TAX CASE STUDY-GROUP/TEAM PROJECT

USE 2013 TAX SOFTWARE

TAX YEAR 2013!

Robert T. and Lisa J. Polk (ages 42 and 41) are married and live at 5555 Orange Blossom Trail, Dallas, TX 75080. Robert is the regional manager for a gaming company (MGM), 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 $100,000, plus an annual bonus, from MGM. The annual bonus is determined in December of each year but not paid until January of the following year. Robert's bonus is $15,000 for 2012 (received in 2013) and $33,000 for 2013 (received in 2014). Robert participates in his employer's pre-tax group health insurance plan to which he contributed $6,100 in 2013 for medical coverage. MGM does not provide any retirement benefits, but it has established a 401(k) plan to enable its employees to make voluntary contributions. Robert contributed $15,000 to the plan in 2013. The company provides an office for Robert's use that is located at Suite 419, 110 Palm Boulevard, Dallas, TX.

2. Robert's employment-related expenses (which MGM reimbursed Robert a total of $8,000) for 2013 are as follows:

Airfare$5,100

Lodging: not at a MGM$4,200

Lodging: value of stays at a MGM$3,300

Meals$800

Entertainment$350

Car rentals, limos, taxis$750

While on business trips in his car, Robert was caught in several small-town speed traps and paid fines of $1,500.

3: Lisa is a licensed CPA 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 5 below). Her business expenses for 2013 are summarized below:

Supplies$5,000

Legal $7,000

CPA license fee$1,500

Subscriptions to professional journals$6,500

Dues to professional organizations$1,250

In addition, she drove the family Acura (purchased on June 7, 2012) 6,000 miles on her job assignments. Regarding the Acura, Lisa uses the automatic mileage method for tax deduction purposes. She drove the car for 20,000 miles during the year.

4. One of Lisa's clients was interested in building a shopping center on a tract of land she owned in Levy County. Lisa inherited the property from her aunt when she died on June 6, 1990. At that time, the land was worth $500,000. It has since been rezoned for commercial use and has a current value of $ 800,000. On February 10, 2013, the following exchange took place in the office of an attorney: Lisa exchanged the Levy parcel for a similar tract in Dixie County (worth $500,000) and $300,000 in cash.

5. Home office: Lisa uses 400 sq. feet of a 4,000 sq. foot house-which was acquired in 2010, as her office. The office has a door and used to be a bedroom. There is a television in the room and the Polks occasionally watch TV in that room-if they fall asleep, they stay there the entire night. The house has the following expenses:

Ad valorem taxes on personal residence$7,000

Interest on home mortgage$15,000

Repairs to roof$2,000

Utilities$3,000

She is looking for a simplified method of deducting an office at home so she does not need to track expenses or be concerned about potential recapture in the future.

6. On September 2, 2013, Lisa sold a tract of land in Citrus County to a farmer who owned the adjoining property. The land was inherited from the same aunt and had a value of $300,000 on June 6, 1990. Under the terms of the sale, Lisa received cash of $500,000 and four notes of$100,000 each payable at one-year intervals with simple interest of 8% provided for. To the extent allowed, Lisa wants to defer recognition of gain as long as possible.

7. In addition to the above, the Polks had the following stock transactions during the year:

StockDate AcquiredDate SoldSalesPricePurchase Price

150 sh Pfizer Corp 5/12/898/15/13$6,000(1)

300 sh Texas Instr. 7/30/9410/25/13$17,100(2)

50 sh Allergan 6/10/0910/23/13$525$1,800

25 sh ExxonMobil 4/28/139/4/13$900$2,700

60 sh Texaco9/11/1310/27/13$10,410$9,100

300 sh HulaHoop 1/7/0812/2013$ 6,125$3,150

(1)Lisa received a gift of 150 shares of Pfizer Corp stock on 5/12/89- it was gifted to her by her father. He acquired the stock on 10/27/81 for $1,300. In 1/98 the stick split 2 for 1

(2) The Polks acquired 500 shares of Texas Instrument stock for $7,810. Shortly after the purchase, they

Received a nontaxable stock dividend of 10%.

8. On August 5, 2008, Robert purchased 5,000 shares of Groupon common stock for $20 a share as

part of its initial public offering. The corporation was formed to establish and operate farmers'. markets in mid-size cities throughout the United States. Although some market locations were profitable, as a whole the venture proved to be a failure. By December 2013, Groupon was taken over by creditors, and its stock became worthless.

9. Besides the items previously noted, the Polks had the following receipts for 2013:

Lisa's consulting income$100,000

Interest income:

City of Dallas bonds$12,000

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 (2012 return)$9,000

Lisa's consulting income includes a $7,000 payment for work she did in 2012 (collected in 2013) but does not include $15,000 she billed in November for work performed in 2013 (collected in 2014). One client who has owed her $6,000 for work done in 2009 was convicted of arson in 2013 and is serving time in in a minimum security Federal prison. Lisa feels certain that she will never-ever collect the $6,000.

10. In addition to the items already mentioned, the Polks had the following expenditures

for 2013:

Life insurance premiums$4,000

Medical and dental expense not covered by insurance$14,000

Medical insurance noted above

Taxes:

State and local sales taxes$8,000

Contributions-

Salvation Army (Tampa branch)$1,500

Contribution to an indigent local family

that has fallen on hard times$3,000

Committee to reelect the President (CREEPs)$1,000

During 2013, the Polks had gambling winnings of $8,200 and losses of $12,000-all supported by records.

11. On January 1, 2013, the Polks lake house (which was acquired in 2010) was damaged by fire. They were insured for 90% of the actual loss and they received the insurance settlement. Pertinent data with respect to the property is as follows:

Cost basis$180,000

Value before casualty250,000

Value after casualty60,000

12. The Polks maintain a household that includes two children, Anna Marie (age 17) and Tyler (age 20). Tyler graduated from high school on May 18, 2012, and is undecided about college. Ann Marie is a junior in high school. Tyler is an accomplished ventriloquist and during 2013 was able to earn $17,200 performing at various functions (e.g., weddings, bar mitzvahs, bachelor/bachelorette parties). He placed most of his earnings in a savings account and kept only a small amount to spend on himself.

13. Robert's Form W-2 from MGM shows $45,000 withheld for Federal income tax. MGM Company has an accountable expense reimbursement policy. The Polks also have made 4 quarterly income tax payments of $11,000 each. Lisa's professional activity code is 541310. Relevant Social Security numbers are noted below:

Social Security

Name Number Birth Date

Robert J. Polk 111-11-1111 07/01/1968

Lisa N. Polk 123-45-6781 03/20/1969

Anna Marie Polk 123-45-6784 06/30/1996

Tyler Polk 123-45-6788 05/02/1993

REQUIREMENTS FOR TAX RETURN

Prepare an income tax return (with appropriate schedules) for the Polks for 2013.

Make necessary assumptions for facts not stated in the problem.

Prepare notes/comments on questions for return reviewer-critical part of the submission

This project is like an exam-work only with your team-and do not share your assumptions and/or answers with others. You will be asked to attest to that on the cover sheet-see comments below- that you must attach to your submission.

When you work as part of a team-you are required to respond to team communications on a timely basis. I will ask each team member to make me aware of any team member that does not cooperate with this simple request. I will communicate with them directly and explain the rules to themthat lesson will cost them 25 pointsthat is for the time wasted for your team and me. I have heard all the excuses and none of them are very good. Please do not test me-I keep my word.

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

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