Please complete the 2017 federal income tax return for Steve and Trebie Valancius. The specific forms that you need to complete are Form 1040, Schedule A to Form 1040, Schedule B to Form 1040, Schedule C to Form 1040, Schedule D to Form 1040, Form 8949, Schedule SE to Form 1040, Form 8582, and Form 8888 (only if they will receive a refund). All of these forms and their instructions are available in the Tax Return Project folder on Blackboard.

The 2018 Form 1040 is not available yet. Thus, I will have you complete a 2017 Form 1040. However, apply all of the rules you learned for 2018 when completing the return. In other words, if an item is treated differently in 2018 than in 2017 due to the recent changes made by the 2017 Tax Cut and Jobs Act, apply the new (2018) rules. For example, in 2017, taxpayers could take exemptions for themselves and their dependents. Taxpayers can no longer do this in 2018. Thus, ignore line 6d and line 42 on the 2017 Form 1040.

Ignore the requirement to attach the form(s) W-2 to the front page of the Form 1040. Enter the child tax credit amount on line 52 of Form 1040 and you do not have to attach Form 8812 for the child tax credit. The IRS mileage rate for 2017 was 53.5 cents per mile. The Valancius Family will not owe AMT in 2017. I will not have you complete Form 6251 to determine this yourself. Ignore any possible qualified business income deduction since this is a new deduction in 2018 and there is no line for it on the 2017 tax return (i.e., if the taxpayers would qualify for a qualified business income deduction if the year were 2018 instead of 2017, act as though they do not qualify for it). For Schedule SE, complete Section A (Short Schedule SE) and ignore Section B (Long Schedule SE). Use the 2018 (not 2017) standard deduction for married filing jointly: $24,000. Use the 2018 tax rate tables for married filing jointly to calculate the tax due.

As of November 5, 2018, we have covered all of the material that you will need to complete the return with the exception of how to treat the Section 83(b) election for restricted stock. We will discuss the tax treatment of restricted stock and Section 83(b) elections during the week of November 12 (Chapter 12).

Information about Taxpayers Needed to Complete Return

Steve and Trebie Valancius live in Lafayette, Louisiana. Steve is the Chief Operating Officer at an offshore drilling company. Trebie is a former lawyer who currently consults with former

1 clients. She also serves on the board of directors of a college preparatory tutoring company. The Valancius family have two children Cooper (age 15) and Tate (age 12). Both children qualify as Steve and Trebies federal income tax dependents. The Valancius family plan to file a joint tax return. The Valancius family provided the following information:

Steves social security number is 123-45-6789

Trebies social security number is 234-56-7890

Coopers social security number is 345-67-8901

Tates social security number is 456-78-9012

The Valancius familys mailing address is 58 Happy Lane, Lafayette, Louisiana 70508.

Steve Valancius reported the following information relating to his employment during the year:

Employer

Gross Wages

Federal Income Tax Withholding

State Income Tax Withholding

Drill Baby Drill

$147,906

$36,538

$18,750

The above amounts do not reflect any income items described below. Steves employer withheld all payroll taxes it was required to withhold. The entire Valancius family was covered by minimum essential health insurance during each month in 2017. The insurance was provided by Steves employer, Drill Baby Drill.

Trebie Valancius received the following revenue during the year (she uses the cash method of accounting).

Consulting revenue reported to her on a Form 1099-MISC, Box 7

Tanner Construction

Sunland Inc.

Harris Inc.

$40,000

$10,625

$4,688

Board of director compensation reported to her on a Form 1099-MISC, Box 7

Ace the Test, Inc.

$8,125

During the year, Trebie paid the following business expenses:

Consultant-related:

Airfare

Hotel

Meals

Parking

$3,625

$1,813

$488

$400

Trebie drove 363 business miles for her consulting-related activities (she has documentation to verify)

2 Board of Director-related:

Meals

Hotel

$156

$281

Trebie drove 394 business miles for her board of director activities (she has documentation to verify)

Neither of Trebies business activities required the filing of Form(s) 1099 to report payments she made during the tax year. In addition, Trebie drove a 2015 Ford purchased on February 1, 2015 for all her business mileage. She drove the vehicle a total of 13,256 miles during the year for all purposes. Trebie has written documentation to support the mileage amounts. She also has access to another vehicle for personal purposes.

The Valancius family also received the following during the year:

Interest income from First National Bank of Lafayette

Interest income from Lafayette, Louisiana School District

Interest income from U.S. Treasury Bond

Interest income from Proctor & Gamble corporate bond

Qualified dividend income from Apache

Qualified dividend income from Apple

Qualified dividend income from Target

Qualified dividend income from CVS

Qualified dividend income from Union Pacific

Qualified dividend income from Procter & Gamble

Qualified dividend income from Coca-Cola

Qualified dividend income from Kellogg

Qualified dividend income from Abbott Labs

Qualified dividend income from 3M

Dividend income (not qualified) from India Fund

$400

$250

$438

$500

$1,875

$938

$250

$531

$175

$238

$281

$250

$344

$438

$2,500

The Valancius family did not own, control or manage any foreign bank accounts, nor were they grantors or beneficiaries of a foreign trust during the tax year.

The Valancius family had the following activity in their brokerage account during 2017 (all transactions were reported on a Form 1099-B. Basis information on each stock sale was reported to the IRS):

Sold 2,500 shares of Facebook

Sold 94 shares of Apple, Inc.

Sold 438 shares of Target

Sold 1,250 shares of CVS

Sold 63 shares of Union Pacific

6/6/17

3/20/17

9/19/17

8/8/17

2/12/17

Purchased 125 shares of Procter & Gamble 6/15/17

Purchased 438 shares of Target

10/6/17

Purchased 438 shares of Coca-Cola

4/19/17

$28,125

$35,938

$18,375

$43,750

$3,438

$9,625

$17,500

$40,000

3 Purchased 375 shares of Kellogg

9/19/17

$26,250

Relevant tax basis/holding period information related to sales of securities in 2017:

Purchased 2,500 shares of Facebook on 4/6/17 for $26,250

Purchased 250 shares of Apple, Inc. on 2/13/15 for $112,500

Purchased 375 shares of Target on 2/17/14 for $11,250

Purchased 63 shares of Target on 5/30/17 for $2,500

Received 1,250 shares of CVS from Trebies father as a gift on 9/15/01. Her fathers basis in the stock at the time of the gift was $8,750. Fair market value of the stock at the date of the gift was $51,250

Purchased 125 shares of Union Pacific on 8/10/16 for $7,500

The Valancius family have a $53,750 long-term capital loss carryover from the prior tax year.

The Valancius family received a Louisiana state income tax refund of $500 in May of 2017. The Valancius family received the refund because they overpaid their Louisiana state individual income tax in 2016. On their 2016 Federal income tax return, the Valancius family deducted and received a tax benefit for all state tax income taxes paid in 2016.

Trebie is a 10% owner in a tutoring company named Master the Concept (MTC) (EIN 207654321). MTC is a Subchapter S corporation. The company reported ordinary business income for the year of $187,500. Trebie received a K-1 from MTC reporting her allocation of this business income. Trebie acquired the stock several years ago. Her basis in the stock before considering her 2017 income allocation was $115,000. Trebie is a passive owner with respect to this entity.

Trebie is also a 20% owner in Ace the Test, Inc. (ATT) (EIN 24-3456789). ATT is a Subchapter S corporation. The company reported an ordinary business loss for the year of ($80,000). Trebie received a K-1 from ATT reporting her allocation of this business loss. Trebie acquired the stock several years ago. Her basis in the stock before considering her 2017 loss allocation was $56,250. Trebie is a passive owner with respect to this entity.

Steve received 6,250 shares of restricted (common) stock from his employer on July 1, 2017. The terms of the restricted stock grant are such that if Steve is still employed by Drill Baby Drill on July 1, 2022 the entire 6,250 shares will vest and become his property. Steve, upon the advice of his tax advisor, prepared and filed an IRC Section 83(b) election on July 8, 2016. On July 1, 2017, the shares were valued at $6.25 per share. Steve estimates the value of the shares in five years will be at least $188 per share. Steve notified Drill Baby Drill about the IRC Section 83(b) election in a timely manner. None of the income tax consequences of this restricted stock grant was included in the $147,906 reported as part of Steves gross wages (see above).

In May, Steve was injured in a home accident. The injury prevented Steve from working for about a month. During this time, Steve received $18,750 in disability payments attributable to a disability insurance policy. The disability policy premiums were paid on Steves behalf as a nontaxable fringe benefit.

4 The Valancius family paid the following expenses during the year:

Dentist (unreimbursed by insurance)

Doctors (unreimbursed by insurance)

Prescriptions (unreimbursed by insurance)

Real property taxes on residence

Vehicle property tax based upon value

Mortgage interest on principal residence (Mortgage of $400,000)

Margin interest paid to broker

Contribution to Goodwill

Contribution to American Cancer Society

Contribution to Holy Cross Catholic Church

$1,875

$3,031

$845

$9,406

$1,563

$15,688

$750

$2,500

$6,250

$15,000

The Valancius family also donated clothing, electronics, furniture and other household goods to Goodwill of Lafayette, Louisiana on April 15, 2017. Estimated thrift value of the goods donated was $345.

Miscellaneous Information

On September 1, the Valancius family paid $250 in foreign taxes attributable to the dividend received from the India Fund.

The Valancius family would like to receive a refund (if any) of tax they may have overpaid for the year. Their preferred method of receiving the refund is by check.