ACCT 6110

Tax Research & Practice-Fall-2014.

Winning a medal in the Olympics?

Olympians who win medals receive $25,000 for gold, $15,000 for silver and $10,000 for bronze
from the U.S. Olympic Committee. A gold medal winner will pay the IRS up to $8,986, according
to Americans for Tax Reform Foundation, whose analysis caught lawmakers’ attention.
Silver medal winners face a tax of up to $5,385, and bronze medal winners face a tax of
up to $3,502, the group says. That does not count state and local income tax (in some states).
Some say the tax liability should be less. Pretty controversial, lets discuss.

Read Internal Revenue Code Section 61.

August 7, 2012. New York Times.  Indigestion for ‘les Riches’ in a Plan for Higher Taxes

PARIS —President François Hollande is vowing to impose a 75 percent tax on the portion of
anyone’s income above a million euros ($1.24 million) a year. But because there are relatively
few people in France whose income would incur such a tax — an estimated 7,000 to 30,000 in
a country of 65 million — the gains might contribute but a small fraction of the 33 billion
euros in new revenue the government wants to raise.
Many companies are studying contingency plans to move high-paid executives outside of
France, according to consultants, lawyers, accountants and real estate agents.
They say some executives and wealthy people have already packed up for destinations like
Britain, Belgium, Switzerland and the United States, taking their taxable income with them.
They also know of companies — start-ups and multinationals alike — that are delaying plans to
invest in France or to move employees or new hires here. Pretty controversial, lets discuss.

Facebook News

According to various reports, billionaire Eduardo Saverin (one of the men who helped CEO
Mark Zuckerberg create facebook) has surrendered his U. S. citizenship in favor of Singapore,
where there are no capital gains tax. The move could save the 30-year-old as much as $600 million
when he sells his company stock. His name was listed among those on an IRS document revealing
individuals who have chosen to expatriate, which was released on April 30, according to news reports.
In statement to CNN, Saverin said it was “unfortunate” that his choice had led to a debate “based not
on the facts, but entirely on speculation and misinformation.” “I am obligated to and will pay hundreds
of millions of dollars in taxes to the United States government,” Saverin said. “I have paid and will
continue to pay any taxes due on everything I earned while a U.S. citizen.”
Pretty controversial, lets discuss.

CCH log on link

Textbooks for 2014

  • Contemporary Tax Practice – Research, Planning and Strategies
    by John O. Everett, Cherie Henning, Nancy Nichols
    3rd edition, CCH, a Wolters Kluwer Business
    ISBN: 978-0-8080-3483-4
  • South—Western Federal Taxation
    Internal Revenue Code of 1986 and Treasury Regulations
    – Annotated and Selected – 2015, by James E. Smith

Webpage Under Construction for 2014

Aug. 18 & 25. Chapter 1.
Legislative Sources of Authority

R14-Chp-00-05-Code-Big Picture-Chart.xls
Newer versions of the slides will be posted.
R14-Chp-01-1-Chapter-1-Legislative-Sources.ppt

To avoid having students spend a lot of money on ink or toner by printing slides with a background that has a color other than white, I have changed the background color to white. If you like the background of a particular, it is a simple matter for you to edit the slides and have your personal version.
I assume that students will print the slides – 6 slides per paper – to conserve paper. I have enlarged the font size so that most slides should be readable when format is 6 slides per page. Of course, it is your choice.
You may find that some slides are best read if printed – 2 per page, or 1 per page.
The instructor often chooses not to use the slides that come with a textbook, but these slides are on point and will be part of the lecture.
The following page can be used on all tests, which are closed book exams, except that you may consult your code book.

R14-Chp-01-9-File.pdf

The following article raises interesting questions.
What are the tax consequences?
You pay $40,000 for a lot in a mobile home park and
$60,000 for a mobile home. You sell for $1,000,000.
R14-Chp-00-09-Trailer-town-misses-million-dollar payday-20070808
Practice Memo- PowerPoint file and ruling.
R14-Researching sale of home issues
R14-Rev-Rul-83-50-Home sale-121
This is a ruling (1983) which changed the IRS position regarding sale of
land without a home on theR14-Rev-Rul-83-50-Home sale-121 land.
The original document was issued in 1954. In the old days, the
residence exclusion was for those over age 55 (Sec. 121, once per lifetime)
or those who reinvested proceeds in another house (sec. 1034-no longer
applicable, because sec. 121 now covers what was covered by Sec. 1034.)
R14-Chp-00-Gates-Sale of replacement residence
C11-Chp-01-1B-Research-Application-2011.ppt
Students often ask how to include a citation in the sentence when
explaining the contents of a code section or regulation section, etc..
In the following article you will see different sentence formats that have
citations “built-in.” You will not use footnotes in the memos in this class.
R11-Chp-00-2-5C-Foreign Exclusion-Tax Adviser.pdf

Sept. 8. Chapter 2.
Administrative Sources of Authority
Sept. 8. Chapter 7.
Decisions on Property (Like-kind)
Text ¶7011, ¶7015.05, ¶7017.01)

R14-Chp-02-1-Chapter-2-Administrative-Sources
Temporary Regs. Held Invalid
TAX TRENDS In the July 2010 issue of The Tax Adviser, Published by the American Institute of Certified Public Accountants (AICPA.org)
by James Beavers, J.D., LL.M., CPA Published July 01, 2010
Procedure & Administration
The Tax Court handed the IRS a double loss, holding that temporary regulations it issued after an earlier adverse decision did not apply to that case and that the temporary regulations were invalid because they were contrary to the Supreme Court’s opinion in Colony, Inc., 357 U.S. 28 (1958).
What is a Regulation? A Proposed Regulation? A Temporary Regulation?
Are CPAs required to follow regulations?

R14-Chp-02-9-File.pdf
R14-Chp-00-2-1A-Memo Assignment-Like-Kind.doc
R14-Chp-00-Property Sale-Like-Kind-Exch-Outline-Prb.xls
R14-Chp-00-2-1B-Like-Kind Exchanges-Section 1031.xls
R14-Chp-00-2-1C-Like Kind Exchange Materials.xls
R14-Chp-00-2-1D-CPA Rev-Sec 61-121-165-1001-1031
R14-Chp-00-2-1D-CPA Rev-Sec 61-121-165-1001-1031-Ans
R14-Chp-00-2-1E-Terry Smith-Charlotte-1031-TCM-1997-109-Short
R14-Chp-00-2-1F-Worksheet-Like-Kind Exchange
R14-Chp-00-2-1G-Installment Sale of Land subject to Debt
In case you are having difficulty finding the right regulations in CCH, here is one. Note definitions on page 1 and examples starting on page 3. Note a typo problem with “#’ being used when “-” (minus) should be used. Note especially examples 1, 2 and 3. You may want to set up a spreadsheet like the one in the file immediately above and enter the numbers in the first 3 examples.
R13-Chp-00-Reg-15A.453-1-Installment method reporting
With the installment sale option, I recommend that you first show impact of the sale. Then, separately show the impact of the collections in five equal annual payments.

Sept. 15. Chapter 4.
Locating and Assessing Authority

R14-Chp-04-1-Chapter-4-Tax-Research
Involuntary Conversion Memo. (no. 2)
R14-Chp-00-02-2A-Memo-Assignment-on-Casualty-Loss
R14-Chp-00-02-2B-James Boyle-Casualty-Warehouse-TCMemo. 2001-235.doc
R14-Chp-00-02-2C-Scott LaFavre-Casualty-Flood-TC Memo. 2000-297.doc
R14-Chp-00-02-2D-Involuntary Conversion-Section 1033
R14-Chp-00-02-2D-Involuntary-Conversion-Section 1033-Sol
R14-Chp-00-0-Casualty loss computation-2014
R14-Chp-04-9-File.pdf

Sept. 22. Chapter 3.
Judicial Sources of Authority

R14-Chp-03-1-Chapter-3-Judicial-Sources
Example of a tax position taken – ordinary loss on sale of real estate
R14-Chp-03-5-Azar-Nut-Case-Cap-Loss-Limit
R14-Chp-03-5-Jerry-Jacks-Heavy-Equipment-Repair.pdf
If you have a dirty mind and don’t reading of lot of extra legal analysis to get to the main facts of the case.
R14-Chp-03-Harris-Gift-prostitution.pdf
R14-Chp-03-9-File.pdf

Sept. 29. Chapter 7. Decisions on Property (Text ¶7003.03)

Oct. 6. Fall Break

Oct. 13. Chapter 7. Tax Planning- Entity Choice. (First 16 pages).
Sec. 351 Memo. (no. 3)

R14-Chp-00-2-3A-Memo-Transfer-to-Corp-etc
R14F-Chp-00-Transfer Assets to Corp-Worksheet.xls
R14-Chp-00-02-3C-Corporate-Organization.xls
R14-Chp-00-02-3D-CPA-Exam-Corporate-Organization.xls
R14-Chp-00-02-3E-CPA Questions-Organize-Partnership.doc
Following file has answer tab (Sec. 351 and 721 questions)
T11F-Chp-13-2-Class-Exercises-on-Inv-in-Corp-or-Partnership-Excel.xls
R11-Chp-00-02-3AA-Review Questions for Stock Options Memo.doc

Oct. 27. Chapter 12. Compensation (Text ¶12,017 Options).
Stock Options Memo. (no. 4)

R14-Chp-00-2-4A-Stock Option Memo-2014.doc
R14-Chp-00-2-4-B-Stock-Option-Illustration.xlsx
R14-Chp-00-2-4-C-Section-83.doc
R14-Chp-00-2-4-D-Review-Questions-Stock-Options.docx
R14-Chp-00-2-4-C-Stock-Option-Questions-Chart.xlsx
R14-Chp-00-2-4B-Niblock gains million plus on option-20070831.pdf
R9-Chp-05-6-Stock-Options-2009
R14-Chp-00-2-4AA-Review Questions for Stock Options Memo
R14-Chp-00-Robinson-Options-83(b)-comp deduction
R14-Chp-00-Robinson-AMT-Employer-ded-2003-2-USTC-50590

Nov. 3. LECTURE: Memo 5 – Foreign Earned Income Exclusion (Sec. 911)
Memo 5 – 2014

R13-Chp-00-02-5A-Memo on Sec 911 etc.doc
R13-Chp-00-02-5B-Section 911 Changes by TIPRA-2006.pdf
R13-Chp-00-02-5C-Foreign Exclusion-Tax Adviser.pdf
The following PowerPoint file has slides with old years, but it will be OK for illustrative purposes.
R13-Chp-00-02-5D-International Tax-Intro.ppt
R14-Chp-00-2-5E-George Jones-Pilot-Sec 911–91-1 USTC 50174
Inflation adjusted amounts for earned income exclusion limit.
R14-Chp-00-2-5A-Rev-Proc-2013-35-Inflation-Amounts-Sec-911-2014.pdf
R14-Chp-00-2-5A-Rev-Proc-2014-61-Inflation-Amounts-Sec-911-2015.pdf
Following long file – First 2 pages and page 9
R14-Chp-00-2-5A-IRS-Notice-2014-29-Foreign-Housing-Cost-Deduction
R11-Chp-00-Prentice-Hall Textbook Example-Uncertain Positions
File above may be useful when working case 12 shown below.
R14-Chp-00-2-5C-Foreign Exclusion-Tax Adviser
T14F-Chp-14-3-Corp-Acct-Questions-Problem-2014
Note that the file above includes 12 cases.
Case 12. The Other Expense/Loss account balance is for advertising ($14,000). The IRS may not allow the deduction because the advertising included statements encouraging Congress to pass legislation.
We think there is a 60% chance that a deduction of $8,000 (of $14,000) will be sustained.

Nov 10. Chapter 9. Tax Penalties

Nov 17. To be Announced
Nov 24. Class Presentations
Dec. 1. Class Presentations
Dec. 8. Final Exams

I have received questions about the last sample test question I listed in my recent email to the class. The following file from our Spring Corporate Tax book shows how GM’s outlook for future profitability caused GM to make the decision to write-down its tax asset account (with a valuation account), causing an increase in the tax provision and a decrease in net income. Second file shows Rite-Aid sitting on major capital loss carryforwards that were about to expire. Third file may be interesting, possibly helpful.
Corp-Tax-Textbook-Example-GM and Deferred Tax Assets
Rite Aid Sees Loss for Year Widening on Charge-Deferred Tax Account and allowance
Corum-KPMG-testimony-Ways and Means Committee-Tax Accountng-2011
I have received questions about how to cite sources in the term paper. Here is my answer.
If your citation in the text is sufficient to inform the reader of the source (code section, reg, revenue ruling no, etc.), there is no need to provide a footnote. See examples in my Tax Adviser Articles posted below.
When you include a short cite for a court case in a sentence, you probably need to provide more complete information in a footnote. Lots of court cases have same name, etc. Need some specifics in footnote – more than you can include in a short cite in a sentence.
A list of sources at the end of the paper would be big picture items, Internal Revenue Code, Treasury Regulations, titles of Tax Adviser articles, reference books, etc.
I am not concerned about technical requirements of APA or MLA methods. More concerned about content, clarity of explanation, professional tone.
R12-Chp-00-Final Exam-Fall-2012
R10-Chp-00-Property Sale-Like-Kind-Exch-Outline
File above has two tabs.
R10-Chp-00-Comprehensive-Case-1-Corp-Basics
R10-Chp-00-Comprehensive-Case-2-Corp-Penalties
The next file contains a recent tax case about penalties for mistakes made on tax returns.
Read a couple of pages containing the opinion, starting on page 4
Read about the penalty starting on page 11. Read conclusion regarding penalty on last page of case.
R13-Chp-00-Recovery-Group-Inc.(Sec-197)(Penalty)
Read the one-page comment by the AICPA on Uncertain Tax Positions
R13-Chp-00-AICPA-Comments-Uncertain-Tax-Positions
Printing the following pages is not necessary. Just take a look at the files.
R13-Chp-00-Ann-2010-9-Uncertain-Positions
R13-Chp-00-Ann-2010-30-Uncertain-Positions
R10-Chp-00-Form1120-Uncertain-Tax-Positions
R10-Chp-00-Form-1120-Uncertain-Positions-Pg3
R10-Chp-00-Definitions-Substantial Authority etc
Private companies will feel the impact of FIN 48

Using AICPA Journals and CCH Tax Service- 2009-Godfrey
Please study the PowerPoint file above before writing your paper.

The remainder of this web page has a collection of files added to the web page in recent years that may have some interest to students.
Exams from Fall, 2009, and before.
Tax law changes. Some questions may not be relevant or may have different answers today.
A test is the most important document a professor prepares because grades are at stake.
If it is on a test, it is an important concept.
Many of the test questions are similar to tax research assignments already completed by the class.
On all tests, the class is given a short court case and a similar client problem.
They use the court case as a basis for answering the test question. Cases will be added to this area later.

R9-Chp-00-04-1-Mid-Term-Exam-2009-Grading notes
R8-Chp-00-4-1-Final-Exam-2008
R8-Chp-00-4-1-Mid-Term-Exam-2008
R7-Chp-00-4-1-Final-Exam-2007
R7-Chp-00-4-2-Final Exam-2007- Grading
R7-Chp-00-4-1-Mid-Term-Exam-2007
R7-Chp-00-4-1-Mid-Term-Exam-2007-Key
R7-Chp-00-4-2-Perry Pedersen-Penalty-Mid-Term
R6-Chp-00-4-1-Final-Exam-2006
R5-Chp-00-4-1-Final-Exam-2005
R5-Chp-00-4-1-Mid-Term-Exam-2005
R4-Chp-00-4-1-FINAL-EXAM – Fall 2004
R4-Chp-00-4-1-Mid-Term-Exam-2004
R3-Chp-00-4-1-Final-Exam-Fall 2003
R3-Chp-00-4-1-Mid-Term-Exam-Fall-2003

 

R9-Chp-00-0-Presentation Guidelines-Common Mistakes
Regulation,§15A.453-1., Internal Revenue Service, Installment method reporting for sales of real property and casual sales of personal property (Temporary)
The term “contract price” is equal to selling price reduced by that portion of any qualifying indebtedness assumed by the buyer, which does not exceed the seller’s basis in the property.
So contract price is actually the amount seller will collect from buyer, plus the excess of the debt over basis to seller.
So profit is $99,800 and contract price it the same amount, leading to a 100% profit rate.
Excess debt (excess of debt over basis of property being sold) is also treated as a collection in year of sale. So seller will recognize 100% of the excess debt, and 100% of all actual collections from seller, later.
It works.
You have to find this reg in CCH or another tax service. It is not in our code book.
The memo is a memo to file. Provide citations for all supporting sources of law.
R8-Chp-04-5-Expiring-Temp-Regs-Case Footnote
R8-Chp-05-2-Sec-280A-Research-Example
R8-Chp-05-3-Vacation-Homes-2008
R8-Chp-05-4-Tax-Research-Courts-2008
R9-Chp-00-0-Presentation Guidelines-Common Mistakes

Use care when assuming that regulations are invalid.

Court Holds Medical Resident Stipends Exempt From FICA Taxes; IRS Regs Invalid
Univ. of Minnesota, DC Minn., April 1, 2008
A federal district court has found that stipends paid by a university to medical residents were exempt from Federal Insurance Contributions Act (FICA) taxes under the Code Sec. 3121(b)(10) student exception. Granting summary judgment to the university, the court invalidated IRS regs (T.D. 9167) disqualifying medical residents for the student exemption.
Despite another district court victory, teaching hospitals and similar institutions should tread cautiously when applying for refunds based on the student FICA exemption as the law in this area is far from settled. In 2007, a federal district court held that income paid by hospitals to medical residents is indeed subject to FICA tax ( Albany Medical Center, 2001-1 USTC ¶50,168). Moreover, the only court of appeals to qualify medical residents for the student exemption has been the Eleventh Circuit, in a case of first impression, involving years before the IRS’s amended regs took effect ( Mount Sinai, 2006-1 USTC ¶50,290).
T13F-Chp-00-2-Term Paper Suggestions
The file above has some suggestions on footnote placement, font size, etc.

R7-00-11-CPA Exam – Sec 61-Sec 68 and other Sec
R7-00-11-ANS-CPA Exam – Sec 61-Sec 68 and other Sec
R7-01-09-Recently Released CPA Exam Problems
At the MACC Orientation Meeting on Friday, many students expressed strong interest in preparing for the CPA Exam. In response to that interest, the file above is posted. We will answer some of those questions in class on August 20. We won’t just answer them, we will support our answers with references to the tax law. These questions are good for practice in finding and using the tax law for everyday tax issues. How many of the tax questions can you answer, without consulting a book or the Code?
How much tax law can you describe that is required to properly report items on the different lines of this form?
Introductory discussion case for first class.
Times are tough in the home ownership area. Many taxpayers are losing their homes to foreclosure.
Your clients bought a home for $400,000, paying $5,000 down and financing the balance of $395,000
The taxpayers paid interest only, so they still owe $395,000 a year later.
They were fired. They were without work and without other income.
They could not make the mortgage payments, so the bank foreclosed and sold the property.
The home had an appraised value of $350,000 on the date of foreclosure.
The home was sold at auction for $320,000.
The taxpayers own substantial real estate in another state, but have no other debt.
The taxpayer are relieved of liability on the home after foreclosure.
1. Do the taxpayers have a gain on foreclosure?
2. If so, how much?
3. Is the gain taxable?
4. The instructor has a high opinion of you, but does not trust your tax advice unless
you provide supporting citations to the tax law. A textbook or tax guide is a secondary source, not authority.
If this is your first tax course (or your first tax course that focuses on the Internal Revenue Code,
Regulations, court cases, etc.) then you my find this discussion case and the materials linked below to be a bit challenging. If so, you will quickly “get over it” in this class.
R7-00-00-Jerry Johnson-Debt Forgiveness
R7-00-00-Jerry Johnson-Debt Forgiveness-Appeal
R7-00-00-Computation of debt discharge-Jerry Johnson
How will you advise your client who has the following perks?
R7-01-09-Perks and privileges -Abbrev-20070805
Your Client bought 1,000 shares of First Charter at $20. She has called you for tax advice.
R7-01-09-Ohio bank to buy First Charter-20070817
TCSum2006-43-Martins-Cancellation of debt
We will use the case above as a basis for discussing both: (1) how to conduct research and
(2) how to use court cases to determine what the tax law requires.
Each class member will be asked to make a list of key facts to know about the structure and content of tax cases.
Why is it a mistake to wear your work shoes to court where you argue about your deductions?
nicely-edited.pdf
The two cases (2 pages each) linked below are good cases to read.
TR6-00-11-Alt-TCSum-2006-96-Nonbus bad debt-Family

Client makes a loan to her son to start a business.

The business fails and the son is unable to repay the loan.

Is the loan treated as a gift? If it is a gift, what is the tax treatment for the parent and son.
If it is treated as a deductible bad debt, how do they report it.
Can you find the code sections cited in the case, read them, and summarize (explain) them?
Does the court refer to regulations and other court cases?
TR6-00-12-Runyan-TCSum-2006-58-Simple IRA
Client makes a contribution to a simple IRA. What are the requirements for deducting this contribution?
Can you find the code sections cited in the case, read them, and summarize them?
A word about using Summary Opinions
These cases are in the same class as the Judge Judy show, etc. in which taxpayers argue their own cases.
These cases do not establish precedents. But they are short – generally focusing on only one or two issues. And they are issued by the United States Tax Court. They make very good classroom cases – better than a 150 page regular case – that requires many hours to thoroughly analyze.
A sample memo and client letter:
R7-03-07-Memo-Employer Provided Meals
You should not write a client letter as part of this assignment.
Even though your assignment indicates that the memo is to Jan,
your memo should be more technical than a typical client letter.
Term Paper Presentations
I have received an email question about citations. My response is as follows.
I suggest the following forms for citation of the Code and Regs in the bibliography
Internal Revenue Code, Section 61
Treasury Regulation, Section 1.61
Proposed Treasury Regulation, Section 1.61
Temporary Treasury Regulation, Section 1.61T
You have many examples of footnotes in the textbook. See pages 395, 412, 423, 425.
You may use Section or §.
The two files below contain a bibliography and a reference list.
The bibliography was used last year by a graduate student. It is not perfect, but is an example.
The second file has a reference page from a paper prepared by a UNC Charlotte faculty member.
Bibliography1
Bibliography2

Introduction to the Course

This course is not about reading a standard textbook on tax law.
It is about learning to use the “real” law which is contained in the Internal Revenue Code, the Regulations, Court Cases, etc.
Real tax accountants base their advice on the “real” law, not secondary sources such as IRS
publications (except in exceptional circumstances) tax textbooks, tax handbooks, etc.
Would you attend a Panthers game and sit in the parking lot listening to the game on the radio,
so you can learn what someone else thinks about the game?
I bet you would go into the stadium and see the Panthers play the game.
When you read a tax textbook, you are learning what someone else thinks the law says.
When you read the Code, or Regulations, or a court case, you can make your own decision
regarding what the law requires. After all, you are responsible for your advice.
Of course, we do use the leading textbook on Tax Research, to help us learn how to find and interpret the law.

Instructor will provide each student a color copy of the following document.
( You can’t get where you want to go in Charlotte if you don’t know something about the streets. Same goes for the tax law and the Code.)

PICTURE YOURSELF IN THIS SITUATION – Yes a true case. L.S. Vines was an attorney who won a large class-action lawsuit in 1999. As a result, he reported profits of $18,520,775 in 1999 and $16,966,055 in 2000. Vines subsequently retired from his law firm and started trading securities on Jan. 28, 2000. After technology stocks declined sharply, he incurred losses of $25,196,152 by April 14, 2000, when he stopped actively trading. What are the tax issues? The CPA was not familiar with the tax law and was sued – CPA had to pay taxpayer damages of $2,500,000.

Just received the following job posting from an alum.

Director of Finance to 140k + 20% bonus + relocation costs
· Part of a $3Billion business
· Looking for candidates who can become VP Finance/CFO or become the GM of a division
· key criteria of the successful candidate are: accounting knowledge, cost accounting knowledge, commercial experience, and leadership experience
· 10+ years of experience
Assume you took the job on January 1, 2010, and met your performance goals for 2010. In what year would you pay tax on the $28,000 bonus? Check your code.
Or assume your are advising this Director of Finance. Any tax planning thoughts you might have before meeting with your new client?

What types of fringe benefits do you think the executive may have? See Sec. 132. 125. 127. 129. 137.
More on our discussion of possible tax complications for Tiger Wood under various hypothetical payment methods.
What happens if he has his corporation pay for an auto, etc, for his former wife?
CPS6-04-60-Medlin-TCM-1998-378-Divorce-Const Dividends
Many MACC students consider preparation for the CPA Exam to be very important.
Lets use the Research course to learn how to find, understand and remember important tax rules for the CPA Exam.
The following handout has very basic and very important questions. You need your Code book to answer the questions.
R10-Chp-00-Introductory review problem
See if you can answer most (or all) of the questions above before (or during) our first Research class.
If you have already passed the exam, you still need to know these basic rules to answer questions for clients, etc.
R10-Chp-01-1-Summary of Tax Problem-by Code Sec
The problem above is a good exercise for those who need to understand the code organization better.
A person planning to take the CPA exam “Must” know how to work the problem above.
There are several items of critical tax information on which many of the answers are based.
I did not say a person must know everything in the code sections listed – just some key rules.
Many of the code sections are huge in size and in importance to businesses and to individuals.
Examples: taxes, interest, losses, charity, business expenses, etc.
Don’t get lost in the code sections listed. Just try to get the main points related to this problem.
Hopefully, we will have time to cover this handout in class. I will plan to cover the answers at least.

 

Please be prepared to discuss the answers to the following CPA Review Exercise.
You will need to use the Code book to answer the questions. Must know for CPA Exam.
You will know (or learn) how to use the Code and Regulations in this course.
R9-Chp-00-0-CPA-Review-Code-Exercise-2009-Problem
Capital Gain-Loss Class Exercise
The problem set above is a work in process, I will complete it and refine it before class.
For now, do you see any mistakes? Let me know. Can you complete the missing parts? Can you cite Code for every step?

How Many Dependents, etc.? (Introductory Exercise)

Mary has a son (Tim) who is 11 years old and lives with Mary in Tempe, Arizona, where he attends school.
Mary has low income and has difficulty supporting Tim.
Tim lives with Monica (Mary’s sister) in Dallas during the summer and during other school breaks.
Monica does not pay over half of the support cost of Tim.
Monica has assumed full responsibility for taking care of Bob (Mary’s other son) in order to assist Mary.
Bob lives with Monica full-time.
Bob is 22 years old and had no job or other source of income. Monica provides all of Bob’s support.
Monica and the boys live in her one-room log cabin without running water or electricity.
Their sole source of income is Monica’s modest salary. Bob attends school part-time in order to prepare for the GED test.
Bob was not a full-time student during the tax year.
How many dependents may Monica claim?
See Sec. 152(c)(1) for qualifying child.
See Sec. 152(d) for qualifying relative.
What is Monica’s filing status for the year? Single? Head of Household? (Sec. 2)
Does Monica qualify for the Child credit for either person (or both)? (Section 24)
You may want to read a July, 2009 court case (also posted on this website-below)
Virginia Mann v. Commissioner., U.S. Tax Court, T.C. Summary Opinion 2009-104, (Jul. 9, 2009)
Please study the Code and answer the questions – before you read the answer (the case).
R9-Chp-00-9-Virginia-Mann-TC-Sum-2009-104-Dependent

When you cannot pay the credit card

Mr. Trump used his Advanta Bank credit card to purchase certain inventory items for his business known as Mr. Computers USA.
Mr. Trump got into financial trouble. Advanta Bank agreed to reduce the credit card debt by $7,000.
Advanta Bank issued to Trump a Form 1099-C, Cancellation of Debt.
On that form, Advanta Bank showed that Trump had $7,000 of debt cancellation income.
Under what circumstances can Trump avoid reporting this $7,000 of income?
See Code Sec. 61(a)(12) and 108.
This is a huge issue in this economy where so many people are unable to pay their debts, are filing for bankruptcy, etc.
Joseph Hakim v. Commissioner., U.S. Tax Court, T.C. Summary Opinion 2009-92, (Jun. 8, 2009)
In another case last week, an individual had bought an auto for $12,000, paying $4,000 down and financing the $8,000 balance.
Now, (a year or two later) he stops making payments (when the debt is $6,000) and the car is repossessed.
The bank issues a Form 1099-C, saying he has $6,000 of debt cancellation income. What do you think?
Steed A. and Shonna K. Martin v. Commissioner., U.S. Tax Court, T.C. Summary Opinion 2009-121, (Aug. 4, 2009)
Note, the cases cited above are Summary Decisions, and do not establish precedent. They are useful in class.
They are issued by the United States Tax Court and are good “short” cases covering only two to four pages, generally.
Some court cases can be over 150 pages in length. In this class, we prefer the short ones, if that is OK with you.

Sale of Stock

On Friday, August 21, 2009, the Charlotte Business Journal reported that Matthews based PokerTek
will raise additional capital by issuing 565,000 shares of stock to ICP Electronics, Inc. of Taiwan.
That is 4.9% of the PokerTek’s outstanding shares.
They will use the money to develop coin operated poker machines for restaurants.
ICP will supply electronic components used in PokerTek gaming equipment.
PokerTek will receive $480,250 for the stock, which is $.85 per share.
1. Are the proceeds from this sale of stock included in gross income on the tax return of PokerTek?
2. Would your answer be different if the stock:
(a) was originally issued (sold) by PokerTek for $200,000,
(b) was later bought back by PokerTek as treasury stock at a cost of $300,000, and
(c) now is being sold by PokerTek to ICP for $480,250?
You have your law book. Look it up. There is an index in the back of the book if you need it.
Has this been on the CPA Exam? You bet!

 

Sale of Airplane

On Friday, August 21, 2009, the Charlotte Business Journal reported that Charlotte Jet, Inc.
entered into a joint venture (in 2006 or 2007) with a prominent Charlotte business person (we will call him Bob).
Bob would receive 60% of the profits. Charlotte Jet and an individual would receive 40% of the profits.
In a period of about one year, they bought and sold 3 business jets.
Bob’s share of the profits on these three sales (after expenses) was about $4.5 million.
(This is an abbreviated version of the facts.)
1. What advantage does an individual taxpayer receive by reporting gains or profits as long-term capital gains?
(Sec. 1(h) – That section is a bear – but it means the top rate is 15% on individual capital gains.) (Sec. 1221)
2. Would this profit qualify as a capital gain, based on the abbreviated information provided above?
3. How would Bob report the transactions on the federal individual income tax return,
if the sales resulted in a loss of $4.5 million for Bob. (not a profit of $4.5 million)? [Sec. 63, 165, 1221, 1211]
4. Is the arrangement a partnership? (That is – the arrangement described above between Bob and the other parties.)
Code Section 7701 (a)(2). Reg. 301.7701-1 (page 1911)
[Reg. 301.7701-2 and 3 are also helpful, but are not included in your code book. They are in the CCH on-line service.]
5. Bob bought a plane through a limited liability company called D2 Associates.
Apparently the cost of the plane was $20.5 million. What is a limited liability company? [ See citations above.]
If the limited liability company sells the plane for $25 million what is the tax liability
for the LLC and for the owners.
Now, assume it is sold for $15 million, not $25 million. How is that reported?

How many questions can you answer in the following handout? We will cover this set of cases in first class

R9-Chp-01-2-Life-Cycle-of-Property-Ownership
R9-Chp-01-4-Corp-Investment-and-Sale-or-Liquid
R9-Chp-04-3-LTR- 200919026-no 2553-UNCC-Corp
What can you tell me about the document above. What information is found in Chapter 4?
Note: Instructor has filled in a company name, UNCC-Corp in place of X, etc.
Rev-Proc-2007-62
Robert and Judith Dansby

Read the following article from the Business Journal.

Did someone read code sections 280G and 4999. Remember my password – email me if you don’t
R8-Chp-00-American Community-Parachute-BusJnl-20080919
One item for discussion in this course. What is the following document? Explain.
R8-Chp-01-5-Ltr-Rul-200823017-Late-Elect-1371
The following exercise will be used to introduce the application of tax law. Prepare Form 1120-Pg. 1
R8-Chp-01-3-Beginning Exercise
What can you learn from the following case?
R8-Chp-01-8-TC-Sum-2008-91-R-Wilson-Negligence
If you can prove that you gave cash to an organization that is a charity, does that mean you can deduct the contribution?
R8-7-TCSum-2008-93-Gomez-Charity