Question & Answer

For each of the following citations, identify the type of authority (statutory, administrative, or judicial) and explain the citation.

Justine would like to clarify her understanding of a code section recently enacted by Congress.  What tax law sources are available to assist Justine?

Aldina has identified conflicting authorities that address her research question.  How should she evaluate these authorities to make a conclusion?

Georgette has identified a 1983 court case that appears to answer her research question.  What must she do to determine if the case still represents “current” law?

List some rate-sensitive assets and some rate-insensitive assets of banks. (LO3)

Sandy has determined that her research question depends upon the interpretation of the phrase “not compensated by insurance.”  What type of research question is this?

Pierre recently received a tax penalty for failing to file a tax return.  He was upset to receive the penalty, but he was comforted by the thought that he will get a tax deduction for paying the penalty.  a.  Use an available tax research service to determine if Pierre is correct. b.  Write a memo communicating the results of your research.

Paris was happy to provide a contribution to her friend Nicole’s campaign for mayor, especially after she learned that charitable contributions are tax deductible.  a.  Use an available tax service to determine whether Paris can deduct this contribution. b.  Write a memo communicating the results of your research.

Assume that the yield curve for Treasury bonds has a slight upward slope, starting at 6 percent for a 10- year maturity and slowly rising to 8 percent for a 30-year maturity. Create a yield curve that you believe would exist for A-rated bonds, and a corresponding yield curve for B-rated bonds. (LO1, LO3)

The directors of Merchant Corporation are considering the issuance of a stock dividend. They have asked you to discuss the proposed action by answering the following questions. Instructions (a) What is a stock dividend? How is a stock dividend distinguished from a stock split (1) from a legal standpoint, and (2) from an accounting standpoint? (b) For what reasons does a corporation usually declare a stock dividend? A stock split? (c) Discuss the amount, if any, of retained earnings to be capitalized in connection with a stock dividend.

Randy has found conflicting authorities that address a research question for one of his clients.  The majority of the authorities provide an unfavorable answer for his client.  Randy estimates that if the client takes the more favorable position on its tax return that there is approximately a 48 percent chance that the position will be sustained upon audit or judicial proceeding.  If the client takes this position on its tax return, will Randy be subject to penalty?  Will the client potentially be subject to penalty?

Farve Inc. recently elected S corporation status.  At the time of the election, the company had $10,000 of accumulated earnings and profits and a net unrealized gain of $1,000,000 associated with land it had invested in (although some parcels had an unrealized loss).  In the next couple of years, most of the income the company expects to generate will be in the form of interest and dividends (approximately $200,000 per year).  However, in the future, the company will want to liquidate some of its current holdings in land and possibly reinvest in other parcels.  What strategies can you recommend for Farve Inc. to help reduce its potential tax liability as an S corporation?

Stephanie is 12 years old and often assists neighbors on weekends by babysitting their children. Calculate the 2024 standard deduction Stephanie will claim under the following independent circumstances (assume that Stephanie’s parents will claim her as a dependent). a. Stephanie reported $950 of earnings from her babysitting. b. Stephanie reported $1,500 of earnings from her babysitting. c. Stephanie reported $18,000 of earnings from her babysitting.

Martin Buber Co. purchased land as a factory site for $400,000. The process of tearing down two old buildings on the site and constructing the factory required 6 months. The company paid $42,000 to raze the old buildings and sold salvaged lumber and brick for $6,300. Legal fees of $1,850 were paid for title investigation and drawing the purchase contract. Martin Buber paid $2,200 to an engineering firm for a land survey, and $68,000 for drawing the factory plans. The land survey had to be made before definitive plans could be drawn. Title insurance on the property cost $1,500, and a liability insurance premium paid during construction was $900. The contractor’s charge for construction was $2,740,000. The company paid the contractor in two installments: $1,200,000 at the end of 3 months and $1,540,000 upon completion. Interest costs of $170,000 were incurred to finance the construction. Instructions Determine the cost of the land and the cost of the building as they should be recorded on the books of Martin Buber Co. Assume that the land survey was for the building.

Using the same facts from the previous problem, how would your answer change if Randy estimates that there is only a 20 percent chance that the position will be sustained upon audit or judicial proceeding?

Maurice has a client that recently asked him about the odds of the IRS detecting cash transactions not reported on a tax return.  What are some of the issues that Maurice should discuss with his client?

At what phase of the business cycle is the average duration of unemployment likely to be the highest? Explain.

The goal of tax planning is to minimize taxes.”  Explain why this statement is not true.

Describe the three parties engaged in every business transaction and how understanding taxes may aid in structuring transactions.

In this chapter we discussed three basic tax planning strategies.  What different features of taxation does each of these strategies exploit?

Diane has a job working three-quarter time.  She hired a relative to take care of her two small children so Diane could work.  Do Diane’s child care payments to her relative qualify for the child and dependent care credit in 2024?  Explain.

What are the two basic timing strategies?  What is the intent of each?

Why is the timing strategy particularly effective for cash-method taxpayers?

What are some common examples of the timing strategy?

What factors increase the benefits of accelerating deductions or deferring income?