parts. You will need to complete some of the forms in the other parts in order to determine the amounts that are used on Form 1040.

Gregory R. and Lulu B. Clifden live with their family at the Rock Glen House Bed & Breakfast, which Gregory operates. The Bed & Breakfast (B&B) is located at 33333 Fume Blanc Way, Temecula, CA 92591. Gregory's Social Security number is 543-88-9756 and Lulu's is 256-43-8819. Both are in their mid-40s and enjoy good health and eyesight.

1. The Clifdens have three sons, Gerald A. (SS# 466-74-1131), Gary T. (SS# 465-76-8375), and Glenn E. (SS# 475-23-1426). Gerald is 17 years old, Gary is 12 years old, and Glenn is 10 years old.

2. The Rock Glen House Bed & Breakfast is operated as a sole proprietorship and had the following income and expenses for the year:

Room rental income $139,250 Vending machine income 2,325 Advertising expense 4,810 Depreciation 18,100 Mortgage interest on the B&B 33,010 Wages of maid 15,450 Taxes and licenses 6,420 Supplies 8,870 Business insurance 6,300 Laundry expenses 4,290 Accounting fees 1,850 Office expenses 2,400 Utilities 6,350

All of the above amounts relate to the business portion of the Bed & Breakfast; the personal portion is accounted for separately. The Rock Glen House Bed & Breakfast uses the cash method of accounting and has no inventory. The employer tax ID number is 95-1234567.

3. The Clifdens made estimated federal income tax payments of $2,000 and estimated state income tax payments of $6,000 (all made during 2015).

4. Lulu is a substitute schoolteacher with the local school district. For the current year, Lulu's Form W-2 from the school district showed the following:

Wages $10,200 Federal income tax withheld 1,650 State income tax withheld 380 FICA (OASDI & Medicare) 780

5. Gregory is retired from the U.S. Navy. His annual statement from the Navy, Form 1099-R.

6. Gregory and Lulu paid (and can substantiate) the following amounts during the year:

Mastercard interest $1,480 Dental expenses 2,600 California state income tax (for 2014) 450 Charitable contributions 1,875 Mortgage interest on home purchase (personal portion) 7,600 Real estate taxes (personal portion) 820 Life insurance premiums 845 Investment interest expense 3,100 Automobile registration fees (deductible portion) 450 Tax return preparation fee 475 Contributions to George Clintons reelection campaign 1,000

None of the investment interest is related to amounts borrowed to purchase the City of Atlanta tax-exempt bonds.

During the year, Gregory and Lulu received the following qualifying dividends and interest:

Interest: Bobs Big Bank $360 Bank of Ireland 220 City of Atlanta Tax Exempt Bonds 1,490 Vintage Bank See 1099-INT Qualified dividends: Southwest Airlines $110 Heinz Foods 226

7. Also, Lulu owns Series EE U.S. savings bonds. During the year, the bond redemption value increased by $1,300. Lulu has not elected the accrual method for these bonds. There were no Irish taxes paid on the interest from the Bank of Ireland. All the above stocks, bonds, and bank accounts are community property.

8. Lulu has a stock portfolio. During the year she sold the following stock, shown on her Forms 1099-B as follows:

Orange Co. Gold Co. Green Co. Sales price $6,100 See $2,475 Basis 3,800 Form 1,450 Date acquired 02/11/05 1099-B 10/31/05 Date sold 06/19/15 10/23/15

9. Lulu paid her ex-husband $6,000 alimony in the current year, as required under the divorce decree. Her ex-husband's name is Hector Leach and his Social Security number is 566-23-5431.

10. Gregory does all the significant work in the Bed & Breakfast and therefore he pays self-employment tax on 100 percent of the earnings from the B&B.

11. During the year, Gregory's uncle Martin died. Martin had a $50,000 life insurance policy that named Gregory as the beneficiary. Gregory received the check for the benefits payable under the policy on November 30 of the current year. Martin also left Gregory a small nonoperating farm with an appraised value of $120,000.

12. Two years ago, Gary won a contest and received a cash prize. The money is in a savings account in Gary's name. His interest on the savings account in the current year is $3,400. Instead of having Gary fill out a tax return and pay the kiddie tax, Gregory and Lulu elect to report the interest income on their joint tax return.

13. Lulu was not eligible for health care benefits due to the part-time nature of her job thus health insurance for the Clifden household was purchased by Gregory. The Clifdens are not eligible for an exemption from coverage. The Clifdens purchased health insurance through the Covered California program and received the Form 1095-A. They had no other health insurance during 2015. Assume that the self-employed health insurance deduction is $384. The Clifdens did not claim an advance premium credit.

Required: Gregory and Lulu have come to you to prepare their 2015 federal income tax return. You are not required to complete the state income tax return. Gregory and Lulu have completed a tax organizer and have also given you several IRS forms (see Forms 1099-R, 1099-B and 1099-INT) that they were not sure what to do with. Make realistic assumptions about any missing data (addresses, etc.) that you need. Do not file a federal Form 4562, Form 4952, or Form 8829, or claim the Earned Income Credit (even if they qualify) for the Clifdens. The following is a list of the forms and schedules that you will need to complete the tax return:

Form 1040 Schedule SE Child Tax Credit Worksheet Schedule A Form 8812 Qualified Dividends and Capital Gain Tax Worksheet Schedule B Form 8814 Shared Responsibility Payment Worksheet Schedule C Form 8849 Schedule D Form 8962

Click here to access the tax table to use for this problem. Remember, the taxpayers make the election to include any child's interest and dividends on their tax return.

Note: If required, enter a "loss" as a negative number on the tax form. Do not enter deductions as negative numbers. If an amount box does not require an entry or the answer is zero, enter "0". If required, round your answers to the nearest dollar. On Schedule SE, use rounded amounts in subsequent computations.

CORRECTED (if checked)

PAYER'S name, street address, city or town, state or province, country, and ZIP or foreign postal code U.S. Navy Retired Benefits Center Cleveland, OH 43267 1 Gross distribution OMB No. 1545-0119 2015 Form 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. $ 9,300.00 2a Taxable amount $ 9,300.00 2b Taxable amount not determined Total distribution Copy B Report this income on your federal tax return. If this form shows federal income tax withheld in box 4, attach this copy to your return. This information is being furnished to the Internal Revenue Service. PAYER'S federal identification number RECIPIENT'S identification number 3 Capital gain (included in box 2a) 4 Federal income tax withheld 11-4662891 543-88-9756 $ $ 1,200.00 RECIPIENTS name Gregory R. Clifden Street address (including apt. no.) 33333 Fume Blanc Way City or town, state or province, country, and ZIP or foreign postal code Temecula, CA 92591 5 Employee contributions/Designated Roth contributions or insurance premiums 6 Net unrealized appreciation in employers securities $ $ 7 Distribution code(s) IRA/SEP/ SIMPLE 8 Other $ % 9a Your percentage of total distribution % 9b $ Total employee contributions 10 Amount allocable to IRR within 5 years 11 1st year of desig. Roth contrib. 12 $ State tax withheld 290.00 13 State/Payers state no. CA 14 $ State distribution 9,300.00 $ $ $ Account number (see instructions) 15 Local tax withheld 16 Name of locality 17 Local distribution $ $ $ $

Form 1099-R www.irs.gov/form1099r Department of the Treasury - Internal Revenue Service

PAYER'S name, street address, city or town, state or province, country, ZIP or foreign postal code, and telephone no.

Morgan Stanley

269 Wall Street

New York, NY 10001

Applicable check box on Form 8949 A OMB No. 1545-0715 2015 Form 1099-B Proceeds From Broker and Barter Exchange Transactions 1a Description of property (Example 100 sh. XYZ Co.) Gold Company Stock 1b Date acquired 03/27/2015 1c Date sold or disposed 09/18/2015 Copy B For Recipient This is important tax information and is being furnished to the Internal Revenue Service. If you are required to file a return, a negligence penalty or other sanction may be imposed on you if this income is taxable and the IRS determines that it has not been reported. PAYER'S federal identification number

11-4396782

RECIPIENT'S identification number

256-43-8819

1d Proceeds $ 12,100.00 1e Cost or other basis $ 14,200.00 1f Code, if any 1g Adjustments $ RECIPIENT'S name

Lulu B. Clifden

2 Type of gain or loss:

Short-term Long-term

3 If checked, basis reported to IRS Street address (including apt. no.) 33333 Fume Blanc Way 4 Federal income tax withheld $ 5 If checked, noncovered security City or town, state or province, country, and ZIP or foreign postal code

Temecula, CA 92591

6 Reported to IRS:

Gross proceeds Net proceeds

7 If checked, loss is not allowed based on amount in 1d Account number (see instructions) 8 Profit or (loss) realized in 2015 on closed contracts $ 9 Unrealized profit or (loss) on open contracts12/31/2014 $ CUSIP number 10 Unrealized profit or (loss) on open contracts12/31/2015 $ 11 Aggregate profit or (loss) on contracts $ 14 State name 15 State identification no. 16 State tax withheld $ 12 13 Bartering $ $

Form 1099-B (Keep for your records) www.irs.gov/form1099b Department of the Treasury - Internal Revenue Service

PAYER'S name, street address, city or town, state or province, country, ZIP or foreign postal code, and telephone no. Vintage Bank 6792 Main Street Temecula, CA 92591 Payer's RTN (optional) OMB No. 1545-0112 2015 Form 1099-INT Interest Income 1 Interest Income $ 1,375.00 2 Early withdrawal penalty Copy B For Recipient This is important tax information and is being furnished to the Internal Revenue Service. If you are required to file a return, a negligence penalty or other sanction may be imposed on you if this income is taxable and the IRS determines that it has not been reported. $ PAYER'S federal identification number RECIPIENT'S identification number 3 Interest on U.S. Savings Bonds and Treas. obligations 96-8724390 256-43-8819 $ RECIPIENTS name Gregory R. Clifden Street address (including apt. no.) 33333 Fume Blanc Way City or town, state or province, country, and ZIP or foreign postal code Temecula, CA 92591 4 Federal income tax withheld 5 Investment expenses $ $ 6 Foreign tax paid 7 Foreign country or U.S. possession $ 8 Tax-exempt interest 9 Specified private activity bond interest $ $ 10 $ Market discount 11 $ Bond premium FATCA filing requirement 12 13 $ Bond premium on tax-exempt bond Account number (see instructions) 14 Tax-exempt and tax credit bond CUSIP no. 15 State 16 State identification no. 17 State tax withheld $ $

Form 1099-INT (keep for your records) www.irs.gov/form1099int Department of the Treasury - Internal Revenue Service

Comprehensive Problem 2 - Part 4

Click here to access the completed Form 1095-A to use when completing Form 8962. For Form 8962, round any computations for division to two decimal places and use rounded amounts in subsequent computations. Round your final answers to the nearest dollar.

Table for Federal Poverty Line

Persons in Family/Household 2014 FPL for 48 States and DC 1 $11,670 2 15,730 3 19,790 4 23,850 5 27,910 6 31,970 7 36,030 8 40,090 Each additional person + 4,060 The household income is then expressed as a percentage of the FPL.

Table for Repayment of the Credit Amount

Single Taxpayers Other Than Single Less than 200% $300 $600 At least 200% but less than 300% 750 1,500 At least 300% but less than 400% 1,250 2,500 At least 400% No limit No limit

Click here to access the 2015 Applicable Figure Table.