Reference no: EM131083277

Part 1

Question 1

What is meant by revenue neutrality?

Question 2

Has nonrevenue factor had any impact upon the development of our taxation system? If so, how?

Question 3

How does the tax law encourage technological progress?

Question 4

Why is personal saving desirable for the U.S. economy?

Question 5

Explain how the following tax provisions encourage small businesses:

a. The nature of a shareholder's loss on a stock investment.
b. The tax rate applicable to corporations.
c. Nontaxable corporate divisive reorganizations.

Question 6

The concept of equity is relative. Explain.

Question 7

What purpose is served by allowing a deduction for contributions to qualified charitable organization?

Question 8

What purpose is served by the various deductions and credits allowed for education expenses?

Question 9

Would the deductibility of political campaign expenditures be contrary to public policy? Explain.

Question 10

In the past, Congress has considered proposals that would allow a taxpayer to claim a tax credit for tuition paid to send a dependent to private school. Is there any justification for such a proposal? Explain.

Question 11

Other than raising revenue, what considerations explain various provisions in our tax laws?

Question 12

A provision of the Code allows a taxpayer a deduction for Federal income tax purposes for state and local income taxes paid. Does this provision eliminate the effect of multiple taxation of the same income? Why or why not? In this connection, consider the following:

a. Taxpayer, an individual, has itemized deductions that are less than the standard deduction.
b. Taxpayer is in the 10% tax bracket for Federal income tax purposes. The 33% tax bracket.

Question 13

Heather and her partners operate a profitable partnership. Because the business is expanding, the partners would like to transfer it to a newly created corporation. Heather is concerned, however, over the possible tax consequences that would result from incorporating. Please comment.

Question 14

Assume the same facts as in Question 13. Heather is also worried that once the partnership incorporates, the business will be subject to the Federal corporate income tax. What suggestions do you have?

Question 15

Give some examples of the wherewithal to pay concept.

Question 16

Can recognized gain exceed the realized gain? Explain.

Question 17

In a like-kind exchange, recognized gain is postponed and not avoided. Explain.

Question 18

Under the annual accounting period concept, what time period is normally selected for final settlement of most tax liabilities?

Question 19

How does the installment method overcome the harsh treatment of the annual accounting treatment concept?

Question 20

Why is there a grace period for contributions to a Keogh retirement plan?

Question 21

Contrast the tax treatment between a community property state and a common law state.

Question 22

Lis some tax provisions used to deter affluent taxpayers from obtaining preferential tax treatment.

Question 23

Explain the continuity of interest concept.

Question 24

White Corporation lends $425,000 to Blue Corporation with no provision for interest. White Corporation and Blue Corporation are owned by the same shareholders. How might the IRS restructure this transaction with adverse tax consequences?

Question 25

Federal tax legislation generally originates in the Senate Finance Committee. Comment on the validity of this statement.

Question 26

If a tax bill is vetoed by the President, the provisions cannot become law. Evaluate this statement.

Question 27

Determine the subparts of $ 1563(a)(1)(A).

Question 28

Is $ 212 (1) a proper Code Section citation? Why or why not?

Question 29

Why are certain Code Section numbers missing from the internal Revenue Code (e.g., $$ 6, 7, 8, 9, 10)?

Question 30

Where can a researcher find newly issued Proposed, final, and Temporary Regulations?

Question 31

Interpret each of the following citations:

a. Temp Reg. $ 1.428-7T (b)(4).
b. Rev. Rul. 60-11, 1960-1 C. B. 174.
c. TAM 8837003.

Question 32

Jennifer Olde calls you requesting an explanation of the fact- finding determination of a Federal Court of Appeals. Prepare a letter to be sent to Jennifer answering this query. Her address is 3246 Highland Drive, Clifton, VA 20124.

Question 33

Will Thomas call you with respect to a tax issue. He has found a tax case in IRS lost and did not appeal the case. Over the phone, you explain to Will the significance of the failure to appeal. Prepare a tax file memorandum outlining your remarks to Will.

Question 34

In assessing the validity of a court decision, discuss the significance of the following:

a. The decision was rendered by the U.S. District Court of Utah. Taxpayer lives in Utah.
b. The decision was rendered by the U.S. Court of Federal Claims. Taxpayer lives in Utah.
c. The decision was rendered by the Second Circuit Court of Appeals. Taxpayer lives in California.
d. The decision was rendered by the U.S. Supreme Court.
e. The decision was rendered by the U.S. Tax Court. The IRS has acquiesced in the result.
f. Same as (e), except that the IRS has issued a nonacquiescence as to the result.

Question 35

Mack Rogers needs to learn quickly about Section 1244 stock. How should Mack approach his research?

Question 36

Where does most tax research begin when someone is searching for an answer about a tax dispute?

Question 37

Determine whether the following items are primary sources or secondary sources for the purpose of substantial authority.

a. Revenue Procedure.
b. Article written by a judge in Journal of Taxation.
c. U.S. District Court decision.
d. The "Bluebook."
e. A general counsel memorandum.

Question 38

What are the key components of effective tax planning?

Question 39

Discuss simulations that are part of the CPA examination.

Problem 40

Bart exchange some real estate (basis of $800,000 and fair market value of $1 million) for other real estate owned by Roland (basis of $1.2 million and fair market value of $900,000) and $! 00,000 in cash. The real estate involved is unimproved and is held by Bart and Roland, before and after the exchange, as investment property.

a. What is Bart's realized gain on the exchange? Recognized gain?
b. What is Roland's realized loss? Recognized loss.
c. Support your results in (a) and (b) under the wherewithal to pay concept as applied to like-kind exchanges ($ 1031).

Part 2

Problem 1

Hope Corporation manufactures and sells climate controlled wine cabinets. Its most popular model sells for #3,000 and comes with a basic 90-day warranty. For extra $ 150, this warranty is extended to 3 years, and for $300, the warranty is extended to 10 years.

a. If a customer buys a wine cabinet with the basic warranty, how much of the $3,000 paid represents DPGR to Hope?
b. Assume that a customer pays $3,150 to include the extended 3-year warranty. How much of this amount is DPGR?
c. Assume that $3,300 is paid to include the extended 10-year warranty. How much is DPGR?
d. Could the sales agreement be modified so as to increase the amount qualifying as DPGR? Explain.

Problem 2

Clear Corporation sells portable water filtration systems by means of the Internet and direct mail orders. Most of the components are purchased from foreign suppliers at a cost of $1,200. Clear supplies the remaining components and assembles the final product at a cost of $300. Clear's marketing, packaging and shipping expenses total $35 per unit. Each unit is sold for $2,100.

a. What is Clear's DPGR per unit?
b. Its QPAI?

Question 3

For purposes of the limitation on the DPAD, what is included in W-2 wages?

Question 4

Citron Corporation has some domestic production gross receipts (DPGR) that qualify for the DPAD and some that do not.

a. Is there a safe harbor that allows non-DPGR to be included in DPGR?
b. Would Citron ever want to treat DPGR as non-DPGR? Why or why not?
c. Continuing with part (b), when can this strategy be done?

Question 5

Gold Company manufactures a product and sells it with an embedded service.

a. What does this mean?
b. Give some examples of embedded services.
c. Under what circumstances can the amount attributable to an embedded service be part of DPGR?

Question 6

To qualify as DPGR, QPP must be MPGE in whole or in significant part within the United States.

a. Interpret this statement.
b. What does "significant" mean?
c. In what context does this problem arise?

7. Shirley operates a chain of fast-food outlets. She also wholesales frozen prepared meals to grocery stores.

a. Can Shirley claim a DPAD? Explain.
b. Would it matter if all of the fast-food sales are on a take-out basis (i.e., the retail outlets had no dining facilities)? Explain.

Question 8

Justin and Kathleen are equal partners in Blue Partnership. For the year they receive a pass-through of the same amount of OPAI and W-2 wages from Blue Justin, however, is able to claim a large DPAD on his income tax return than Kathleen. Why?

Question 9

Is the DPAD available for purposes of the alternative minimum tax (AMT)? Explain.

Question 10

If the AMT greater than the regular corporate tax, the corporation must pay the greater AMT. Discuss.

Question 11

What is the small corporation exemption from the AMT? When is it available and not available?

Question 12

Because tax preference items are merely timing differences, they may be positive or negative. Assess the validity of this statement.

Question 13

Using the legend provided, classify the impact that each of the following items has on unadjusted AMTI in arriving at ACE:

Legend

I = Increase in AMTI
D = Decrease in AMTI
E = Either an increase or decrease in AMTI
N = No impact

a. Currently deducted intangible drilling costs.
b. Loss on sale of a piece of equipment to a related patty.
c. Purchase of raw materials.
d. Nondeductible transportation fines.
e. Dividends received deduction for a 15% owned business.
f. Proceeds from a key employee insurance policy.
g. Tax-exempt interest.

Question 14

Using the legend provided, Classify the impact that each of the following items has on regular taxable income when computing AMTI. Ignore the ACE adjustment.

Legend

I = Increase in taxable income
D= Decrease in table income
E = Either an increase or a decrease in taxable income
N = No change to taxable income

a. Amortization claimed on certified pollution control facilities.
b. Adjusted current earning (ACE) adjustment.
c. AMT net operating loss deduction.
d. Excess mining exploration and development costs.
e. Statutory AMT exemption.
f. Accelerated depreciation on post 1986 property acquisitions.
g. Tax-exempt interest on private activity municipal bonds.
h. LIFO inventory recapture amount.
i. Excess percentage depletion of an integrated oil company.

Question 15

Janice Boyer, the controller of one of your clients, calls you to ask what impact current E & P has on ACE. She wants to know if ACE is the same as current E & P. Prepare a tax file memo indicating what you told Ms. Boyer.

Question 16

What is the effect of the following on unadjusted AMTI in arriving at ACE?

a. Proceeds from life insurance on key employee.
b. Tax-exempt income (net of expenses).
c. Exemption amount of $40,000.
d. IDC deducted currently.
e. Excess capital loss.
f. Deferred gain on installment sales.
g. Excess charitable contributions
h. Premiums paid on key employee insurance policy.

Question 17

Which of the following credits may be used to offset the AMT?

a. General Business credit.
b. Federal solar credit.
c. Foreign tax credit.
d. Qualified electric vehicle

Question 18

Why might a corporation want to avoid corporate distribution?

Question 19

In making the "adjustments" necessary to arrive at accumulated taxable income, which of the following items should be added (+), should be subtracted (-), or have no effect (NE) on taxable income?

a. Corporate income tax incurred and paid.
b. A nontaxable stock dividend distributed by the corporation to its shareholders.
c. Charitable contributions paid in the amount of 10% of taxable income.
d. The dividends received deduction.
e. Deduction of an NOL carried over from a prior year.

Question 20

Section 199 requires that a "significant part" of activities related to qualified production property be performed in the United States (versus and offshore location). What is meant by a "significant part"?

Question 21

Outline some ways to avoid the W-2 wage limitation. Present your finding in a set of PowerPoint slides.

Question 22

Red Oak, Inc., manufactures and sells children toys. It also sells children toys. It also sells toys purchased from other manufacturers. During the current year, Red Oak had a profit of $130,000 (all of which is QPAI) from the sale of its own manufactured toys and a loss of $#%,000 from the sale of the purchased toys. Based on this information, determine Red Oak's taxable income and DPAD.

Question 23

This year Saluda Hills Inc., has QQPAI of $940,000 and taxable income of $980,000. Because Saluda Hills outsources much of its work to independent contractors. It W-2 wage base that relates entirely to domestic production activities is $165,000. Based on this information determine Saluda Hills' DPAD.

Question 24

Winsdor, Inc., produces a product in both the United States and India. Gross receipts derived from sales in the United States amount to $3,800,000 with gross receipts from sales in India amount to $1,100,000. What is the total amount of the receipts that qualify as DPGR?

Question 25

Safeco Manufacturing Company pays $20 to purchase materials from related suppliers in Canada. Safeco incurs $15 in labor costs at its factory in the United States to fabricate and assemble a garden tool. The company also incurs packaging selling, and other costs of $3 and sells the garden tool for $65.

a. Is the garden tool treated as manufactured by Safeco?
b. Determine Safeco's DPGR and its QPGI.

Question 26

Ryco Construction Company purchases 15 residential lots in a new subdivision for $1,500,000. On these lots, it builds residences that it sells for a total of $6,200,000. Determine Ryco's DPGR.

Question 27

Eclipse, Inc. a qualifying small taxpayer, has total gross receipts of $3,600,000 and DPGR of $2,160,000. In addition, Eclipse has cost of goods sold of $ 1,000,000 and advertising and administrative expenses of $480,000. (Note: Ignore any taxable income and W-2 wage limitations.)

a. Using the small business simplified overall method, determine Eclipse's allowable cos of goods sold and its allowable allocable expenses.
b. Determine Eclipse's QPAI and DPAD.

Question 28

Pineview Corporation placed as ass (three-year MACRS class life) costing $5,000 in service on June 1, 2015. Complete the table below by providing the AMT adjustment and indicate whether the adjustment increases or decreases taxable income.

Enrollment in local colleges, 2005

Year	Tax Deduction	AMT Deduction	AMT Adjustment	Increases or Decreases
2015	$1,667	$1,250
2016	2,222	1,875
2017	740	1,250
2018	371	625

	2015	2016	2017
Unadjusted AMTI	$ 800,000	$2,000,000	$1,500,000
Adjusted current earnings	1,2000,0000	2,000,0000	900,000

Question 29

Given the above following information, determine the ACE adjustment for each year.

Question 30

Vtech, a calendar year C corporation, has accumulated E & P of $2,900,000 as of January 1, 2016. Its current E &P for 2016 is $845,000, and it has reasonable business needs of $3,600,000. Vtech's taxable income (as adjusted) is $845,000). Determine Vtech Corporation's accumulated earnings credit and its ATI.

Question 31
Meadowbrook, Inc., is considered a personal holding company and has the following information:

Taxable income	$345 ,000
Federal income tax liability	102,000
Dividends received deduction	30,000
Long-term capital gains (net of taxes)	15,000
Current-year dividends paid	200,000

Problem 32

Lion, Inc., $11 million of taxable Income. Determine the tax savings from Lion's maximum DPAD in 2015 and 2016 assuming that Lion's marginal tax rate is 35% in both years.

Problem 33

In each of the following independent situations, determine the DPAD for 2015 for the corporation involved.

Enrollment in local colleges, 2005

Taxpayer	QPAI	TI	W-2 Wages
a. White	$800,000	$600,000	$120,000
b. Red	400,000	500,000	20,000
c. Black	900,000	900,000	300,000
d. Purple	700,000	900,000	200,000
e. Orange	900,000	900,000	200,000**

Problem 34

Tern Corporation produces and sells refrigerators for outdoor use (e.g., patios, porches, and verandas). Its major manufacturing facility is in Georgia, but it also has smaller plant in Nicaragua. Gross receipts for the current year are derived as follows: $8.2 million from Georgia and $1 million from Nicaragua.

a. What is Term's DPRG for the current year?

b. What if the gross receipts from the Nicaragua plant are only $400,000 (not $1 million)?

Problem 35

Brooke, Inc., refines and sells gasoline in the United States. Of the gasoline it sells, about 3% is refined in Texas and the remaining 97% is purchased from a nonrelated source in Saudi Arabia. Suppose that currently the benefits of $199 to Brooke are so minimal that the tax savings are not worth the costs of compliance. Is there anything that Brooke can do? Explain.