PROBLEM 1INDIVIDUALS (FORM 1040)

Jason R. and Jenni L. Dane are married and live at 13071 Sterling Drive, Marquette, MI 49866. Jason is a self-employed insurance claims adjuster (business activity code 524290), and Jenni is the dietitian for the local school district. They choose to file a joint tax return each year.

1.Jason represents several national casualty insurance companies on a contract basis. He operates this business on the cash basis. He is paid a retainer and receives additional compensation if the claims he processes for the year exceed a specified number. As an independent contractor, he is responsible for whatever expenses he incurs. Jason works out of an office near his home. The office is located at 1202 Moose Road. He shares Suite 326 with a financial consultant, and operating expenses are divided equally between them. The suite has a common waiting room with a receptionist furnished and paid by the landlord. Jason paid his one- half share of the 2018 expenses as detailed below.

Office rent

$11,600

Utilities (includes telephone and fax)

4,300

Replacement of waiting room furniture on April 22

3,600

Renters' insurance (covers personal liability, casualty, theft)

1,400

Office expense (supplies, postage)

740

New Toshiba copier on February 7

300

Waiting room coffee service (catered)

280

Waiting room magazine subscriptions

90

For his own business use, Jason purchased a $2,100 laptop computer on June 17 and a $1,200 Nikon camera on February 5. Except for his vehicle (see item 2 below), Jason uses the 179 write-off option whenever possible. Jason has no expenditures for which he is required to file Form 1099s.

2.On January 2, 2018, Jason paid $31,000 (including sales tax) to purchase a gently used Toyota Camry that he uses 92% of the time for business. No trade-in was involved, and he did not claim any 179 expensing. Jason uses the actual operating

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cost method to compute his tax deduction. He elects to use the 200% declining- balance MACRS depreciation method with a half-year convention. His expenses relating to the Camry for 2018 are as follows:

Gasoline

$3,500

Auto insurance

1,700

Interest on car loan

820

Auto club dues

325

Oil changes and lubrication

210

License and registration

190

In connection with his business use of the Camry, Jason paid $510 for tolls and

$350 in fines for traffic violations. In 2018, Jason drove the Camry 14,532 miles for business and 1,248 miles for personal use (which includes his daily, round-trip commute to work).

3.Jason handles most claim applications locally, but on occasion he must travel out of town. Expenses in connection with these business trips during 2018 were $930 for lodging and $1,140 for meals. He also paid $610 for business dinners he had with several visiting executives of insurance companies with whom he does business. Jason's other business-related expenses for 2018 are listed below.

Contribution to H.R. 10 (Keogh) retirement plan

$8,000

Premiums on medical insurance covering self and family (spouse and children)

4,600

Premiums on disability insurance policy

(pays for loss of income in the event Jason is disabled and cannot work)

2,400

State and local occupation fee

450

Birthday gift for receptionist

($25 box of Godiva chocolates plus $3 for gift wrap)

28

4.Jenni earns $32,000 working as a registered dietician for the Marquette Public School District. The job she holds, manager of the school lunch program, is not classified as full time. Consequently, she is not eligible to participate in the teacher retirement or health insurance programs. Jenni's expenses for 2018 are summarized as follows:

Contribution to traditional IRA

$5,500

Job hunting expense

720

Continuing education program

350

Membership dues to the National Association of Dietitians

120

Subscription to Nutrition Today

90

In order to work full time and earn a larger salary, Jenni applied for a position as chief dietitian for a chain of nursing homes. According to the director of the recruiting service she hired, the position has not yet been filled, and Jenni is one of the leading candidates. The continuing education program was sponsored by the National Association of Dietitians and consisted of a one-day seminar on special diets for seniors. Jenni drove the family Chevrolet Malibu 930 miles on job-related use and 5,200 miles in commuting to work, out of a total of 8,670 miles driven for the year. The Danes purchased the car on July 11, 2016, for $23,400. Jenni uses the automatic mileage method for computing any available deduction for business use of the car.

5.The Danes have supported Jesse Voss ( Jenni's widowed father) for several years, appropriately claiming him as a dependent for tax purposes. On December 27, 2017, Jesse suffered a massive stroke. The doctors did everything they could for Jesse, but he died in the intensive care unit of Riverwood Hospital on January 8, 2018. In January and February of 2018, the Danes paid the following bills on behalf of Jesse: medical expenses of $11,800 not covered by Medicare ($6,000 incurred in 2017 and $5,800 in 2018) and funeral expenses of $15,300. Jesse's health insurance

APPENDIX E Practice Set AssignmentsComprehensive Tax Return Problems

was limited to his Medicare coverage because the Danes's medical insurance (see item 3 above) only covered Jason, Jenni, and their sons. Jesse's will named Jenni as executor and sole heir of his estate.

6.One of the assets that Jenni inherited with the transfer of Jesse's estate was his house. Upon the advice of the financial consultant who shares office space with Jason, the Danes decided to convert Jesse's home into a furnished rental house. After several minor repairs (e.g., touching up the paint on the interior walls, replacing various window screens, pressure washing the brick exterior, etc.), the property was advertised for rent in the classified section of the local newspaper on March 1, 2018. The repairs cost $720, and the newspaper ad was $360. Based on reconstructed records and appraisal estimates, information about the property is as follows:

Original Cost

FMV 1/8/18

House

$40,000

$220,000

Land

10,000

50,000

Furniture and appliances

21,000

14,000

7.Jesse's former residence was rented almost immediately with occupancy commencing April 1, 2018, under the following terms: one-year lease, $2,400 per month due the first day of the month, first and last months' rent in advance, $2,000 damage deposit, lawn care included but not utilities. The tenant complied with all terms except that the December rent payment was not made until January 1, 2019, because the tenant took an extended holiday trip that started on Thanksgiving Day (November 22) through Christmas Day (December 25). Expenses in connection with the property were as follows: property taxes, $2,600; repairs, $320; lawn maintenance, $540; insurance, $1,800; and street paving assessment, $2,100. The property is located at 12120 Lake Road, Harvey, MI 49855.

8.In early December 2017, a friend advised Jason to buy stock in Pioneer Aviation Inc. (PAI). At that time, PAI was in serious financial straits and was headed toward bankruptcy. Nevertheless, according to Jason's friend, the value of the corporation's underlying assets was such that the shareholders were bound to recover considerably more than the current market price of $.50 per share. Excited at the chance for a "sure" profit, on December 15, 2017, Jason purchased 20,000 shares for $10,000. In September 2018, the trustee in bankruptcy announced that the stock was worthless and that even some of PAI's preferred creditors would not be paid.

9.

On June 14, 2018, the Danes sold 500 shares of Garnet Corporation for $17,500 ($35 per share). They owned 1,000 shares, acquired as follows: 500 shares on November 5, 2017, for $25 a share and 700 shares on April 5, 2018, for $30 a share. The Danes did not instruct their broker as to which shares to sell, so Form 1099-B for this sale reported a $12,500 basis for these shares.

10.One month before she died on April 14, 2008, Susan Voss ( Jenni's mother) gave Jenni a coin collection. Based on careful records that Susan kept, the collection had a cost basis of $9,000 and a fair market value of $18,000 at the time Susan passed away. On February 12, 2018, the Dane residence was burglarized and the coin collection was stolen. The Danes filed a claim with the carrier of their homeowner's insurance policy for $24,000 (the current value of the collection). Unfortunately, they were only able to collect $10,000, which was the maximum payout allowed for valuables (e.g., jewelry, antiques) without a special rider attached to the insurance policy.

11.In her will, Susan Voss (see item 10) left Jenni a vacant lot on Wright Street. Susan had paid $15,000 for the property, and it had a value of $19,000 when she

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died. Susan had purchased the lot because it was adjacent to Northern Michigan University property and she expected the school to eventually expand the campus. By 2018, it has become clear that the University does not have the funds to expand the campus. Consequently, on July 1, 2018, Jenni sold the lot for $19,000. Not included in this price are unpaid property taxes (and interest on the unpaid taxes) of $700 on the lot, which the purchaser assumed and later paid. Form 1099-B did not report the basis of this property.

12.Every year around Christmas, Jason receives cards from various car repair facilities (including dealerships), expressing thanks for the business referrals and enclosing cash. Jason has no arrangement, contractual or otherwise, that requires any compensation for the referrals he makes. Concerned about the legality of such "gifts," Jason consulted an attorney about the matter a few years ago. Without passing judgment on the status of the payors, the attorney found that Jason's acceptance of the payments does not violate state or local laws. Jason sincerely believes that the payments he receives have no effect on the referrals he makes. During December 2018, Jason received cards containing $7,200. One additional card containing $900 was delayed in the mail and was not received by Jason until January 4, 2019.

13.In addition to those previously noted, the Danes's receipts during 2018 are summarized below.

Payments to Jason for services rendered (as reported on Forms 1099-MISC issued by several payor insurance companies) pursuant to contractual

arrangement$84,800

Income tax refunds for tax year 2017:

Federal210

State of Michigan90

Interest income (reported on separate Forms 1099-INT):

State of Michigan general-purpose bonds

1,400

General Electric corporate bonds

1,100

Certificate of deposit at Marquette National Bank

900

Qualified dividends (Krist Energy, reported on Form 1099-DIV)

1,200

Proceeds from garage sale (see item 14 below)

9,200

Cash gifts from Jason's parents

24,000

Jason's net state lottery losses ($1,000 of winnings reported on

Form W2-G; $2,300 of losses)

(1,300)

14.On June 7 and 8, 2018, the Danes held a garage sale to dispose of unwanted furniture, appliances, books, bicycles, clothes, and one boat (including trailer). The estimated basis of the items sold is $25,500. All assets were used by the Danes for personal purposes.

15.Payments made for 2018 expenditures not mentioned elsewhere are as follows:

Medical:

Copayment portion of medical expenses$1,300

Dental (orthodontist)1,200

Taxes:

State income tax (see item 17 below)

3,456

State sales taxes

1,120

Property taxes on personal residence

3,800

Interest on home mortgage reported on Form 1098

4,200

Charitable contributions

3,600

The Danes's medical insurance does not cover dental services. The Danes pledge contributions of $1,200 per year to their church, The Water's Edge Church in Marquette, Michigan. In 2018, they paid the pledges for 2017 through 2019. During 2018, the Danes drove the Malibu 270 miles for medical purposes (e.g., trips to the hospital, doctor and dentist offices) and 320 miles delivering meals to the poor for Meals-on-Wheels, a qualified charity.

APPENDIX E Practice Set AssignmentsComprehensive Tax Return Problems

16.The Danes have two sons who live with them: Ethan and Isaac. Both are full-time students. Ethan is an accomplished singer and earned $4,200 during the year performing at special events (e.g., weddings, anniversaries, civic functions). Ethan deposits his earnings in a savings account intended to help cover future college expenses. Isaac does not have a job.

17.The Form W-2 Jenni receives from her employer reflects wages of $32,000. Appropriate amounts for Social Security and Medicare taxes were deducted. Income tax withholdings were $1,320 for Federal and $1,056 for state. The Danes made quarterly tax payments of $1,900 for Federal and $600 for state on each of the following dates: April 10, 2018; June 11, 2018; September 10, 2018; and December 28, 2018. None of the Danes hold any foreign financial accounts. Relevant Social Security numbers are noted below.

Name

Social Security Number

Birth Date

Jason R. Dane

111-11-1111

06/06/1976

Jenni L. Dane

123-45-6781

08/14/1977

Jesse S. Voss

123-45-6784

03/12/1938

Ethan T. Dane

123-45-6788

09/13/2001

Isaac S. Dane

123-45-6789

07/20/2003

Requirements

Prepare an income tax return (with all appropriate forms and schedules) for the Danes for 2018 following these guidelines:

Make necessary assumptions for information not given in the problem but needed to complete the return.

The taxpayers are preparing their own return (i.e., no preparer is involved).

The taxpayers have substantiation (e.g., records, receipts) to support all transactions for the year.

If any refund is due, the Danes want a refund check sent to them by mail.

The Danes had itemized deductions from AGI for 2017 of $16,700, of which $1,500 was for state and local income taxes.

The Danes do not want to contribute to the Presidential Election Campaign Fund.

PROBLEM 2INDIVIDUALS (FORM 1040)

Andrew (Andy) S. and Sarah H. Clark are husband and wife and live at 4112 Foxglove Drive, McKinney, TX 75070. Andy is a retired petroleum engineer, and Sarah is a portrait artist. They choose to file a joint tax return each year.

1.When he retired at age 65, Andy was chief of offshore operations at Pelican Exploration Corporation. While employed, Andy participated in Pelican's contributory qualified pension plan, to which he had contributed $250,000 (in after-tax dollars). Under one of the plan options, he chose a life-annuity payout of

$60,000 per year over his life. As part of his retirement package, Andy also received nontaxable health insurance coverage for him and Sarah. Due to Andy's expertise in Gulf of Mexico offshore operations, Pelican continues to use his services on a consulting basis (see item 3 below).

2.Sarah, an accomplished artist, is well known regionally for oil portraits (business activity code 711510). She paints in the Photorealism style, providing her clients with portraits that are often mistaken for photographs. Painting in this style is very time-consuming. Consequently, her output averages between 15 and 16 portraits a year. Her fee of $3,200 per portrait was set several years ago and never varies. As this is quite reasonable for a Photorealistic oil portrait, she has a long waiting list

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of clients who have not yet been scheduled for sittings. She does all of her work in the studio the Clarks maintain in their personal residence (see item 6 below). Sarah is a cash basis taxpayer with respect to her art business.

3.During 2018, Andy made seven trips on behalf of Pelican as an outside consultant (business activity code 541330). On a typical trip, Andy flies by commercial airline to New Orleans, Houston, or Corpus Christi, and then takes a company helicopter to the offshore platform. If necessary, he rents a room at a local motel. Sometimes offsite consultations can solve the problem, and a trip to the rig is not necessary. His expenses for these trips are as follows:

Airfare

$5,100

Lodging

3,100

Meals

2,200

Ground transportation (taxis, limos, rental cars)

750

After each trip, Andy recovers his expenses when he is paid by Pelican for the services rendered. Pelican does not require an accounting for the expenses and reimburses Andy based on his verbal report of how much he spent.

4.In early January 2018, Sarah was paid for three portraits she painted and delivered in late 2017. During 2018, Sarah completed 14 portraits. Payment was received for 11 portraits when they were delivered to the buyers. One portrait was delivered in mid- 2018 to the CEO of a company who promised payment within 30 days. Payment was never received, and the company has since entered bankruptcy. Since the CEO has been indicted for securities fraud, Sarah feels certain that she will never be paid for the portrait. The final two portraits were delivered in late 2018, and payments for both were received in early 2019. In December 2018, Sarah accepted $3,200 as payment for a portrait to be done in 2019. Although she did not like the arrangement, the customer said the prepayment was motivated by anticipated cash-flow considerations.

5.Sarah keeps receipts for all her expenses. Her total cost for painting supplies in 2018 was $3,010 (e.g., for canvases, brushes, oil paints, smocks, palettes, and other art supplies). The framing of the finished portrait is left to the customer since the most appropriate frame is a matter of personal taste and consideration for where the painting will be exhibited.

6.For convenience and security reasons, Sarah prefers to work at home. One-fourth of the 4,000 square-foot living area is devoted to Sarah's studio. The Clarks built the home at a cost of $350,000 on a lot previously acquired for $100,000, and they moved in on June 15, 2015. As to business use, depreciation is based on MACRS (using the midmonth convention) applicable to 39-year nonresidential realty. Besides home mortgage interest and property taxes (see item 19 below), residence expenses for 2018 are summarized below.

Utilities

$4,200

Molly Maid cleaning service

2,800

Service fee for home security system

1,600

Removal of stains from studio flooring

1,100

Homeowner's insurance

970

Repairs to studio skylight

340

7.At a mortgage foreclosure auction held on February 4, 2005, Andy acquired an abandoned sugarcane farm near Magnolia, known as LaBeaux Place for $30,000. In view of the expansion trend in nearby Houston, he regarded the purchase as a good investment. Early in 2018, Andy was contacted by a Houston real estate developer who offered $250,000 for LaBeaux Place. Considering the prospect of a large taxable gain, Andy arranged for a property swap by written notice on May 10. In exchange for several vacant lots on Padre Island (TX) worth $240,000 and cash of $10,000, Andy transferred LaBeaux Place to the developer. The exchange took place on June 20, 2018.

APPENDIX E Practice Set AssignmentsComprehensive Tax Return Problems

8.Andy purchased unimproved land near Beaumont (TX) for $18,200 at an auction held on April 17, 1992. Described as Block 46, the property was adjacent to a modest prison rice farm owned by the Texas Department of Corrections (TDC). Andy bought the property based on a hunch that the TDC might someday wish to expand its Beaumont prison facility. In late 2017, the TDC contacted Andy and offered him $160,000 for Block 46. Andy countered with a selling price of

$225,000. After prolonged negotiations, Andy and the TDC could not come to a mutually agreeable selling price. The TDC then threatened to condemn Block 46. After repeated threats of condemnation, Andy transferred the property to the TDC on June 28, 2018, for $180,000. On December 17, 2018, Andy reinvested $175,000 in vacant land located near Texas State University in San Marcos. Andy spent the remaining $5,000 on a vacation for him and Sarah to Hawaii in early 2019.

9.The Clarks had always thought that taking extended road trips in an RV would be fun. So, in June 2018, they bought a new Winnebago Deluxe Coach RV for $106,250 [$100,000 (discounted list price) + $6,250 (state sales tax)]. However, it only took Andy and Sarah two weeks on the road to determine that this method of traveling the continental United States was not for them. In August 2018, they sold the RV to a neighbor for $90,000. The neighbor paid $20,000 down and paid the balance of $70,000 in early December 2018. Andy did not charge his neighbor any interest.

10.On May 9, 2000, Andy's father gave him 400 shares of Ragusa Corporation common stock as a birthday gift. The stock cost his father $16,000 ($40 a share) and was worth $20,000 on the date of the gift. In 2012, when the stock was worth $140 per share, Ragusa declared a 2-for-1 stock split. On July 27, 2018, Andy sold 400 shares for $20,000 ($50 a share). For sentimental reasons, Andy kept the remaining 400 shares. Form 1099-B did not report the basis of this property.

11.On December 21, 2018, the Clarks sold 500 shares of Cormorant Power common stock for $40,000 ($80 a share). They purchased the stock on February 1, 2018, for $50,000 ($100 a share), the basis reported on Form 1099-B. The Clarks sold the stock to generate a loss to offset some of their capital gains. However, they considered Cormorant Power to be a good investment, so they repurchased 500 shares on February 19, 2019, for $45,000 ($90 a share).

12.On March 2, 2017, Sarah was contacted by Eva Baum, a former college roommate. Over lunch Eva asked Sarah for a loan of $6,000 to help finance a new venture. Sarah made the loan because the venture, a summer art camp in Sedona, Arizona, sounded interesting. Eva signed a note due in two years at 10% interest. In late 2018, Sarah learned that Eva had disappeared after being charged by Arizona authorities with grand theft. She also learned that Eva is wanted in New Mexico for parole violation from a prior felony conviction. Eva made no payments to Sarah on the note.

13.The Clarks have a long-term capital loss carryover of $7,000 from 2017.

14.On May 9, 2013, Maximilian Clark (Andy's favorite uncle) gifted him the family antique gun collection. Based on family records and qualified appraisals, the collection had an adjusted basis to Maximilian of $4,200 and was worth $13,000 on the date of the gift. Since Sarah abhors guns, Andy has been under heavy pressure to get rid of the collection. After Maximilian died in early 2018, Andy donated the collection to the Remember the Alamo Foundation. The transfer was made on December 5, 2018. At that time, several qualified appraisers valued the collection at

$16,000. The museum added the guns to its extensive collection of firearms.

15.While walking the dog in late December 2017, Sarah was hit by an out-of-control delivery truck. The mishap sent Sarah to the hospital for several days of observation and medical evaluation. Aside from severe bruises, she suffered no permanent injury. Once apprehended, the driver of the truck was ticketed for DUI. The owner of the truck, a local distributor for a national brewery, was quite concerned about the adverse publicity that would result if Sarah filed a lawsuit. Consequently, it

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paid all her medical expenses and offered Sarah a settlement if she would sign a release. Under the terms of the settlement, Sarah would receive $134,000, which was $126,000 for personal injury and $8,000 for loss of income because her injuries prevented her from painting for a period of weeks. On January 31, 2018, Sarah signed the release and was immediately paid $134,000.

16.In August 2017, Andy was rear-ended while stopped for a red light. Thankfully, Andy was uninjured. However, his car was damaged. The driver who caused the accident left the scene immediately, so Andy was forced to use his insurance to repair the damage to his car. As a result, Andy was subject to the $1,000 deductible provision in the policy, which he paid with respect to his car repairs in 2017. The Clarks claimed no deductions with respect to the accident on their 2017 income tax return. In 2018, the insurance company (Peregrine Casualty) located the driver at fault and recovered the amount paid for repairs by both Andy and Peregrine. Consequently, in April 2018, Andy received a check from Peregrine refunding the

$1,000 he paid for repairs according to his policy's deductible.

17.After an acrimonious divorce, the Clarks's only child (Gabrielle Sparks) moved back home in December 2017. She brought her twins (Malone and Macie) with her. Under the divorce decree, Gabrielle was given custody of the children and awarded child support of $2,100 a month. The decree does not indicate who is entitled to the dependency exemptions for the children. Following the divorce, Gabrielle is taking some time to decide how to move forward with her life. She did not work in 2018, so she has no income for the year except the $4,200 she received for two months of child support. She plans to initiate legal proceedings against her ex-husband for delinquent child support. Subsequent to Gabrielle moving back home, Andy and Sarah provided all of Gabrielle's and the twins' support beyond the $4,200 received in child support.

18.Besides the items already mentioned, the Clarks have the following receipts for 2018:

Social Security benefits (Andy, $12,000; Sarah, $6,000)

Consulting income paid by Pelican (including expense

$18,000

reimbursement of $11,150see item 3)

35,000

Life insurance proceeds (see below)

50,000

Qualified dividend income (reported on separate Forms 1099-DIV):

Ragusa Corporation

1,200

Pelican Power

400

Interest income (reported on separate Forms 1099-INT):

IBM bonds

600

CD at First National Bank of McKinney

400

Wells Fargo money market fund

300

City of Beaumont (TX) general-purpose bonds

9,000

The life insurance proceeds concerned a policy owned by Maximilian Clark (see item 14), which named Andy as sole beneficiary. The receipt of the proceeds came as a complete surprise to Andy as he never knew the policy existed.

19.Payments made for 2018 expenditures not already mentioned are as follows:

Payment of Gabrielle's legal fees and court costs incident to her divorce

$9,000

Medical:

Medicare B insurance premiums for Andy and Sarah

2,244

Health care premiums for dependents

3,600

Dental implants for Sarah

8,000

Taxes on personal residence

3,600

Interest on home mortgage

2,200

Cash donations to New Samaria Baptist Church, McKinney, TX

1,200

Professional journals:

Oil and gas related (Andy)

160

Art related (Sarah)

120

APPENDIX EPractice Set AssignmentsComprehensive Tax Return ProblemsE-9

Dues to professional organizations (Andy)$ 140 State professional license fee (Andy)250

2017 tax return preparation fee ($200 for Andy's business,

$250 for Sarah's business, and $450 for personal income tax return)900

Texas does not impose an income tax, so the Clarks choose the state and local sales tax option. In addition to the state general sales tax, the local sales tax rate is 2% (1% city; 1% community development). They do not keep track of sales tax expenditures for routine purchases (e.g., clothes, prepared foods) but can verify the sales tax on exceptional items (i.e., big-ticket purchases like the RV).

20.The Clarks made quarterly Federal income tax payments of $2,400 on each of the following dates: April 10, 2018; June 11, 2018; September 10, 2018; and December 28, 2018. Last year's Federal income tax return reflected an overpayment of $800 tax, which the Clarks chose to apply to their 2018 income tax liability. The trustee of Andy's retirement plan also withheld $6,500 of tax with respect to his retirement withdrawals for the year. Neither Andy nor Sarah holds any foreign financial accounts. Relevant Social Security numbers are noted below.

Name

Social Security Number

Birth Date

Andrew S. Clark

123-45-6785

09/15/1947

Sarah H. Clark

123-45-6786

12/03/1952

Gabrielle Sparks

123-45-6784

10/19/1985

Malone Sparks

123-45-6787

06/25/2012

Macie Sparks

123-45-6788

06/25/2012

Requirements

Prepare an income tax return (with all appropriate forms and schedules) for the Clarks for 2018 following these guidelines:

Make necessary assumptions for information not given in the problem but needed to complete the return.

The Clarks are employing the same tax return preparer who completed their prior year tax return.

The taxpayers have substantiation (e.g., records, receipts) to support all transactions for the year.

If any refund is due, the Clarks want it applied to next year's tax liability.

The Clarks do not want to contribute to the Presidential Election Campaign Fund.

PROBLEM 3C CORPORATION (FORM 1120)

1.On November 1, 2008, Janet Morton and Kim Wong formed Pet Kingdom, Inc., to sell pets and pet supplies. Pertinent information regarding Pet Kingdom is summarized as follows.

Pet Kingdom's business address is 1010 Northwest Parkway, Dallas, TX 75225; its telephone number is (214) 555-2211; and its e-mail address is p..m@pki.com.

The employer identification number is 11-1111111, and the principal business activity code is 453910.

Janet and Kim each own 50% of the common stock; Janet is president and Kim is vice president of the company. No other class of stock is authorized.

Both Janet and Kim are full-time employees of Pet Kingdom. Janet's Social Security number is 123 45-6789, and Kim's Social Security number is 987-65-4321.