Solutions to Self-Study Problems - Cengage

© 2014 Cengage Learning. All Rights Reserved. This content is not yet final and Cengage Learning does not guarantee this page will contain current material or match the published product.

appendix E

Solutions to Self-Study Problems CHAPTER 1 THE INDIVIDUAL INCOME TAX RETURN Self-Study Problem 1.1 Answer is d. Answers a, b, and c are goals of the U.S. income tax system.

Self-Study Problem 1.2 1. S chedule B, Form 1040. Taxpayers that itemize deductions must use Form 1040. 2. Schedule D, Form 1040. Taxpayers that report capital gains (not simply distributions) must use Form 1040. 3. Schedule F, Form 1040. Taxpayers with farm income must use Form 1040. 4. Form 1041 is used to report the income of estates and trusts. 5. Schedule K-1, Form 1065 6. Form 1040. Taxpayers that itemize must use Form 1040 regardless of income limit. 7. Schedule C, Form 1040 8. Schedule E, Form 1040 9. Schedule B, Form 1040 or Form 1040A 10. Form 1120 11. Form 1065 12. Schedule A, Form 1040 13. Form 1040EZ

Self-Study Problem 1.3 1. Gross income 5 $29,000 1 $1 ,500 5 $30,500 2. Adjusted gross income 5 $30,500 2 $2,200 5 $28,300 3. Itemized deductions 5 $6,500 4. Taxable income 5 $28,300 2 $6,500 2 $4,000 5 $17,800

Self-Study Problem 1.4 Refer to Figures 1.1, 1.2, and 1.3 in Chapter 1. 1. No Income is below single under 65 threshold. See Fig. 1.1 2. No Income is below MFJ with one spouse 65 or older limit. See Fig. 1.1 3. Yes Earned income above threshold for single dependent. See Fig. 1.2 4. Yes Self-employment income greater than $400. See Fig. 1.3 E-1

Appendix E

5. No Income is below MFJ threshold; however, the taxpayers should file to obtain a refund (See Fig. 1.1). 6. Yes Social Security taxes are due (See Fig. 1.3). 7. Yes Income is above threshold for qualifying widow for under 65 with dependent. (See Fig. 1.1).

Self-Study Problem 1.5 1. B or C 2. D 3. A 4. C 5. D 6. E The taxpayer is a ‘‘qualifying widower.’’

Self-Study Problem 1.6 1. 2. Two personal exemptions. Although age and blindness affect the standard deduction, they do not affect exemptions. 2. 4. Two personal and two dependency exemptions. 3. 1. One personal exemption; the brother fails to meet the gross income test to be a qualifying relative. The fact that the brother is a student is irrelevant since he is older than 24. 4. 2. One personal exemption and one dependency exemption for the mother. 5. 3. One personal and two dependency exemptions. 6. 2. One personal and one dependency exemption since the scholarship is not considered support. 7. 2. One personal and one dependency exemption.

Self-Study Problem 1.7 1. $6,300 2. $13,850 5 $12,600 1 $1,250 3. $9,400 5 $6,300 1 $1,550 1 $1,550 4. $9,250 5. $1,050 6. $12,600

Self-Study Problem 1.8 1. $12,600 5 $12,800 2 $200 2. $8,750 3. $3,850 5 $12,800 2 $200 2 $8,750 4. $3,850 5 $12,800 2 $200 2 $8,750 5. Because the stock has been held for more than a year, the gain is a long-term capital gain. The long-term capital gain will be taxed at 0 percent for taxpayers in the 10 or 15 percent tax brackets or 15 percent for most other taxpayers and 20% for high-income taxpayers. A net investment income tax of 3.8% may also apply.

Self-Study Problem 1.9

See pages E-3 to E-4.

Self-Study Problem 1.10 1. True 2. True 3. True


E-2


Solutions to Self-Study Problems


Ronald Trunk 450,000

450,000

450,000

450,000 200,000 250,000 250,000

9,500

E-3

330,000

250,000 0 250,000 80,000 720

720


E-4 Appendix E


Marcia and Scott Chang



Self-Study Problem 1.11 1. True 2. False 3. True 4. False

CHAPTER 2 GROSS INCOME AND EXCLUSIONS Self-Study Problem 2.1 1. Included 11. Excluded 2. Included 12. Included 3. Excluded 13. Included 4. Included 14. Included 5. Included 15. Excluded 6. Excluded 16. Excluded 7. Excluded 17. Included 8. Excluded 18. Included 9. Included 19. Excluded 10. Included

Self-Study Problem 2.2 See Pages E-7 and E-8.

Self-Study Problem 2.3 1. None For divorce agreements executed after 1984, an alimony payment is defined as a payment in cash. 2. $1,200/month The remainder, $800 ($2,000 2 $1,200), is treated as child support. 3. None Transfers of property in settlement of a marital obligation are not taxable. The husband is likely to take the ex-wife’s $20,000 basis.


1. $2,000 2. $10,000 3. $2,500 4. $5,000 5. $0. A service award less than $400 may be excluded from income.

Self-Study Problem 2.5 Part a $14,645 The amount excluded from income will be $16,500 3 [$42,500/ ($1,500 3 12 months 3 21 years)] 5 $1,855. Therefore, Phil will have taxable income of $14,645 ($16,500 2 $1,855).

E-5

Appendix E

Part b SIMPLIFIED METHOD WORKSHEET 1. Enter total amount received this year. 1. $ 16,500.00 2. Enter cost in the plan at the annuity starting date. 2. $ 42,500.00 3. Age at annuity starting date:

Enter 55 and under 360 56–60 310 61–65 260 66–70 210 71 and older 160 4. Divide line 2 by line 3. 5. Multiply line 4 by the number of monthly payments this year. If the annuity starting date was before 1987, also enter this amount on line 8; and skip lines 6 and 7. Otherwise, go to line 6. 6. Enter the amount, if any, recovered tax free in prior years. 7. Subtract line 6 from line 2. 8. Enter the smaller of line 5 or 7. 9. Taxable amount this year: Subtract line 8 from line 1. Do not enter less than 0.

3.

260

4. $ 163.46 5. $ 1 ,798.06

6. 0.00 7. $ 42 ,500.00 8. $ 1 ,798.06 9. $ 1 4,701.94

Self-Study Problem 2.6 Amount received Less: 1/10 of $100,000 Taxable interest

$ 13 ,250 (10,000) $ 3 ,250

Self-Study Problem 2.7 $40,000 Gifts in a business setting are taxable income, even if there was no obligation to make the payment. This problem is similar to the facts of a court case (Duberstein) in which the Supreme Court held that the value of the automobile was income, even where there was no legal obligation to make the gift.

Self-Study Problem 2.8 1. Excluded 2. Included 3. Included

4. Included 5. Included 6. Included

Self-Study Problem 2.9 None. Neither the premiums nor the reimbursement are included in gross income.

Self-Study Problem 2.10 1. Excluded 2. Included 3. Excluded

Self-Study Problem 2.11 1.

7% 5 9.72% 1 2 .28

2.

6.5% 5 9.70% 1 2 .33

4. Included 5. Excluded 6. Excluded


E-6




Bill and Betty Brown Mango Corporation Quince Savings and Loan U.S. Treasury Bonds

425 2,150 175

2,750 2,750 Apple Corp. Apple Corp. Pear Corp. Grape Inc. Grape Inc.

275 175 450 300 450

1,650

E-7

1,650

X

0

1,650 0 1,650 38,350

74,900 40,000 38,350 1,650 1,650 1,650 0

464,850

40,000 40,000 0 0

1,650 0


E-8 Appendix E


40,000

0

0

4,834 4,834

5,081

4,834



E-9

Self-Study Problem 2.12 $3,000 Unemployment compensation is fully taxable.

Self-Study Problem 2.13 1. Excluded 2. Included (the excess discount over 15%) 3. Excluded 4. Excluded 5. Included 6. Included 7. Excluded

Self-Study Problem 2.14 Simplified Taxable Social Security Worksheet (for most people) 1. Enter the total amount of Social Security income. 2. Enter one-half of line 1. 3. Enter the total of taxable income items on Form 1040 except Social Security income. 4. Enter the amount of tax-exempt interest income. 5. Add lines 2, 3, and 4. 6. Enter all adjustments for AGI except for student loan interest, the domestic production activities deduction, and the tuition and fees deduction. 7. Subtract line 6 from line 5. If 0 or less, stop here, none of the Social Security benefits are taxable. 8. Enter $25,000 ($32,000 if married filing jointly; $0 if married filing separately and living with spouse at any time during the year). 9. Subtract line 8 from line 7. If 0 or less, enter -0-. Note: If line 9 is 0 or less, stop here; none of your benefits are taxable. Otherwise, go on to line 10.

10. Enter $9,000 ($12,000 if married filing jointly; $0 if married filing separately and living with spouse at any time during the year). 11. Subtract line 10 from line 9. If 0 or less, enter -0-. 12. Enter the smaller of line 9 or line 10. 13. Enter one-half of line 12. 14. Enter the smaller of line 2 or line 13. 15. Multiply line 11 by 85% (.85). If line 11 is 0, enter -0-. 16. Add lines 14 and 15. 17. Multiply line 1 by 85% (.85). 18. Taxable benefits. Enter the smaller of line 16 or line 17.

1. $13,000 2. 6,500 3. 20,000 4. 30,000 5. 56,500 6. 0 7. 56,500 8. 32,000 9. 24,500

10. 12,000 11. 12,500 12. 12,000 13. 6,000 14. 6,000 15. 10,625 16. 16,625 17. 11,050 18. $11,050

CHAPTER 3 BUSINESS INCOME AND EXPENSES, PART I Self-Study Problem 3.1 See Schedule C on Pages E-11 and E-12.

Appendix E


62,500 178,750

241,250 68,400 172,850 Self-Study Problem 3.3 Marc’s transportation deduction is the greater of his actual costs or his deduction using the standard mileage method. Actual Cost Calculation: Cash Outlays $ 4,028 Depreciation 3,000 $ 7,028 Business percentage (13,325/16,250) 382% Subtotal $ 5,763 Tolls & Fees 327 Actual Costs $ 6,090 Standard Mileage Calculation: 13,325 miles @ 57.5¢ Tolls & Fees Marc’s deduction for 2015 is

$ 7,662 327 $ 7,989

Self-Study Problem 3.4 Deductible expenses: Airfare Hotel while working on the audit Meals while working on the audit Laundry Taxi Total travel deduction

$ 190 325 68 22 72 $677

Self-Study Problem 3.5 Business meals $1,700 3 50% 5 $850. Dues and personal expenses are not generally deductible.


E-10




466-47-8833

Teri Kataoka Golf Teacher

8 1 2 9 9 0 1234 Pinecrest Drive Kennesaw, GA 30152

40,125 40,125 40,125 40,125 660 3,036 2,700 250 3,000 475

985 1,015 12,121 28,004

28,004

E-11

01 01 2015

5,280 4,250 6,000 © 2014 Cengage Learning. All Rights Reserved. This content is not yet final and Cengage Learning does not guarantee this page will contain current material or match the published product.

E-12 Appendix E




Self-Study Problem 3.6 Lodging $1,200 Transportation 350 Meals (50% of $200) 100 Books 175 Tuition 550 Total Deduction $2,375 The cost of the weekend trip to the Grand Canyon is not deductible.

Self-Study Problem 3.7 1. Deductible 2. Deductible 3. Not Deductible 4. Deductible 5. Not Deductible

Self-Study Problem 3.8 Safety shoes and orange vest Climbing equipment, etc. Total Special Clothing Deduction

$ 650 275 $ 925

Self-Study Problem 3.9 1. Mr. Jones 2. Mr. Brown 3/4. Mrs. and Mr. Green 5. Ms. Gray 6. Mr. Edwards 7. Various customers Total Business Gift Deduction

$ 20 25 25 0 75 140 $ 285

Self-Study Problem 3.10 1. Business 2. Nonbusiness 3. Nonbusiness 4. Business 5. Nonbusiness

Self-Study Problem 3.11 Gross income Less: interest and taxes Balance Less: maintenance, utilities, and cleaning ($1,400) limited to Net income Note: The excess expenses of $700 may be carried forward.

$ 2,800 (2,100) $ 700 (700) $ 0

E-13

E-14

Appendix E

Self-Study Problem 3.12 1. F NOL deductions are carried back 2 years and then forward 20 years. 2. F Generally, NOLs are only from the operation of a trade or business, casualty and theft losses, or confiscation losses. 3. T 4. T 5. F In 2015, the NOL is carried back 2 years and forward 20 years, unless an election is made to forgo the 2-year carryback.

The maximum amount of expenses that can be deducted is $250, the amount of income from the hobby activity. The expenses of $250 are deductible as a miscellaneous itemized deduction, subject to the 2 percent of adjusted gross income limitation. The sales must be reported as miscellaneous income even though the 2 percent of AGI limitation may prevent the expenses from being deducted.

CHAPTER 4 BUSINESS INCOME AND EXPENSES, PART II Self-Study Problem 4.1 See Schedule E on Page E-15.

Self-Study Problem 4.2 See Form 8582 on Page E-16.

Self-Study Problem 4.3 $20,710 5 $15,000 1 $2,000 1 $3,000 1 $710 (limited by age)

Self-Study Problem 4.4 1. $ 6,650 2. $ 0 A plan with no deductible does not qualify. 3. $ 2,000 4. $ 0 Individuals are not allowed to make contributions to an HSA after age 65 and qualify for Medicare.


Self-Study Problem 4.6 a. $4,950 5 $5,500 3 b. $4,400 5

$71,000 2 $62,000 $10,000

$131,000 2 $119,000 3 $5,500 $15,000

Self-Study Problem 4.7 a. $10,000, the lesser of (0.25/1.25) 3 $50,000 or $53,000 b. i. $10,000, lesser of 25% 3 $40,000 or $18,000 (annual dollar limit effective for 2015) ii. $18,000 (annual dollar limit effective for 2015)






Janet Randolf

14 Lancaster Drive, Salem, OR 97305

2 365

6,000

225

1,700

600 900 545 3,970

2,030

6,000

1,700 545 3,970

2,030

2,030

E-15

21,000 (21,000)

15,000 (15,000)

(36,000)

150,000 102,000

48,000 21,000

24,000 21,000

0 21,000


E-16 Appendix E


Sherry Moore




Maureen Motsinger

4,100 1,268

5,368

5,000

368

(a) $650 for lodging plus 2,687 mileage × $0.23 per mile. Meals are not deductible. (a)

E-17

E-18

Appendix E

Self-Study Problem 4.8 a. $12,500, lesser of 25% 3 $50,000 or $53,000 (annual limit effective for 2015) b. $53,000 (annual dollar limit effective for 2015)


CHAPTER 5 ITEMIZED DEDUCTIONS AND OTHER INCENTIVES Self-Study Problems 5.1 through 5.6 See Schedule A and Form 4684 on Pages E-19 to E-20. Line 1 of Schedule A is computed as follows: Medical insurance $ 425 Prescription medicines and drugs 364 Hospital bills 2,424 Doctor bills 725 Eyeglasses for Frank’s dependent mother 75 Doctor bills for Betty’s sister, who is claimed as a dependent by Frank and Betty 220 Medical transportation in personal vehicle (610 miles * $0.23) 140 Total 4,373 Less reimbursement (1,420) Medical and dental expenses $2,953 Line 5 of Schedule A—The $225 refund is included on Line 10 of Form 1040 as gross income. Line 14 of Schedule A—Investment interest is deductible only to the extent of net investment income of $1,000. Line 16 of Schedule A—The Mexican Red Cross is not a qualified recipient.

Self-Study Problem 5.7 1. DFROM The employer does not have an accountable plan. The actual $950 of expenses are treated as miscellaneous itemized deductions subject to the 2 percent of adjusted gross income limitation. 2. DFROM Employee business expenses which are not reimbursed are treated as miscellaneous itemized deductions subject to the 2 percent of adjusted gross income limitation. 3. DFOR The employer has an accountable reimbursement plan and the employee substantiates the expenses on a timely basis.

Self-Study Problem 5.8 (Note: At the time we go to press, the tuition deduction has not been extended. The solution uses the 2014 phase-out thresholds.) a. $0 b. $2,000. Henry’s AGI is under $95,000 so there is no phase-out.


a. $150,000 b. $120,000 ($150,000 2 20% 3 $150,000) c. August 30, 20XX, which is the 60th day after the day the distribution was received, unless the hardship waiver provisions apply d. $150,000



Self-Study Problems 5.1, 5.2, 5.3, 5.4, and 5.6

25,400

2,953 1,905

1,408

1,050 825 85 9,250

1,000 335 150 800

Dues, Job Hunting, Journals Safe Deposit, Bank Trust Fees 35,000

1,960

10,250

1,285

1,700 450 1,080 3,230 700

2,530

E-19

6,000

2,900

9,000 0 9,000 6,000 3,100 3,100 100 3,000 3,000 0 0

3,000 2,500

500


E-20 Appendix E


Vivian Walker

Coin Collection, 2007



E-21

Self-Study Problem 5.9 Elvis and Greta may deduct $26,550 of the $30,000. The reduction is calculated as the lesser of: $3,350 5 3% 3 ($421,550 2 $309,900) or $8,000 5 80% 3 ($30,000 2 $20,000) Deduction allowed 5 $26,650 5 $30,000 2 $3,350

CHAPTER 6 CREDITS AND SPECIAL TAXES Self-Study Problem 6.1 a. $1,200. See Child Tax Credit worksheet on Page E-22. b. $2,000. Two children under the age of 17 at $1,000 each. c. Child tax credit 5 $383 Additional child tax credit 5 $2,617. See Child Tax Credit worksheets on Pages E-24 to E-25 and Schedule 8812 on Pages E-26 to E-27.

Self-Study Problem 6.2 See Worksheet A - 2015 EIC on Page E-28.


Self-Study Problem 6.4A 1. $ 0. Talia and James are exempt from the individual shared responsibility. The 2015 filing threshold for married filing jointly is $20,600. Talia and James’ AGI is only $20,000. Emma’s income is not included for purposes of the shared responsibility calculation of AGI because she is not required to file a tax return. 2. $474. Income of $34,000 2 $10,300 5 $23,700 3 2% 5 $474. The flat amount is $325. The greater of the two is the income amount of $474. This is below the cost of a bronze plan. 3. $0. Jill was without MEC for only two consecutive months and thus can use one of the exceptions to avoid the individual shared responsibility. 4. $135. See Shared Responsibility Payment Worksheet on Page E-32 and Flat Dollar Amount Worksheet on Page E-33. 5. $6,388. Income of $340,000 2 $20,600 5 $319,400 3 2% 5 $6,388. The flat amount is $975 since the actual flat amount ($325 3 2 1 $162.50 3 4 5 $1,300) is greater than the 2015 family maximum. The greater of the two amounts is $6,388. The average bronze premium for a family of five or more is $1,035 per month or $12,420 in 2015.

Self-Study Problem 6.4B 1. $3,636. 2. Excess credit of $2,160. 3. Repayment of $1,500. See Form 8962 on Page E-34.

2 2,000

125,400

110,000

16,000

800

1,200


E-22 Appendix E

Self-Study Problem 6.1 part a




13,431

0

13,431

1,200

E-23

3 3,000

36,400

110,000

0

3,000


E-24 Appendix E

Self-Study Problem 6.1 part c




383

0

383

383

E-25

3,000

36,400

33,400 383 2,617

5,010


E-26 Appendix E


Marie and Pierre Curry




2,785

2,785

2,785 5,010 2,617

E-27

(Wages, Salaries) 3,359

(Adjusted Gross Income) 15,900

X

X

3,359


E-28 Appendix E


15,800



Self-Study Problem 6.3 p

456-23-6543

Julie Brown

Ivy Childcare De Anza Adult Care

Chuck Devona

1 Sunflower Street, Terre Haute, IN 47803 13 Fort Harrison Rd., Dewey, IN 47805

Brown Neuporte

99-1234567

1,500

99-7654321

2,400

123-33-3333 456-66-6666

0 1,900 1,900 90,000 90,000 1,900

90,000

20

380 6,171 380 * Student required to assume some data.

E-29

3,900 2,000 90,000

90,000

2,000

5,000

2,000 0

0

2,000

0

6,000 2,000

4,000 1,900 1,900


E-30 Appendix E


2,000 0 0 2,000



E-31

Self-Study Problem 6.5 a. $500. Refundable American Opportunity tax credit, Line 8 of Form 8863. $750. Nonrefundable American Opportunity tax credit, Line 19 of Form 8863. See Form 8863 on Pages E-35 to E-36. b. $1,040 5 20% 3 $5,200 ($10,000 maximum)

Self-Study Problem 6.6 Country A Country B

$10,000 3 20% 5 $ 2,000 $20,000 3 50% 5 10,000 $12,000 Overall limitation:

Total foreign taxes paid

$30,000 3 $20,000 5 $6,667 $90,000 The foreign tax credit is limited to $6,667. The remaining balance of $5,333 can be carried back one year or carried forward 10 years.

Self-Study Problem 6.7 See Form 8839 on Pages E-37 and E-38.

Self-Study Problem 6.8 a. $7,500. The Nissan Leaf qualifies for the full $7,500 credit. b. $3,000 (30% 3 $10,000). The solar system for the hot tub is not an allowed cost for the credit.Self-Study Problem 6.9

Self-Study Problem 6.9 See Form 6251 on Page E-39. Line 1 of Form 6251 is computed as follows: Adjusted gross income $200,000 Less itemized deductions: Home mortgage interest expense $23,000 Contributions 11,000 Property taxes 10,000 State income taxes 40,000 Miscellaneous 10,000 (94,000) Taxable income before personal exemption $ 106,000 Line 29 of Form 6251 is computed as follows: Line 28—AMTI $ 166,000 Less: Line 29 maximum for Single 119,200 46,800 Phase-out—25% (11,700) Deducted from minimum for Single 53,600 Exemption $ 41,900


Step 1: Unearned income $3,000 Less: greater of $1,050 (standard deduction) or (1,050) investment expenses Less: amount taxed at 10% (1,050) Net unearned income, taxed at parents’ rates $ 900

(This problem is continued on Page E-40.)

E-32

Appendix E

Self-Study Problem 6.4A Shared Responsibility Payment Worksheetp If you or another member of your tax household had neither minimum essential coverage nor a coverage exemption for any month during 2015, use the Shared Responsibility Payment Worksheet, below, to figure your shared responsibility payment. You will enter the amount from line 14 of the worksheet on Form 1040, line 61; Form 1040A, line 38; or Form 1040EZ, line 11.

Aug

Sep

Oct

Nov

Dec

TED

Name

Jan

Feb

Mar

Apr

May

Jun

Jul

X

X

X

X

X

1. Total number of X's in a month. If 5 or more, enter 5 . . . . . . . . . . . . . . . . .

1

1

1

1

1

2. Total number of X's in a month for individuals 18 or over* . . . . . . . . . . .

1

1

1

1

1

1 325

1 325

1 325

3. One-half the number of X's in a month for individuals under 18* . . . . . . . . . 4. Add lines 2 and 3 for each month . . . 5. Multiply line 4 by $325 for each month. If $975 or more, enter $975 . . . . . . . .

6. Sum of the monthly amounts entered on line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Enter your household income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Enter your filing threshold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Subtract line 8 from line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. Multiply line 9 by 2% (.02) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11. Is line 10 more than $975?

1 1 325 325 5 22,000 20,600 1,400 28

Yes. Multiply line 10 by the number of months for which line 1 is more than zero

............. No. Enter the amount from line 14 of the Flat Dollar Amount Worksheet 12. Divide line 11 by 12.0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13. Multiply line 6 by $207** . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14. Enter the smaller of line 12 or line 13 here and on Form 1040, line 61; Form 1040A, line 38; or Form 1040EZ, line 11. This is your shared responsibility payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,625 135 1,070 135

*For purposes of figuring the shared responsibility payment, an individual is considered under 18 for an entire month if he or she did not turn 18 before the first day of the month. An individual turns 18 on the anniversary of the day the individual was born. For example, someone born on March 1, 1999, is considered age 18 on March 1, 2017, and, therefore, is not considered age 18 for purposes of the shared responsibility payment until April 2017. **$207 is the 2015 national average premium for a bronze level health plan available through the Marketplace for one individual and should not be changed.

*At the time we went to press, the 2015 shared responsibility worksheets were not available. The 2014 worksheets have been adapted for use in 2015.


Complete the monthly columns by placing “X's” in each month in which you or another member of your tax household had neither minimum essential coverage nor a coverage exemption.



E-33

Self-Study Problem 6.4A Flat Dollar Amount Worksheet

!

CAUTION

Do not complete this worksheet unless the amount on line 10 of the Shared Responsibility Payment Worksheet is less than $975.

For each month, is the amount on line 5 of the Shared Responsibility Payment Worksheet less than the amount on line 10 of the Shared Responsibility Payment Worksheet?* 1.

January

2.

February

3.

March

4.

April

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.

May

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.

June

7.

July

8.

August

9.

September

Yes

No

Enter the amount from line 10

Enter the amount from line 5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10. October

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11. November

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12. December

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13. Add the amounts in each column

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14. Add the amounts on line 13 of both columns. Enter the result on line 11 of the Shared Responsibility Payment Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

325 325 325 325 325 1,625 1,625

*If the amount on line 1 of the Shared Responsibility Payment Worksheet is -0- for any month, leave both columns of this worksheet blank for that month.

Harold and Mary Killington

68,000

11,196 9,804 0 68,000 23,850 285

6,168 .0907 514

6,168 3,636 3,636 5,796

3,636 5,796

2,160 1,500 1,500


E-34 Appendix E

Self-Study Problem 6.4B

123-44-5555 4




XXX

Santiago and Sophia Estudiante

XX XXXX

2,500 180,000 170,000 10,000 20,000 500 1,250 500 750

0 750 p *Because the taxpayers have a large tax liability relative to the AOTC, it will not be limited.

E-35

E-36

Appendix E


Judy Estudiante

XXX

YYY

YY

XX XXXX

YYYY


Santiago and Sophia Estudiante

Southwestern University 1234 Cleveland Ave., El Paso, TX 79925

X X - X X X X X X X

4,000 2,000 500 2,500



Allison Bass 2015

13,400

1,662 11,738

11,738

11,738

11,738

E-37


James and Michael Bass

466-47-3311

13,400

17,000

205,970

4,960 124

0 13,400

4,000 4,000

4,000 205,970

4,960 124

496 3,504 3,504

496


E-38 Appendix E





Harold Brown 106,000 50,000 10,000

166,000

41,900

124,100

32,266

32,266

19,979 12,287

E-39

Appendix E

Step 2: Parents’ taxable income Plus: child’s net unearned income Revised taxable income Tax from tax table on revised taxable income ($46,950) Less: tax from tax table on regular taxable income ($46,050) Parental tax Step 3: Regular tax (at 10% assumed rate) Parental tax Total tax liability

$46, 050 900 $ 46,950 $ 6,124 (5,989) $ 135 $ 105 135 $ 240

Self-Study Problem 6.11 a. Tom’s salary (50 percent) Rachel’s salary (50 percent) Dividends, Rachel’s property (100 percent) Interest (50 percent) Total

$20, 000 15, 000 3, 000 2, 000 $40, 000

b. Tom’s salary (50 percent) Rachel’s salary (50 percent) Dividends, Tom’s property (50 percent) Dividends, Rachel’s property (50 percent) Interest (50 percent) Total

$20, 000 15, 000 2, 500 1, 500 2,000 $ 41, 000

CHAPTER 7 ACCOUNTING PERIODS AND METHODS AND DEPRECIATION Self-Study Problem 7.1 Step 1: Annualize the income $48,000 3 12/10 5 $57,600 Step 2: Tax on annualized income 15% 3 $50,000 5 $ 7,500 25% 3 7,600 5 1,900 9,400 Step 3: Short-period tax $9,400 3 10/12 5 $ 7,833

Self-Study Problem 7.2A Business income Less: business expenses Operating income Add: rent received Add: prepaid interest received Less: rent expense for one month ($7,200/6) Net income

$ 63,000 (42,000) $ 21,000 9,000 12,000 (1,200) $ 40,800


E-40



Self-Study Problem 7.2B 1. Yes 2. Yes 3. No 4. Yes, assuming this is a personal service corporation.

Self-Study Problem 7.3 Year

Depreciation Deduction

20X1 $ 583 20X2 700 20X3 700 20X4 700 20X5 700 20X6 117 Total $3,500

Self-Study Problem 7.4 a. With bonus depreciation: Bonus: $12,000 3 50% 5 $6,000 MACRS: $6,000 3 0.1429 5 $857 Bonus: $2,000 3 50% 5 $1,000 MACRS: $1,000 3 0.1429 5 $143 Real estate: $175,000 3 0.02033 5 $3,558 Without Bonus Depreciation: MACRS: $14,000 3 0.1429 5 $2,001 See Form 4562 on Pages E-43 and E-44. b. If Bonus Depreciation in 2015: MACRS: $6,000 3 0.2449 5 $1,469 MACRS: $1,000 3 0.2449 5 $245 Real estate: $175,000 3 0.02564 5 $4,487 Without Bonus Depreciation in 2015: MACRS: $14,000 3 0.2449 5 $3,429

Self-Study Problem 7.5 Part a Cost $37,500 Section 179 (25,000) 12,500 MACRS 3 0.1429 1,786 Section 179 25,000 Total depreciation (including election to expense) $26,786 Part b Cost $737,500 Section 179 (500,000) 237,500 MACRS 3 0.1429 33,939 Section 179 500,000 Total depreciation $533,939

E-41

E-42

Appendix E

Self-Study Problem 7.6 1. Yes Qualified business use does not include investment use. 2. No Qualified business use is more than 50 percent; therefore, Laura may use the accelerated method of depreciation. 3. Yes Since the computer was acquired for Vicky’s own convenience, not the convenience of her employer, qualified business use does not include use of the property in performing services as an employee. 2015: ($26,000 3 20%) 3 90% 5 $4,680, but limited to $3,160 3 90% 5 $2,844. If the $8,000 bonus depreciation on autos is extended into 2015, then the limit ($11,160 3 90% 5 $10,044) will not apply.

Self-Study Problem 7.8 1. 15-year Amortization. 5. 15-year Amortization. 2. Useful Life. 6. Not Amortizable. 3. Useful Life. 7. 15-year Amortization. 4. 15-year Amortization. 8. Not Amortizable.


1. 56%; 40% owned directly and 16% (80% 3 20%) through X Corporation. 2. 40%; 20% owned directly plus 20% as Gene’s brother. 3. 40%; 20% owned directly plus 20% as Frank’s brother. 4. $0; since they are related parties, the loss would be disallowed.

CHAPTER 8 CAPITAL GAINS AND LOSSES Self-Study Problem 8.1 1. No Inventory is specifically excluded from the definition of a capital asset. 2. Yes 3. No Property held by the creator is specifically excluded from the definition of a capital asset. 4. No Accounts receivable are specifically excluded from the definition of a capital asset. 5. Yes 6. No Section 1231 assets (depreciable property and real estate used in a trade or business) are specifically excluded from the definition of a capital asset. 7. Yes 8. Yes 9. Yes 10. Yes 11. No Inventory is specifically excluded from the definition of a capital asset. 12. Yes

Self-Study Problem 8.2 1. Short-term 2. Long-term 3. Short-term 4. Long-term




E-43

Self-Study Problem 7.4*


Mary Moser

7,000

7,000

03/30/2015

7 yrs

HY

175,000

200 DB

1,000

3,558

11,558 *This solution assumes that bonus depreciation was extended into 2015.

14,000

03/30/2015 175,000

*This solution assume no bonus depreciation.

7 yrs HY 200 DB 2,001

3,558

5,559


E-44 Appendix E

Self-Study Problem 7.4*

Mary Moser



E-45

Self-Study Problem 8.3 1. Adjusted basis 5 $11,000 2. Capital improvements 5 $2,000 3. Accumulated depreciation 5 $15,000 4. Original cost 5 $23,000

Self-Study Problem 8.4 Net long-term ($12,000 2 $4,000) 1 ($14,000 2 $17,500) 5 Net short-term Net capital gains Capital gains rate Tax

$ 4,500 (1,800) $ 2,700 3 15% $ 405

Self-Study Problem 8.5 See Schedule D, Form 8949, and the qualified dividends and capital gains tax worksheet on Pages E-47 through E-51.


Self-Study Problem 8.7 1. $12,000 2 $7,000 5 $5,000 2. $5,000 1 $7,000 5 $12,000 3. $12,000 2 $5,000 5 $7,000 4. $6,000 2 $5,000 5 $1,000 5. $1,000, the lesser of the amounts in (3) or (4) above. 6. $1,000 (gain realized) 2 $1,000 (Section 1245 ordinary income) 5 $0. All of the gain is Section 1245 ordinary income.

Self-Study Problem 8.8 Step 1: Compute separate casualty gains and losses Furniture $2,000, lesser of adjusted basis or decrease in fair market value, less $1,600 insurance reimbursement, less $100 floor Jewelry $2,500 insurance reimbursement, less $1,800, adjusted basis Business $14,000, adjusted basis, less machinery $10,000 insurance reimbursement Step 2: Net all personal casualty gains and losses

Casualty Gain or (Loss)

$ (300) 700 (4,000)

$(300) 1 $700 5 $400 net casualty gain Step 3: Determine nature of casualty gains and losses a. Personal casualty gains and losses — Since an overall gain results, the gain or loss on each item of personal property is treated as a capital gain or loss as follows: Furniture — Short-term capital loss Jewelry — Long-term capital gain

$ (300) $ 700

b. Business casualty gains and losses — Machinery — Ordinary loss

$(4,000)

Appendix E

The capital gain and capital loss are netted with other capital gains and losses for the year. Since personal casualty gains exceed personal casualty losses, the loss recognized on the furniture is not subject to the 10 percent of adjusted gross income limitation.

Self-Study Problem 8.9 Cash $ 20,000 Add: buyer’s note 100,000 Selling price $ 120,000 Less: the adjusted basis ($80,000 2 $26,000) (54,000) Total gain realized $ 66,000 Contract price ($20,000 1 $100,000) $ 120,000 Taxable gain in 2015 5 $66,000 / $120,000 3 $20,000 $ 11,000

Self-Study Problem 8.10 Calculation of gain recognized: Fair market value of new truck $ 22,000 Add: liability assumed by the buyer 8,000 Total amount realized 30,000 Less: the adjusted basis of the property given up (18,000) Gain realized $ 12,000 Boot received (liability assumed by the buyer) $ 8,000 Gain recognized (the lesser of the gain realized or the boot received) $ 8,000 Basis of the property received: Basis of property given up $ 18,000 Less: boot received (8,000) Add: the gain recognized 8,000 Basis of the property received $ 18,000

Self-Study Problem 8.11 1. Insurance proceeds $ 150,000 Less: the adjusted basis of the property (70,000) Gain realized $ 80,000 Insurance proceeds $ 150,000 Less: the cost of the replacement store (135,000) Proceeds not reinvested $ 15,000 Gain recognized (the lesser of the gain realized or the proceeds not reinvested) $ 15,000 2. Cost of the new store $ 135,000 Less: the gain deferred ($80,000 2 $15,000) (65,000) Basis of the new store $ 70,000

Self-Study Problem 8.12 a. Sales price $350,000 Basis 30,000 Realized Gain $320,000 Exclusion 250,000 Recognized Gain $ 70,000 (This problem is continued on Page E-54.)


E-46




Gerry Appel

12,000

43,000

19,200

33,500

(7,200)

(7,200)

9,500

9,500

E-47

0

0


E-48 Appendix E


2,300




Gerry Appel

Rose Stock 04/18/2015 12/07/2015 12,000 19,200 (7,200)

12,000

19,200

(7,200)

E-49

Purple Stock 06/21/2006 08/15/2015 18,000 12,500 5,500

Blue Stock 12/18/2007 10/02/2015 25,000 21,000 4,000

43,000

33,500

9,500


E-50 Appendix E


Gerry Appel




59,000

X

2,300 2,300 2,300 56,700

37,450 37,450 37,450 0 2,300 0 2,300

413,200

59,000 56,700 2,300 2,300

2,300 0 345

0

9,975 10,320

10,550

10,320

E-51

Gary Farmer

Land Computer 12/03/2004 01/05/2015 04/05/2012 05/02/2015 37,000 14,000 5,175 24,500 25,875 12,500 (6,700)

5,800

5,800

0


E-52 Appendix E


74-8976432



Self-Study Problem 8.6 E-53

E-54

Appendix E

b. $0. The $500,000 exclusion for joint filers exceeds the $320,000 realized gain. c. $25,000 5 ($350,000 2 $200,000) 2 (½ 3 $250,000)

CHAPTER 9 WITHHOLDING, ESTIMATED PAYMENTS, AND PAYROLL TAXES 1. Monthly salary Less: exemptions ($333.30 3 5) Income subject to withholding

$3,000.00 (1,666.50) $ 1,333.50

Withholding: $76.80 1 [($1,333.50 2 $960.00) 3 15%] 2. From Appendix C, withholding 5 $136.00

$ 132.83


1,380 Ray

Adams

00

466-47-1131

*$1,380 5 ($7560/4) 2 $510

Self-Study Problem 9.3 Debbie:

Soc. Sec. — 6.2% 3 $118,500 Medicare — 1.45% 3 $125,000 Total employee FICA tax

$ 7,347.00 1,812.50 $ 9,159.50

Debbie’s employer:

Soc. Sec. — 6.2% 3 $118,500 Medicare — 1.45% 3 $125,000 Total employer FICA tax

$ 7,347.00 1,812.50 $ 9,159.50 $18,319.00

Total FICA tax


*





Self-Study Problem 9.5 This information is being furnished to the Internal Revenue Service. If you are required to file a tax return, a negligence penalty or other sanction may be imposed on you if this income is taxable and you fail to report it. 1 Wages, tips, other compensation 2 Federal income tax withheld

a Employee’s social security number

464-74-1132

b Employer identification number (EIN)

OMB No. 1545-0008

95-1234567

16,150.00 16,150.00 16,150.00

c Employer’s name, address, and ZIP code

Big Bank PO Box 12344 San Diego, CA 92101

4 Social security tax withheld

5 Medicare wages and tips

6 Medicare tax withheld

7 Social security tips

8 Allocated tips

9

d Control number e Employee’s first name and initial

2,422.00 1001.30 234.18

3 Social security wages

10 Dependent care benefits

Suff. 11 Nonqualified plans

Last name

13

Mary Jones 6431 Gary Street San Diego, CA 92115

Statutory employee

Retirement plan

12a See instructions for box 12 C o d e

Third-party sick pay

14 Other

12b C o d e

12c C o d e

12d C o d e

f Employee’s address and ZIP code 15 State

16 State wages, tips, etc.

Employer’s state ID number

CA 800 4039250 092

Form

W-2

16,150.00

Wage and Tax Statement

Copy C—For EMPLOYEE’S RECORDS (See Notice to Employee on the back of Copy B.)

17 State income tax

969.00

18 Local wages, tips, etc.

19 Local income tax

20 Locality name

Department of the Treasury—Internal Revenue Service

2015

Safe, accurate, FAST! Use

CORRECTED (if checked) PAYER’S name, street address, city or town, state or province, country, ZIP or foreign postal code, and telephone no.

Big Bank PO Box 12344 San Diego, CA 92101

OMB No. 1545-0112

Payer's RTN (optional)

$

Interest Income

2015

1 Interest income

461.00

Form 1099-INT

2 Early withdrawal penalty

PAYER’S federal identification number RECIPIENT’S identification number

95-1234567

Copy B

$

For Recipient

3 Interest on U.S. Savings Bonds and Treas. obligations

464-74-1132

$

This is important tax information and is $ being furnished to the Internal Revenue 7 Foreign country or U.S. possession Service. If you are required to file a 9 Specified private activity bond return, a negligence interest penalty or other sanction may be $ imposed on you if 11 Bond premium this income is taxable and the IRS determines that it has $ not been reported.

4 Federal income tax withheld 5 Investment expenses

RECIPIENT’S name

$

Mary Jones

6 Foreign tax paid

$

Street address (including apt. no.)

8 Tax-exempt interest

6431 Gary Street City or town, state or province, country, and ZIP or foreign postal code

San Diego, CA 92115

$ 10 Market discount

FATCA filing requirement

$ 12

13 Bond premium on tax-exempt bond

$ 14 Tax-exempt and tax credit bond CUSIP no.

Account number (see instructions)

Form 1099-INT

(keep for your records)

www.irs.gov/form1099int

Self-Study Problem 9.6 See Schedule SE on Pages E-59 and E-60.


Self-Study Problem 9.8 See Schedule H on Pages E-63 and E-64.

15 State 16 State identification no. 17 State tax withheld

$ $ Department of the Treasury - Internal Revenue Service

E-55

E-56

Appendix E

Self-Study Problem 9.9 a. $450 5 0.9% 3 ($250,000 2 $200,000) b. $450 refund – Since Marcia has no earnings, their joint income does not exceed the $250,000 threshhold, so they are not subject to the 0.9% Medicare surtax.

CHAPTER 10 PARTNERSHIP TAXATION 1. Yes 2. No A corporation is not a partnership, but a separate type of entity. 3. No The mere joint ownership of property does not constitute a partnership; the owners must engage in some type of business activity. 4. Yes The marketing of oil qualifies the venture as a partnership. 5. Yes

Self-Study Problem 10.2 1. None 2. $36,000 The amount of cash contributed. 3. None 4. $17,500 The same as Linda’s basis in the equipment contributed to the partnership. 5. $17,500 The same as Linda’s basis in the equipment contributed.

Self-Study Problem 10.3 See Form 1065 and Schedule K-1 on Pages E-65 to E-70.

Self-Study Problem 10.4 1. Partnership income before guaranteed payments Less: guaranteed payments Partnership loss after guaranteed payments Jim’s income: Guaranteed payments 50% of the $4,000 partnership loss Total income

$ 32,000 (36,000) $ (4,000) $ 36,000 (2,000) $ 34,000

2. Jack’s income (loss): 50% of the $4,000 partnership loss

$(2,000)

Self-Study Problem 10.5 12 months 3 $1,000 per month guaranteed payment Add: Robert’s distributive share of income Total income

$ 12,000 21,000 $33,000

The $1,500 per month received in September, October, November, and December of 2015 will be reported on Robert’s 2016 income tax return. The guaranteed payments received are reported for the partnership tax year that ends with or within the partner’s tax year, in the same manner as a distributive share of the partnership income.




E-57


Self-Study Problem 10.6 1. Maxwell has a $5,000 realized loss ($70,000 2 $75,000), but the loss is not recognized since he is a more-than-50 percent partner, 50 percent directly and 50 percent indirectly from his daughter. 2. The daughter has a $15,000 gain ($40,000 2 $25,000). Since she is a morethan-50 percent partner (50 percent directly and 50 percent indirectly), and the car is not a capital asset to the partnership, the gain is ordinary income.

Self-Study Problem 10.7 1. $45,000, his amount at risk in the activity. 2. Profit Less: carryover of disallowed loss from the prior year ($60,000 2 $45,000) Taxable income for next year

$ 31,000 (15,000) $ 16,000

Self-Study Problem 10.8 1. False An election must be made to be treated like a corporation for tax purposes. 2. False 3. True 4. True 5. True

CHAPTER 11 THE CORPORATE INCOME TAX Self-Study Problem 11.1 $22,250 1 (39% 3 [$275,000 2 $100,000]) 5 $90,500

Self-Study Problem 11.2 $22,250 1 (39% 3 [$110,000 2 $100,000]) 5 $26,150 None of the capital losses may be used to offset current year ordinary income. The capital losses may be carried back 3 years and forward 5 years to offset capital gains, if any, recognized during those years.

Self-Study Problem 11.3 The dividends received deduction is equal to the lesser of $56,000 5 80% 3 $70,000; or $48,000 5 80% 3 $60,000 ($90,000 1 $70,000 2 $100,000). Therefore, $48,000 is the amount of the deduction.

Self-Study Problem 11.4 104,000 41,000 9,100

4,700 4,700 4,000

154,100 (The next self-study problem is on Page E-71.)

4,000 8,700 145,400

Charlotte York

2 9,600 995

9,600 1,190

9,600 278 1,468

2,463

2,463

2,467

4

x © 2014 Cengage Learning. All Rights Reserved. This content is not yet final and Cengage Learning does not guarantee this page will contain current material or match the published product.

E-58 Appendix E


X




Robert Boyd

27,450 27,450

25,350

3,879

1,940

E-59


E-60 Appendix E


Robert Boyd




9 4 0 0 0 1 1 1 2

Rhus Company

C

39,000 A

113,000

39,000 74,000 444

444 444

0 0

E-61

Rhus Company

66 72 444 © 2014 Cengage Learning. All Rights Reserved. This content is not yet final and Cengage Learning does not guarantee this page will contain current material or match the published product.

E-62 Appendix E


94-0001112

150 156




Susan Green

2,250 279

2,250 65

344

E-63


E-64 Appendix E





Malus Valley Partnership 2015 257,750

255,600 255,600

255,600

255,600 168,000 12,000 6,100

9,250 9,250

195,350 60,250

E-65


E-66 Appendix E





1,500

60,250

50,000


E-68 Appendix E


60,250


E-69



58,750 58,750 Initial Return

10,000

115,000 9,250

27,000 10,000

105,750 115,000 257,750 29,750 187,750 40,250 257,750

58,750

0 58,750

58,750

0 31,500

50,000

58,750 90,250

50,000 40,250

Malus Valley Partnership

Robert Conrad

X

X

Individual A

0 0 0

X

X

50 50 50

108,750

0 15,750 29,375 25,000 20,125 A 750

30,125 25,000


E-70 Appendix E


30,125



Self-Study Problem 11.5 See Form 1120 on Pages E-73 to E-77. The calculation of tax for Aspen Corporation is as follows: 15% 3 $12,000 taxable income 5 $1,800 total tax. Net income per the books is equal to $17,200, $19,000 net income before income tax expense 2 $1,800 income tax expense.

Self-Study Problem 11.6 See Form 1120S and Schedule K-1 on Pages E-78 to E-84.

Self-Study Problem 11.7 Tammy’s realized gain is $125, 000 1 $34, 000 2 $75, 000 5 $84, 000. Tammy’s recognized gain is $0. Tammy’s basis in her stock is $75, 000 2 $0 1 $0 2 $34, 000 5 $41, 000. The corporation’s basis in the real estate is $75, 000 1 $0 5 $75, 000.

Self-Study Problem 11.8 20% 3 $190,000 5 $38,000 Only $190,000 ($340,000 2 $150,000) is subject to the accumulated earnings tax.

Self-Study Problem 11.9 Regular taxable income $ 70,000 Corporate tax preference items 55,000 Alternative minimum taxable income $125,000 Less: exemption (40,000) Alternative minimum tax base $ 85,000 Tax rate 3 20% Gross alternative minimum tax $ 17,000 Less: regular tax (12,500) Alternative minimum tax liability $ 4,500

CHAPTER 12 TAX ADMINISTRATION AND TAX PLANNING Self-Study Problem 12.1 1. False The IRS has nine major services and enforcement offices. 2. True 3. False The commissioner of internal revenue is appointed by the president of the United States. 4. False The IRS is part of the Treasury Department. 5. True

Self-Study Problem 12.2 1. True 2. False 3. True 4. True 5. False

An office audit is conducted at the IRS office.

Audits can be appealed to the next level of the IRS.

E-71

Appendix E

Self-Study Problem 12.3 Part a. Failure-to-pay penalty: $3,000 3 0.5% 3 2 months $ 30 Failure-to-file penalty: $3,000 3 5% 3 2 months $ 300 Less: failure-to-pay penalty (30) 270 Total $300 Part b. 20% 3 $10,000 $2,000 Part c. 75% 3 $10,000 $ 7,500

Self-Study Problem 12.4 1. True 2. False 3. False 4. True 5. True

For bad debts, the statute of limitations is 7 years. There is no statute of limitations for fraudulent returns.

Self-Study Problem 12.5 1. False Lawyers and enrolled agents may also represent taxpayers before the IRS. 2. False A college degree is not required. 3. False Anyone may prepare corporate tax returns. 4. True 5. True 6. True 7. False The burden of proof is on the IRS. 8. False The burden of proof remains on the taxpayer. 9. True 10. True 11. True

Self-Study Problem 12.6 1. True 2. True 3. True 4. True 5. True 6. True

Publication 1 directs the reader to Publication 594.

Self-Study Problem 12.7 1. 20.28% 5 $18,050 / $89,000 2. 20.33% 5 $18,300 / $90,000 3. 25% 5 ($18,300 2 $18,050) / ($90,000 2 $89,000)


E-72



Aspen Corporation 01/01/2015 183,000 285,000


285,000 80,000 205,000 10,000

215,000 90,000 82,000 8,000 11,000 5,000

196,000 19,000 7,000

200

7,000 12,000 1,800 2,000 200

E-73

10,000

7,000

10,000 7,000


E-74 Appendix E


7,000




1,800

1,800

1,800

1,800

2,000

2,000

2,000

2,000

E-75


E-76 Appendix E





Initial Return

10,000

35,000 10,000

125,000 5,000

120,000 18,000 183,000 25,800

140,000

140,000 17,200 183,000

17,200 1,800

19,000 0 17,200 17,200

0 19,000

0 17,200

E-77

01/01/2015

1

285,000 285,000 80,000 205,000

205,000 90,000 82,000 8,000 11,000 5,000

196,000 9,000

0

0

0


E-78 Appendix E


Aspen Corporation 01/01/2015 183,000




10,000 © 2014 Cengage Learning. All Rights Reserved. This content is not yet final and Cengage Learning does not guarantee this page will contain current material or match the published product.

E-80 Appendix E


9,000

10,000




19,000

Initial Return 10,000 35,000 10,000

125,000 5,000 120,000 18,000

183,000 24,000

140,000 19,000

183,000

E-81

19,000

0 9,000 10,000

19,000 19,000

0 19,000 © 2014 Cengage Learning. All Rights Reserved. This content is not yet final and Cengage Learning does not guarantee this page will contain current material or match the published product.

E-82 Appendix E


19,000




9,000

Aspen Corporation 10,000 10,000

Janet Nall

100

E-83


E-84 Appendix E

Solutions to Self-Study Problems - Cengage

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