Tax Staff,

I have a project for you and your partner. I need you to review the prepared $2023$ Form $1040$ based on

the included information$/$fact pattern for our clients Tom and Megan Brown.

I know there are $5$ errors$/$inaccuracies within the prepared return that I need you to identify. Once they

have been identified, I need you to make corrections and recalculate the correct tax due$/$refund owed.

Note: The tax liability$/$tax due$/$refund owed calculation is incorrect due to the $5$ errors$/$inaccuracies within

the return; however, it is not included as one of the error$/$inaccuracies$.$For Paperwork Reduction Act Notice, see your tax return instructions.Tom and Megan Brown are married with three children, all of whom live at home. The children are ages

$18,15,$ and $8.$

a$.$ Tom is a loan officer at First Lubbock Bank and his annual salary is $$100,010.$ Federal withholding

was $$17,131.$

b$.$ First Lubbock provides employees with free group$-$term life insurance equal to their annual gross

salary, up to $$50,000,$ and free health and accident insurance. Tom$$s health and accident insurance

cost First Lubbock $$3,500.$ The bank$$s cost of his group$-$term life insurance coverage is $$700.$ The

bank also provides whole life insurance for all officers. The cost of the whole life insurance is

$$2,750.$

c$.$ The company also provides Tom with a membership to Lubbock Golf Club. The dues total $$6,000$

per year.

d$.$ In June, Tom was recognized for being with the bank for $20$ years. Tom received a watch worth $$300$

and $$1,500$ cash.

e$.$ Megan lost her job in January last year. She received unemployment compensation totaling $$21,720.$

f$.$ In October, Tom was in a car accident. He received $$155,000$ for pain and suffering and $$20,000$ in

punitive damages.

g$.$ The Brown$$s two oldest children are from Megan$$s first marriage. $($The Browns claim all $3$ children

as dependents.$)$ Megan continues to receive alimony and child support. Alimony totaled $$3,000$ and

child support totaled $$9,000.$ The divorce was finalized in $2012.$

h$.$ The Browns received interest income of $$937$ from a savings account, $$611$ from a US Treasury bond

and $$423$ from bond issued by the City of Lubbock.

i$.$ Also during the year, Megan received a cash gift of $$20,000$ from her parents.

j$.$ The couple sold their home during the year and purchased a new one. The couple had owned and

lived in the home for $8$ years. The house sold for $$500,000$ and their basis in the property was

$$225,000.$

k$.$ Tom won $$5,900$ at a slot machine in Las Vegas.

l$.$ In the prior tax year, Megan had New Mexico earnings so they had to file a state return. On their

federal tax return, the Browns took a $$2,732$ deduction for state taxes paid. The Browns did itemize

their deductions that year $($itemized deductions equaled $27,950).$ They received a $$364$ refund from

state income tax paid.

m$.$ Megan is a $25\%$ partner in XYZ partnership. Her share of income was $$22,196.$ She received a

distribution of $$16,000.$

n$.$ Tom purchased $900$ shares of ABC stock at the beginning of the year for $$17\mathrm{.}50$ per share. The stock

is currently trading at $$12\mathrm{.}75$ per share. The shares did pay dividends of $$1\mathrm{.}50$ per share on

December $1.$

Income Tax Accounting

Acct $3307$

Unit $1$ Tax Return Fact Pattern

$2$

o$.$ In May, Megan filed suit against her former employer for wrongful termination. The judge awarded

her $$45,000$ for lost wages.

p$.$ During the year, the Browns paid $$1,977$ for qualified medical expenses. Megan submits the receipts

to the medical insurance company and is reimbursed $$1,977.$

q$.$ Deductions for AGI total $$4,500.$ Itemized deductions total $$18,917.$ The Browns qualify for $$4,500$

in child tax and other dependent credits.

r$.$ The taxpayers paid estimated tax payments of $$14,000.$