TAX CASE STUDY

TAX YEAR 2019

Federal Return Only

Robert T. and Lisa J. Smith (ages 52 and 51) are married and live at 5678 Orange Blossom Trail, Dallas, TX 75248. Robert is the regional manager for a software company (SoftWare, INC), while Lisa is a self-employed CPA. They file a joint return and use the cash basis for tax purposes.

1. Robert receives a yearly salary of $99,000, plus an annual bonus, from Software INC. The annual bonus is determined in December of each year but not paid until January of the following year. Robert's bonus is $50,000 for 2018 (received in 2019) and $66,000 for 2019 (received in 2020). Robert contributed $20,000 to the plan in 2018-and Software made a matching contribution of $10,000. The company provides an office for Robert's use that is located at Suite 419, 101 Real Boulevard, Dallas, TX. (you need to determine what the total wages on Form W-2 will be based on the numbers noted above-do not calculate Medicare/social security payments.

2: Lisa is a licensed CPA in Texas who works part-time on a consulting basis. Her major clients are real estate developers (both residential and commercial). Because she limits her engagements, she does not have a separate office but does her work at the client's premises or in her office at home (see item 4 below). Her business expenses for 2019 are summarized below:

Supplies $4,000

Legal $5,000

CPA license fee $1,500

Subscriptions to professional journals $3,500

Dues to professional organizations--- $1,250

10% relates to lobbying and PAC contributions

Purchase of a new computer for the office $5,000

Volunteer teacher at a local university-the fair market value

of the time that she spends is- $20,000

She would have been billing clients an equivalent amount

In addition, she drove the family Acura (purchased on June 7, 2016) 15,000 miles on her job assignments. Regarding the Acura, Lisa uses the automatic mileage method for tax deduction purposes. She drove the car for 25,000 miles during the year.

4. On August 5, 2010, Robert purchased 3,000 shares of Groupon, Inc common stock for $20 a share as part of its initial public offering. By December 2019, the corporation ended its last game and its stock became worthless.

5. Besides the items previously noted, the Smiths had the following receipts for 2019:

Lisa's consulting income $120,000

Interest income:

- City of Dallas bonds $25,000

- Ford Motor Company bonds $19,000

Loan repayment by Sarah Duval $30,000

Cash gifts from Lisa's parents $20,000

Federal income tax refund (2018 return) $9,000

6. In addition to the items already mentioned, the Smiths had the following expenditures

for 2019:

Life insurance premiums $4,000

Medical and dental expense not covered by insurance $6,000

Medical insurance noted above

Taxes:

State and local sales taxes (actual amount paid) $14,000

Contributions-

Salvation Army (Plano branch) $11,000

Contribution to an indigent local family

that has fallen on hard times $5,000

During 2019, the Smiths had gambling winnings of $8,000 and losses of $15,000-all supported by records.

7. Robert's Form W-2 from Software shows $20,000 withheld for Federal income tax. SoftWare has an accountable expense reimbursement policy. The Smiths also have made 4 quarterly income tax payments of $10,000 each. Lisa's professional activity code is 541310. Relevant Social Security numbers are noted below:

Social Security

Name Number Birth Date

Robert 461-11-1111 07/01/1963

Lisa 461-45-6781 03/20/1965

8. See the K-1 the Smiths received from Oaktree.

REQUIREMENTS FOR TAX RETURN

Prepare an income tax return (with appropriate schedules) for the Smiths for 2019.

Make necessary assumptions for facts not stated in the problem.

Prepare notes/comments on questions for return reviewer-critical part of the submission (Tax memorandum)

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

The Smiths do not wish to contribute to the Presidential Election Campaign Fund. In the past several years, they have itemized their deductions from AGI (have not claimed the standard deduction option).

3. In addition to the above, the Smith's had the following stock transactions during the year: Stock Date Acquired Date Sold Sales Price Purchase Price 150 sh Pfizer Corp. 5/12/89 50 sh Allergan 6/10/18 25 sh ExxonMobil 4/28/18 60 sh Texaco 9/11/13 300 sh Hula Hoop 1/7/16 8/15/19 10/23/19 9/4/19 10/27/19 12/1/19 $5,000 $1,525 $1,900 $11,410 $ 6,125 $3,000 $1,800 $2,700 $9,100 $3,150 3. In addition to the above, the Smith's had the following stock transactions during the year: Stock Date Acquired Date Sold Sales Price Purchase Price 150 sh Pfizer Corp. 5/12/89 50 sh Allergan 6/10/18 25 sh ExxonMobil 4/28/18 60 sh Texaco 9/11/13 300 sh Hula Hoop 1/7/16 8/15/19 10/23/19 9/4/19 10/27/19 12/1/19 $5,000 $1,525 $1,900 $11,410 $ 6,125 $3,000 $1,800 $2,700 $9,100 $3,150