Cengage HW 1

Mia owns a warehouse that has a cost basis of $80,000. The city condemns the warehouse to make room for a new fire station. It pays Mia $400,000 for the property, its agreed-to fair market value. Shortly after the condemnation, Mia purchases another warehouse as a replacement. a. What is her recognized gain if the new property cost is $280,000? b. What is her recognized gain if the new property cost is $444,000? c. What is her recognized gain if the new property cost is $80,000? d. What, if any, is the justification for deferring the recognition of gain on the involuntary conversion?

$120,000 $0 $320,000 The involuntary conversion provision is justified under the wherewithal to pay concept and the notion that the taxpayer's economic position has not changed.

Mia owns a warehouse that has a cost basis of $192,400. The city condemns the warehouse to make room for a new fire station. It pays Mia $962,000 for the property, its agreed-to fair market value. Shortly after the condemnation, Mia purchases another warehouse as a replacement. If amount is zero, enter "0". a. What is her recognized gain if the new property cost is $673,400? b. What is her recognized gain if the new property cost is $1,058,200? c. What is her recognized gain if the new property cost is $192,400? d. What, if any, is the justification for deferring the recognition of gain on the involuntary conversion?

$288,600 $0 $796,600 The involuntary conversion provision is justified under the wherewithal to pay concept and the notion that the taxpayer's economic position has not changed.

For tax year 2017, the IRS assesses a deficiency against David for $280,000. a. Disregarding the interest component, enter David's penalty if the deficiency is attributable to negligence: b. Disregarding the interest component, enter David's penalty if the deficiency is attributable to civil fraud:

$56,000 $210,000

Elijah and Anastasia are married and have five married children and nine minor grandchildren. For 2020, what is the maximum amount they can give to their family (including the sons- and daughters-in-law) without using any of their unified transfer tax credit?

$570,000

Elijah and Anastasia are married and have seven married children and thirteen minor grandchildren. For 2020, what is the maximum amount they can give to their family (including the sons- and daughters-in-law) without using any of their unified transfer tax credit?

$810,000

The Adams Independent School District wants to sell a parcel of unimproved land that it does not need. Its three best offers are as follows: Use The State's Department of Public Safety (DPS) $2,300,000 to open New state highway patrol barracks The Second Baptist Church $2,200,000 to Start a church school Baker Motors $2,100,000 to Open a car dealership If you are the financial adviser for the school district, which offer would be probably be preferable from a long-term financial standpoint?

Baker Motors

Rita files her income tax return 90 days after the due date of the return without obtaining an extension from the IRS. Along with the return, she remits a check for $122,000, which is the balance of the tax she owes. Note: Assume 30 days in a month. Disregarding the interest element, enter Rita's failure to file penalty and failure to pay penalty.

Failure to Pay: $1830 Failure to file: $16,470

Rita files her income tax return 35 days after the due date of the return without obtaining an extension from the IRS. Along with the return, she remits a check for $40,000, which is the balance of the tax she owes. Note: Assume 30 days in a month. Disregarding the interest element, enter Rita's failure to file penalty and failure to pay penalty.

Failure to Pay: $400 Failure to file: $3600

Indicate whether the following statements are "True" or "False" regarding the difference between the Federal income tax on individuals and those imposed on corporations. a. Like its individual counterpart, the Federal corporate income tax is progressive in nature. b. Corporate taxpayers are allowed the standard deduction but not the deduction for qualified business income. c. The taxable income of a corporation is the difference between gross income (net of exclusions) and business deductions.

False False True

(True/False) Neutrality: Taxpayers who earn the same amount of income pay the same amount of tax. Every new tax law that lowers taxes must include a revenue offset that makes up for the loss. (For every dollar lost, a new dollar is gained.)

False True

The commissioners for Walker County are actively negotiating with Falcon Industries regarding the location of a new manufacturing plant in the area. Since Falcon is considering several other sites, a "generous tax holiday" may be needed to influence the final choice. The local school district is opposed to any "generous tax holiday." a. What would probably be involved in a generous tax holiday?

In this case, the "tax holiday" probably concerns exemption from ad valorem taxes .

Is any dollar limitation imposed on the Medicare tax? Upon whom is the 0.9% additional tax imposed?

No (unlike social security) Single filers earning over $200,000, Joint filers earning over $250,000

With regard to the IRS audit process, complete the following statements: a. The audit is resolved by mail. b. The audit is conducted at the office of the IRS. c. A "no change" RAR results. d. A special agent joins the audit team.

Referred to as a correspondence audit, this type of audit involves a limited number of issues that are easily resolved . Unlike a field audit which involves an examination of numerous items reported on the return, an office audit is restricted in scope. An RAR (or Revenue Agent's Report ) that results in a "no change" means that the audit resulted in no additional taxes being due . A special agent joins the audit team when taxpayer fraud is suspected .

Regarding the statute of limitations on additional assessments of tax by the IRS, select the applicable date in each of the following situations. Note: Assume a calendar year individual with no fraud or substantial omissions involved. a. The income tax return for 2019 was filed on February 19, 2020. b. The income tax return for 2019 was filed on June 25, 2020. c. The income tax return for 2019 was prepared on April 4, 2020, but was never filed. Through some misunderstanding between the preparer and the taxpayer, each expected the other to file the return. d. The income tax return for 2019 was never filed because the taxpayer thought no additional tax was due.

Statute of limitations begins April 15, 2020 Statute of limitations begins June 25, 2020 Statute of limitations never begins to run Statute of limitations never begins to run

True/False Sunset provision: Reinstates the law as it existed prior to the tax cut. Maintains the law in place until Congress has an opportunity to review it and determine whether it should remain in effect.

True False

Select either "True" or "False" to indicate why the school district would oppose a generous holiday tax. Due to the erosion of the tax base, less revenue would be forthcoming to the school district.True The school district would only get a percentage of the tax holiday funds. New workers would mean new families and more children to educate.

True False True

True/False Indexation: The IRS makes annual adjustments to certain key tax components to take into account inflation, as required by law. Some of the more important components that are adjusted include the tax brackets and the standard deduction amounts.

True True

canons of taxation identified by Adam Smith

equity, convenience, economy of collection, certainty

What is the purpose of the unified transfer tax credit? Is the same amount available for both the Federal gift tax and the estate tax? Does the use of the credit for a gift affect the amount of credit available for the estate tax?

to eliminate taxes on modest estates yes yes

In the following independent situations, select either "Yes" or "No" to indicate whether the taxpayer's tax position is likely to change. John started renting out a spare room in his home. Theresa quit her job as a staff accountant and has established her own practice as a CPA. Paul's employer transferred him from its California office to an office in Florida.

yes yes yes