Reference no: EM131043641

Tax Return Problem Cases

Spring 2016

Instructions: Use the relevant tax forms for your computations. You must download the relevant forms from the IRS website. Do not use tax software to prepare the returns. You need not complete the state tax returns. Make sure to include all the relevant supporting schedules for your federal return.

There are a total of five returns assignments. All five returns must be turned in no later than Monday, May 2 at 5:00 p.m.  Please turn in the returns in one envelope to room JH 1111.

This is an individual assignment. You are not allowed to discuss or share the answers with any other student, friend, tax professional, colleague or a professor.

Tax Return 1:

Lance H. and Wanda B. Dean are married and live at 431 Yucca Drive, Santa Fe, NM 87501. Lance works for the convention bureau of the local chamber of commerce, while Wanda is employed part-time as a paralegal for a law firm.

a. During 2014, the deans had the following receipts:

Salaries ($60,000 for Lance, $41,000 for Wanda)		$101,000
Interest income --
City of Albuquerque general purpose bonds	$1,000
Ford Motor Company bonds	1,100
Ally Bank certificate of deposit	400	2,500
Child support payment from John Allen		7,200
Annual gift from parents		26,000
Settlement from Roadrunner Touring Company		90,000
Lottery winnings		600
Federal income tax refund (for tax year 2013)		400

Wanda was previously married to John Allen. When they divorced several years ago, Wanda was awarded custody of their two children, Penny and Kyle. (Note: Wanda was never issued a form 8332 wavier.) Under the divorce decree, John was obligated to pay alimony and child support--the alimony payments were to terminate if Wanda remarried.

In July, while going to lunch in downtown Santa Fe, Wanda was injured by a tour bus. As the driver was clearly at fault, the owner of the bus, Roadrunner Touring Company, paid for her medical expenses (including one-week stay in a hospital). To avoid a lawsuit, Roadrunner also transferred

$90,000 to her in settlement of the personal injuries she sustained.

The Deans has the following expenditures for 2014:

Medical expenses (not covered by insurance)		$7,200
Taxes-
Property taxes on personal residence	$3,600
State of new Mexico income tax (includes amount
withheld from wages during 2014)	4,200	7,800
Interest on home mortgage		6,000
Paid church pledge		3,600
Life insurance premiums (policy on Lance's life)		1,200
Contributions to traditional IRA (on Wanda's behalf)		5,000
Traffic fines		300
Contributions to the reelection campaign fund of the
major of Santa Fe		500
Funeral expense for Wayne Boyle		6,300

The life insurance policy was taken out but several years ago and designates Wanda as the beneficiary. As a part time employee, Wanda is excluded from coverage under her employer's pension plan.

Consequently, she provides for her own retirement with a traditional IRA obtained at a local trust company. Because the mayor is a member of the local Chamber of Commerce, Lance felt compelled to make the political contribution.

The Deans' household includes the following, for whom they provide more than half of the support:

	Social Security Number	Birth Date
Lance Dean (age 42)	123-45-6786	12/16/1972
Wanda Dean (age 40)	123-45-6787	08/08/1974
Penny Allen (age 19)	123-45-6788	10/09/1995
Kyle Allen (age 17)	123-45-6789	05/03/1997
Wayne Boyle (age75)	123-45-6785	06/15/1939

Penny graduated from high school on May 9, 2014, and is undecided about college. During 2014, she earned $8,500 (placed in a savings account) playing a harp in the lobby if a local hotel. Wayne is Wanda's widower father, who died on January 20, 2014. For the past few years, Wayne qualified as a dependent of the Deans.

Federal income tax withheld is $5200 (Lance) and $3000 (Wanda). The proper amount of social security and Medicare tax was withheld.

Determine the Federal income tax for 2014 for the Deans on a joint return by completing the appropriate forms. They do not want to contribute to the Presidential Election Campaign Fund. All members of the family had health care coverage for all of 2014. If an overpayment results, it is to be refunded to them.

Tax Return 2:

Logan B Taylor is a widow whose wife, Sara died on June 6, 2012. He lives at 4680 Dogwood Lane, Springfield, MO 65801. He is employed as a paralegal by a local law firm. During 2014, he had the following receipts:

Salary		$80,000
Interest income-
City of Springfield general purpose bond	$3,000
Money market account at Omni Bank	300
Savings account at Boone State Bank	1,100	4,400
Inheritance from Daniel		60,000
Life insurances proceeds		200,000
Amount from sale of St. Louis lot		80,000
Proceeds from estate sale		9,000
Federal income tax refund (for 2013 tax overpayment)		700

Logan inherited securities worth $60,000 from his uncle, Daniel, who died in 2014. Logan also was the designated beneficiary of an insurance policy on Daniel's life with a maturity value of $200,000. The lot in St. Louis was purchased on May 2, 2009, for $85,000 and held as an investment. As the neighborhood has deteriorated, Logan decided to cut his losses and sold the lot on January 5, 2014, for $80,000. The estate sale consisted largely of items belonging to Sara and Daniel (e.g., camper, boat, furniture, and fishing and hunting equipment). Logan estimates that the property sold originally cost at least twice the

$9,000 he received and has declined or stayed the same in value since Sara and Daniel died.

Logan's expenditures for 2014 include the following:

Medicare expenses (including $10,500 for dental)		$11,500
Taxes-
State if Missouri income tax (includes withholdings during 2014)	$3,200
Property taxes on personal residence	4,500	7,700
Interest on home mortgage		4,600
Contributions to church (paid pledges for 2014 and 2015)		4,800

Logan and his dependents are covered by his employer's health insurance policy for all of 2014. However, he is subject to a deductible, and dental care is not included. The $10,500 dental charge was for Helen's implants. Helen is Logan's widowed mother, who lives with him (see below). Logan normally pledges $2,400 ($200 per month) each year to his church. On December 4, 2014, upon the advice of his pastor, he prepaid his pledge for 2015.

Logan's household, all of whom he supports, includes the following:

	Social Security Number	Birth Date
Logan Taylor (age 48)	123-45-6787	08/30/1966
Helen Taylor (age 70)	123-45-6780	01/13/1944
Asher Taylor (age 23)	123-45-6783	07/18/1991
Mia Taylor (age 22)	123-45-6784	02/16/1992

Helen receives a modest Social Security benefit. Asher, a son, is a full-time student in dental school and earns $4,500 as a part time dental assistant. Mia, a daughter, does not work and is engaged to be married.

Using the appropriate forms and schedules, compute Logan's federal income tax for 2014. Federal income tax of $5,500 was withheld from his wages. If Logan has any overpayment on his income tax, he wants the refund sent to him. Assume that the proper amounts of Social Security and Medicare taxes were withheld. Logan does not want to contribute to the Presidential Election Campaign Fund.

Tax Return 3:

Alice J. and Bruce M. Byrd are married taxpayers who file a joint return. Their Social Security numbers are 123-45-6789 and 111-11-1111, respectively. Alice's birthday is September 21, 1967, and Bruce's is June 27, 1966. They live at 473 Revenue Avenue, Lowell, MA 01850. Alice is the office manager for Lowell Dental Clinic, 433 Broad Street, Lowell, MA 01850 (employer identification number 98-765432). Bruce is the manager of a Super Burgers fast-food outlet owned and operated by Plymouth Corporation, 1247 Central Avenue, Hauppauge, NY 11788 (employer identification number 11-1111111)

The following information is shown on their Wage and Tax Statement (Forms W-2) for 2014.

Lines	Description	Alice	Bruce
1	Wages, tips, other compensation	$58,000	$62,100
2	Federal income tax withheld	4,500	6,300
3	Social Security wages	58,000	62,100
4	Social Security tax withhold	3,596	3,850
5	Medicare wages and tips	58,000	62,100
6	Medicare tax withheld	841	900
15	State	Massachusetts	Massachusetts
16	State wages, tips, etc.	58,000	62,100
17	State income tax withheld	2,950	3,100

The Byrds provide over half of the support of their two children, Cynthia (born January 25, 1990 Social Security number 123-45-6788) and John (born February 7, 1994, Social Security number 123-45-6786). Both children are full-time student and live with the Byrds except while they are away at college.

Cynthia earned $4,200 from a summer internship in 2014, and john earned $3,800 from a part-time job.

During 2014, the Byrds provided 60% of the total support of Bruce's widower father, Sam Byrd (Born March 6, 1938, Social Security number 123-45-6787). Sam lived alone and covered the rest of his support with his Social Security benefits. Sam died in November, and Bruce, the beneficiary of a policy on Sam's life, received life insurance proceeds of $800,000 on December 28.

The Byrds had the following expenses relating to their personal residence during 2014:

Property taxes	$5,000
Qualified interest on home mortgage	8,700
Repairs to roof	5,750
Utilities	4,100
Fire and theft insurance	1,900
The Byrds had the following medical expenses for 2014:
Medical insurance premiums	$4,500
Doctor bill for Sam incurred in 2013 and not paid until 2014	7,600
Operation for Sam	8,500
Prescription medicines for Sam	900
Hospital expenses for Sam	3,500
Reimbursement from insurance company, received in 2014	3,600

The medical expenses for Sam represents most of the 60% that Bruce contributed toward his father's support.

Other relevant information follows:

o When they filled their 2013 state return in 2014, the Byrds paid additional state income tax of $900.

o During 2014, Alice and Bruce attended a dinner dance sponsored by the Lowell Police Disability Association (a qualified charitable organization). The Byrds paid $300 for the tickets. The cost of comparable entertainment would normally be $50.

o The Byrds contributed $5,000 to Lowell Presbyterian Church and gave used clothing (cost of $1,200 and fair market value of $350) to the Salvation Army. All donations are supported by receipts, and the clothing is in very good condition.

o In 2014, the Byrds received interest income of $2,750, which was reported on form 1099-INT from Second National Bank.

o Alice employer requires that all employees wear uniforms to work. During 2014, Alice spend $850 on new uniforms and $566 on laundry charges.

o Bruce paid $400 for an annual subscription to the Journal of Franchise Management and $741 for annual membership dues to his professional association.

o Neither Alice nor Bruce's employer reimburses for employee expenses.

o The Byrds do not keep the receipts for the sales taxes they paid and had no major purchases subject to sales tax.

o Everyone in the Byrd family had health care coverage for all months of 2014.

o Alice and Bruce paid no estimated Federal income tax. Neither Alice nor Bruce wants to designate $3 to the Presidential Election Campaign Fund.

Compute net federal tax payable or refund due for Alice and Bruce Byrd for 2014. If they have overpaid, they want the amount to be refunded to them. If you use tax forms for your computation, you will need forms 1040 and 2106 and Schedule A and B.

Tax Return 4:

Beth R. Jordan lives at 2322 Skyview Road, Mesa, AZ 85201. She is a tax accountant with Mesa Manufacturing Company, 1203 Western Avenue, Mesa, AZ 85201 (employer identification number 11- 1111111). She also writes computer software programs for tax practitioners and has a part-time practice. Beth is single and has no dependents. Beth's birthday is July 4, 1972, and her Social Security number is 123-45-6789. She wants to contribute $3 to the Presidential Election Campaign Fund.

The following information is shown on Beth's Wage and Tax Statement (Form W-2) for 2014.

Line	Description	Amount
1	Wages, tips, other compensation	$65,000.00
2	Federal income tax withheld	10,500.00
3	Social Security wages	65,000.00
4	Social Security withheld	4,030.00
5	Medicare wages and tips	65,000.00
6	Medicare tax withheld	942.50
15	State	Arizona
16	State wages, tips, etc.	65,000.00
17	State income tax withheld	1,954.00

During the year, Beth received interest of $1,300 from Arizona Federal Savings and Loan and $400 from Arizona State Bank. Each financial institution reported the interest income on Form 1099-INT. She received qualified dividends of $800 from Blue Corporation, $750 from Green Corporation, and $650 from Orange Corporation. Each corporation reported Beth's dividend payments on form 1099-DIV.

Beth received a $1,000 income tax refund from the state of Arizona on April 29, 2014. On her 2013 Federal income tax return, she reported total itemized deductions of $8,200, which included $2,200 of state income tax withheld by her employer.

Fees earned from her part-time practice in 2014 totaled $3,800. She paid $600 to have the tax returns processed by a computerized tax return service.

On February 8, 2014, Beth bought 500 shares of Gray Corporation common stock for $17.60 a share. On September 12, 2014, she sold the stock for $14 a share.

Beth bought a used sports utility vehicle for $6,000 on June 5, 2014. She purchased the vehicle from her brother-in-law, who was unemployed and was in need of cash. On November 2, 2014, she sold the vehicle to a friend for $6,500.

On January 2, 2014, she acquired 100 shares of Blue Corporation common stock for $30 a share.

She sold the stock on December 19, 2014, for $55 a share.

During the year, Beth records revenue of $16,000 from the sale of a software program she developed. She incurred the following expenditures in connection with her software development business.

Cost of personal computer	$7,000
Cost of printer	2,000
Furniture	3,000
Supplies	650
Fee paid to computer consultant	3,500

Beth elected to expense the maxim portion of the cost of the computer, printer, and furniture allowed under the provisions of §179. These items were placed in service on January 15, 2014, and used 100% in her business.

Although her employer suggested that Beth attend a convention on current developments in corporate taxation, she was not reimbursed for the travel expenses of $1,420 she incurred in attending the convention. The $1,420 included $200 for the cost of the meals. During the year, Beth paid $300 for prescription medicines and $2,875 for doctor bills and hospital bills. Medical insurance premiums were paid for her by her employer. Beth paid real property taxes of $1,766 on her home. Interests on her home mortgage was $3,845, and interest to credit card companies was $320. She contributed $30 each week to her church and $10 each week to United Way. Professional dues and subscriptions totaled $350. Beth paid estimated Federal income taxes of $1,000

Compute the net federal tax payable or refund due for Beth R. Jordan for 2014. You will need forms 1040, 2106-EZ, and 4562 and Schedule A, B, C, D and SE.

Tax Return 5:

David R. Ella M. Cole (ages 39 and 38, respectively) are husband and wife who live at 1820 Elk Avenue, Denver, CO 80202. David is a regional sales manager for Wren Industries, a national wholesaler of plumbing and heating supplies, and Ella is a part-time dental hygienist for a chain of dental clinics.

• David is classified by Wren as a statutory employee with compensation for 2014 (based on commissions) of $95,000. He is expected to maintain his own office and pay for all business expenses from this amount. Wren does not require him to render any accounting as to the use of these funds. It does not withhold Federal and state income taxes but does not withhold and account for the payroll taxes incurred (e.g. Social Security and Medicare). The Coles are adequately covered by Wren's noncontributory medical plan but have chosen not to participate in its §401(k) retirement plan.

David's employment-related expenses for 2014 are summarized below.

Airfare	$8,800
Lodging	5,000
Meals (during travel status)	4,800
Entertainment	3,600
Ground transportation (e.g., limos, rental cars, and taxis)	800
Business gifts	900
Office supplies (includes postage, overnight delivery, and copying)	1,500

The entertainment involved business meals for purchasing agents, store owners, and building contractors. The business gifts consisted of $50 gift certificates to a national restaurant. These were sent by David during the Christmas holidays to 18 of his major customers

In addition, David drove his 2012 Ford Expedition 11,000 miles for business and 3,000 for personal use during 2014. He purchased the Expedition on August 15, 2011, and has always used the automatic (standard) mileage method for tax purposes. Parking and tolls relating to business use total $340 in 2014.

• When the Coles purchased their present residence in April 2011, they devoted 450 of the 3,000 square feet of living space to an office for David. The property cost $440,000 ($40,000 of which is attributable to the land) and has since appreciated in value. Expenses relating to the residence in 2014 (except for mortgage interest and property taxes; see below) are as follows:

Insurance	$2,600
Repairs and maintenance	900
Utilities	4,700
Painting office area; rugs and plants (in the office)	1,800

In terms of depreciation, the Coles use the MACRS percentage tables applicable to 39- year nonresidential real property. As to depreciable property (e.g., office furniture), David tries to avoid capitalization and uses whatever method provides the fastest write-off for tax purposes.

• Ella works part time as a substitute for whichever hygienist is ill or on vacation or when one of the clinics is particularly busy (e.g., prior to the beginning of the school year). Besides her transportation, she must provide and maintain her own uniforms. Her expenses for 2014 appear below.

Uniforms	$690
State and city occupational licenses	380
Professional Journals and membership dues in the American Dental Hygiene Association	340
Correspondence study course (taken online) dealing with teeth	420

Ella's salary for the year is $42,000, and her form W-2 for the year shows income tax withholding of $4,000 (Federal) and $1,000 (state) and the proper amount of Social Security and Medicare taxes. Because Ella is a part-time employee, she is not included in her employer's medical or retirement plans.

In addition to those items already mentioned, the Coles had the following receipts during 2014. Interest income-

State of Colorado general purpose bonds	$2,500
IBM bonds	800
Wells Fargo Bank CD	1,200	$4,500
Federal income tax refund for year 2013		510
Life insurance proceeds paid by Eagle Assurance Corporation		200,000
Inheritance of savings account from savings account from Sarah Cole		50,000
Sales proceeds from two ATVs		9,000

For several years, the Cole's household has included David's divorced mother, Sarah, who has been claimed as their dependent. In late November 2014, Sarah unexpectedly died of coronary arrest in her sleep. Unknown to Ella or David, Sarah had a life insurance policy and a savings account (with David as the designated beneficiary of each). In 2013, the Coles purchased two ATVs for $14,000. After several near mishaps, they decided that the sport was too dangerous. In 2014, they sold the ATVs to their neighbor.

• Additional expenditures for 2014 include:

Funeral  expenses for Sarah	$4,500
Taxes-
Real property taxes on personal residence	$6,400
Colorado state income tax due (paid in April 2014 for tax
year 2013)	310	6,710
Mortgage interest on personal residence		6,600
Paid church pledge		2,400
Contributions to traditional IRAs for Ella and David
($5,500 +$5,500)	11,000

In 2014, the Coles made quarterly estimated tax payments of $1,400 (Federal) and $500 (state) for a total of $5,600 (Federal) and $2,000 (State).

Using the appropriate forms and schedules, compute the Cole's Federal income tax for 2014. Disregard the alternative minimum tax (AMT) and various education credits. Relevant Social Security numbers are:

David Cole	123-45-6788
Ella Cole	123-45-6787
Sarah Cole	123-45-6799

The Coles do not want to contribute to the Presidential Election Campaign Fund. Also, they want any overpayment of tax refunded to them and not applied toward next year's tax liability.