Using the space below each item, briefly identify the federal tax issues and the related federal tax consequence(s) for each of the following independent factual situations. Assume cash-basis taxpayers in all situations. What are the tax issues? What impact will the transaction have on taxable income reported on the federal tax return? What will be the character of the transaction (for example, ordinary incomeldeduction, capital gain/loss, $1231 gain/loss, $1245 gain, $1250 gain, Example: Modern Corporation remodeled its offices in 2019 and sold a desk, chair, lamp and artwork to the company president and sole shareholder for only $300 (a very good deal). The president planned to use the items at his family's lake cabin. The issue to be resolved is whether this bargain purchase taxable to the president/sole shareholder. Did president pay fair market value for the furniture or did Modern allow him to purchase for less than could have received from an unrelated party in an arms-length transaction? If the president paid fair market, then no income is recognized. However, if president paid less than fair market value, he/she will be taxed on the difference between what the items were worth and the $300 paid. Depending upon facts and circumstances, the bargain element may be treated as dividend or compensation. 1. Lynn, who is single, graduated in December 2016 and started working full-time in January 2017. He filed Forms 1040 for 2017 and 2018, reporting wage income of $40,000 and $45,000, respectively. Although he paid student loan interest of $2,880 and $2,620 in 2017 and 2018 respectively, nothing was reported on either tax return relating to student loan interest. What are the tax issues for Lynn? 2. Morey wrote several books under an assumed name and had the royalty income received from publisher for use of the books paid to Booker Corporation, a corporation Morey formed two years earlier. At the time Morey formed the corporation, he gave all the corporate stock to his 2 children (5 year-old twins). As the sole shareholder-employees of Booker Corporation, the children are paid salaries approximating the royalties received each year by the corporation. Consider tax issues for Morey. You do not need to consider tax issues for the children in answering this question. 3. In 2017, Marty purchased 10 acres of land for $40,000 in total, and spent $7,000 in total subdividing the land into 5 parcels and $14,000 in total installing water, sewer, and electric lines to each parcel. He planned to sell each parcel for $20,000, but none were sold during 2017 or 2018. In 2019, he sold the first lot for $20,000. Consider tax issues for Marty 4. Bill is a CPA practicing as a sole proprietorship and files Form 1040 Schedule C. He attended a 3-day conference in 2019 in Washington DC on the new tax law. His wife Carol and their two children joined him on the trip. They stayed two extra days for sightseeing in Washington DC. Costs included the conference registration $600, airfare $500 roundtrip per person, taxi $50 to/from airport (no additional costs for extra passengers), hotel $250 per night (would have been only $175 had only one person been staying at the hotel), meals S120 per day per person (ignore any standard per diem rates that might apply for meals). Consider tax issues for Bill. 5. Carly got married in 2019. Because she could not afford a wedding reception, her employer gave her the $8,000 needed to pay for the reception. Consider tax issues for both Carly and her employer. 6. Jay sold his plumbing business to Eric in 2019. As part of the agreement, Eric paid Jay $5,000 in exchange for Jay agreeing to not open another plumbing business in the within 25 miles for 2 years. Consider tax issues for both Jay and Eric. 7. Taylor sold land held for investment for $40,000 on December 31, 2018. The land was purchased three years earlier for $25,000. The sales agreement required a down payment of $10,000 and installment payments of $10,000 principal each year for 3 years (12/31/19, 12/31/20, and 12/31/21), plus 6% interest each year on the unpaid balance. During 2018, she also sold Best Buy Corporation stock for $7,000, which she acquired five years earlier for $19,000. Consider 2018 tax issues for Taylor. 8. During 2019, Salina's grandfather died and left her jewelry worth $30,000, for which the grandfather paid $10,000. Later in 2019, she sold the jewelry and received $29,000 (net of a $1,000 commission withheld by her sales agent). In addition, Salina was the 2019 beneficiary of a $200,000 life insurance policy her grandfather bought before he retired. Consider tax issues for Salina. 9. Perry works for a large CPA firm where professional dress is expected. He spent $1,500 during 2019 on clothing, shoes and accessories. His friend Alicia, a nurse at a local hospital, spent $500 on uniforms and shoes for her job during 2019. Both are employees. Consider tax issues for Perry and Alicia. 10. Simon is an accountant and Alex is an attorney. Simon is an emp his business as sole proprietorship, reportable on Form 1040, Schedule C. They have been business acquaintances for about 5 years. During 2019, they met every Wednesday 5pm at a local bar to socialize and took turns paying the bar tab, which averaged $80 each meeting. As always happens with attorneys and accountants, they would discuss what is happening in their offices (of course, never divulging confidential client information). Consider tax issues for both Simon and Alex 11. Jennifer is self-employed. During the holidays, she gave the elevator operator in her office building, and the office parking lot attendant at the office building who parks her car, gift cards to Starbucks worth $50 each. Consider tax issues for Jennifer. 12. Sharon loaned $500 to her minister in 2018. The loan was not evidence by a note and did not bear interest. The minister moved out of town without paying and now she does not want to embarrass the minister by asking him to repay the loan. Consider tax issues for Sharon 13. On July 1, 2019, Darin purchased a home to be used as his principal residence for a cost of $150,000. He made a $30,000 down and borrowed the remaining $120,000 by securing a 15-year mortgage on the home. He also paid $1,200 in points to the bank to get them to originate the loan, and $2,000 in other closing costs (appraisal, recording costs, and insurance escrow deposit) in connecting with obtaining the loan. During the remainder of 2019, he paid $3,200 mortgage interest to the bank on the mortgage loan. Consider 2019 tax issues for Darin 14. Harry purchased a shop building in 2014 for $200,000. He used the building in his sole proprietorship construction building. In 2019, he experienced cash-flow problems and sold the property for $220,000. The adjusted basis of the property at the time of sale was $185,000. Consider 2019 tax issues for Harry. 15. Hector and his wife Ruth, both age 40, both worked full-time and always filed married filing jointly. They always claimed their two teenage children (ages 16 and 14) as qualifying children. Hector died unexpectedly in July 2019. Consider 2019 tax issues for Hector and Ruth. Using the space below each item, briefly identify the federal tax issues and the related federal tax consequence(s) for each of the following independent factual situations. Assume cash-basis taxpayers in all situations. What are the tax issues? What impact will the transaction have on taxable income reported on the federal tax return? What will be the character of the transaction (for example, ordinary incomeldeduction, capital gain/loss, $1231 gain/loss, $1245 gain, $1250 gain, Example: Modern Corporation remodeled its offices in 2019 and sold a desk, chair, lamp and artwork to the company president and sole shareholder for only $300 (a very good deal). The president planned to use the items at his family's lake cabin. The issue to be resolved is whether this bargain purchase taxable to the president/sole shareholder. Did president pay fair market value for the furniture or did Modern allow him to purchase for less than could have received from an unrelated party in an arms-length transaction? If the president paid fair market, then no income is recognized. However, if president paid less than fair market value, he/she will be taxed on the difference between what the items were worth and the $300 paid. Depending upon facts and circumstances, the bargain element may be treated as dividend or compensation. 1. Lynn, who is single, graduated in December 2016 and started working full-time in January 2017. He filed Forms 1040 for 2017 and 2018, reporting wage income of $40,000 and $45,000, respectively. Although he paid student loan interest of $2,880 and $2,620 in 2017 and 2018 respectively, nothing was reported on either tax return relating to student loan interest. What are the tax issues for Lynn? 2. Morey wrote several books under an assumed name and had the royalty income received from publisher for use of the books paid to Booker Corporation, a corporation Morey formed two years earlier. At the time Morey formed the corporation, he gave all the corporate stock to his 2 children (5 year-old twins). As the sole shareholder-employees of Booker Corporation, the children are paid salaries approximating the royalties received each year by the corporation. Consider tax issues for Morey. You do not need to consider tax issues for the children in answering this question. 3. In 2017, Marty purchased 10 acres of land for $40,000 in total, and spent $7,000 in total subdividing the land into 5 parcels and $14,000 in total installing water, sewer, and electric lines to each parcel. He planned to sell each parcel for $20,000, but none were sold during 2017 or 2018. In 2019, he sold the first lot for $20,000. Consider tax issues for Marty 4. Bill is a CPA practicing as a sole proprietorship and files Form 1040 Schedule C. He attended a 3-day conference in 2019 in Washington DC on the new tax law. His wife Carol and their two children joined him on the trip. They stayed two extra days for sightseeing in Washington DC. Costs included the conference registration $600, airfare $500 roundtrip per person, taxi $50 to/from airport (no additional costs for extra passengers), hotel $250 per night (would have been only $175 had only one person been staying at the hotel), meals S120 per day per person (ignore any standard per diem rates that might apply for meals). Consider tax issues for Bill. 5. Carly got married in 2019. Because she could not afford a wedding reception, her employer gave her the $8,000 needed to pay for the reception. Consider tax issues for both Carly and her employer. 6. Jay sold his plumbing business to Eric in 2019. As part of the agreement, Eric paid Jay $5,000 in exchange for Jay agreeing to not open another plumbing business in the within 25 miles for 2 years. Consider tax issues for both Jay and Eric. 7. Taylor sold land held for investment for $40,000 on December 31, 2018. The land was purchased three years earlier for $25,000. The sales agreement required a down payment of $10,000 and installment payments of $10,000 principal each year for 3 years (12/31/19, 12/31/20, and 12/31/21), plus 6% interest each year on the unpaid balance. During 2018, she also sold Best Buy Corporation stock for $7,000, which she acquired five years earlier for $19,000. Consider 2018 tax issues for Taylor. 8. During 2019, Salina's grandfather died and left her jewelry worth $30,000, for which the grandfather paid $10,000. Later in 2019, she sold the jewelry and received $29,000 (net of a $1,000 commission withheld by her sales agent). In addition, Salina was the 2019 beneficiary of a $200,000 life insurance policy her grandfather bought before he retired. Consider tax issues for Salina. 9. Perry works for a large CPA firm where professional dress is expected. He spent $1,500 during 2019 on clothing, shoes and accessories. His friend Alicia, a nurse at a local hospital, spent $500 on uniforms and shoes for her job during 2019. Both are employees. Consider tax issues for Perry and Alicia. 10. Simon is an accountant and Alex is an attorney. Simon is an emp his business as sole proprietorship, reportable on Form 1040, Schedule C. They have been business acquaintances for about 5 years. During 2019, they met every Wednesday 5pm at a local bar to socialize and took turns paying the bar tab, which averaged $80 each meeting. As always happens with attorneys and accountants, they would discuss what is happening in their offices (of course, never divulging confidential client information). Consider tax issues for both Simon and Alex 11. Jennifer is self-employed. During the holidays, she gave the elevator operator in her office building, and the office parking lot attendant at the office building who parks her car, gift cards to Starbucks worth $50 each. Consider tax issues for Jennifer. 12. Sharon loaned $500 to her minister in 2018. The loan was not evidence by a note and did not bear interest. The minister moved out of town without paying and now she does not want to embarrass the minister by asking him to repay the loan. Consider tax issues for Sharon 13. On July 1, 2019, Darin purchased a home to be used as his principal residence for a cost of $150,000. He made a $30,000 down and borrowed the remaining $120,000 by securing a 15-year mortgage on the home. He also paid $1,200 in points to the bank to get them to originate the loan, and $2,000 in other closing costs (appraisal, recording costs, and insurance escrow deposit) in connecting with obtaining the loan. During the remainder of 2019, he paid $3,200 mortgage interest to the bank on the mortgage loan. Consider 2019 tax issues for Darin 14. Harry purchased a shop building in 2014 for $200,000. He used the building in his sole proprietorship construction building. In 2019, he experienced cash-flow problems and sold the property for $220,000. The adjusted basis of the property at the time of sale was $185,000. Consider 2019 tax issues for Harry. 15. Hector and his wife Ruth, both age 40, both worked full-time and always filed married filing jointly. They always claimed their two teenage children (ages 16 and 14) as qualifying children. Hector died unexpectedly in July 2019. Consider 2019 tax issues for Hector and Ruth