The first phase of the tax return problem is designed to introduce you to some of the tax forms and the supporting documentation (Forms W-2, 1099-INT, etc.) needed to com- plete a basic tax return. The first four chapters focus on the income aspects of individual taxation. Accordingly, this phase of the tax return focuses on the basic income concepts.

1. Bill's W-2 is provided (Exhibit A-1). The 2016 W-2 includes his salary ($98,000), bonus ($61,000), and income from group-term life insurance coverage in excess of $50,000 ($132.48), and is reduced by his 7 percent contribution ($6,860) to USC's qualified pension plan. The company matches Bill's contribution to the plan.

2. The Schnappaufs receive two 1099-INTs for interest (Exhibits A-2 and A-3), two 1099-DIVs for dividends (Exhibits A-4 and A-5), and a combined interest and dividend statement (Exhibit A-6).

3. Joyceandherbrother,Bob,areco-ownersof,andactiveparticipantsin,afurniture- restoration business. Joyce owns 30 percent, and Bob owns 70 percent of the business. The business was formed as an S corporation in 2008. During 2016, the company pays $5,000 in dividends. The basis of Joyce's stock is $33,000.

4. The Schnappaufs receive a 2015 federal income tax refund of $987 on May 12, 2016. On May 15, 2016, they receive their income tax refund from the state of Rhode Island. In January 2017, the state mails the Schnappaufs a Form 1099-G (Exhibit A-7). Their total itemized deductions in 2015 were $20,161.

5. During 2016, Joyce is the lucky ninety-third caller to a local radio station and wins $300 in cash and a Tablet. Despite repeated calls to the radio station, she has not received a Form 1099MISC. In announcing the prize, the radio station host said that the manufacturer's suggested retail price for the Tablet is $720. How- ever, Joyce has a catalog from Supersonic Electronics that advertises the Tablet for $595.

6. The Schnappaufs receive a Form W-2G (Exhibit A-8) for their winnings at the Yardley Casino in Connecticut.

7. On June 26, 2016, Bill receives a check for $15,480 from the United Insurance Corporation. Though he was unaware of it, he was the designated beneficiary of an insurance policy on the life of his uncle. The policy had a maturity value of $15,100, and the letter from the company stated that his uncle had paid premiums on the policy of $3,620 (Exhibit A-9).

8. Joyce is active in the school PTO. During the year, she receives an award for out- standing service to the organization. She receives a plaque and two $125 gift cer- tificates that were donated to the PTO by local merchants.

9. To complete phase I, you will need Form 1040, Schedule B, and Schedule D.