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ACCT Q1-5:1 We learned this semester that not only do we have to determine the amount of income that a taxpayer...




Question;1. We;learned this semester that not only do we have to determine the amount of;income that a taxpayer must recognize for tax purposes, but we also need to;determine the type or character of income that is recognized. As we know;this may depend on the type of transaction that generated the income at;issue. Explain the general types or categories of income that exist under;the Code (e.g., ordinary), and how the amount of each type of income is;calculated and taxed under the Code, including what rates may apply.;2. This;semester, we learned that Congress designed the Code to include deductions that;can be taken for losses that a taxpayer may experience. Two such deductions are;(1) the bad debt deduction and (2) the deduction for casualty losses and theft.;How does the IRS generally interpret deductions (i.e., broadly or;narrowly)? How do we determine whether a taxpayer is entitled to each of;these two deductions? What is the purpose of each of these two deductions?;Are there any limits on the deduction at issue? Finally, what generally;governs when a;taxpayer may take each of these two deductions?;3.;As a tax practitioner, you;often get people asking questions concerning the tax effect of property;transactions. This year is no exception. You've had individual clients ask you;the following questions;I. During the course of the year, I swapped some property for what I consider;to be similar property. Is this a taxable event? If so, how do I calculate my;gain, if any, and my basis in the property that I received?;II. I own part of a C corporation. During the year, the corporation sold me;some property at a loss. What are the tax consequences of this transaction to;me and the corporation?;Answer each of these questions, explaining the rules that apply to each property;transaction and the possible tax consequences of each;4.;One of your corporate clients;has approached you about whether or not its employees are required to include;certain benefits provided by the corporation in their income. In particular;the corporation has inquired whether the following benefits provided by the;corporation to employees would be included in an employee's taxable income;I. The employer would like to provide employees with valet transportation;services to and from work, that is, the employer would like to pick employees;up at their homes, transport them to work, and then return them home at the end;of the day. In order to operate as cheaply as possible, the company;envisions using a number of Toyota Priuses (a relatively small car that holds;about four adults, including the driver) to provide the service. These are;the same cars that run various errands for the employer during the;day. They estimate that the vehicles will be used about 40% of the time to;run various errands, and the remainder of their use will be dedicated to;providing the transportation services. The employer anticipates that the;monthly value of this benefit would be approximately $300 per month.;II. In order to promote healthier lifestyles and exercise, the employer would;like to offer employees the opportunity to use athletic facilities free of;charge. They want to extend the benefit to their employees, as well as to the;employees' spouses, dependent children, and parents/grandparents (if;applicable). To accomplish this, the employer plans on contracting with a;private gymnasium located nearby (e.g., a Gold's Gym? or other gym that sells;memberships to the general public). The gymnasium will still maintain its other;customers, who it expects will remain the majority of its overall membership.;The monthly value of this benefit is estimated to be approximately $200.;Explain to your client the general rules surrounding whether an employee must;include benefits provided by the employer in income. Then, for the two proposed;benefits mentioned above, explain whether the employee would have to include;the amount in income or what provision or exception might apply to make the;proposed benefit nontaxable. If the employer would have to make changes to the;proposed benefit to render it nontaxable, explain what changes would have to be;made. Finally, explain what the resulting benefit would be to the employee and;how much, if any, of the benefit the employee could exclude from income. Make;sure to detail any significant exceptions or rules that apply to the benefit;exception at issue;5.;One of your best individual;clients is thinking about starting up a new business, and he is seeking your;advice on which business form he should select. In particular, he's trying to;decide whether to operate the business as a sole proprietorship or a C;corporation. Explain to him the significant tax and nontax issues that will;arise from choosing each of these entities as compared to the other, including;how income will be treated by the entity, the overall tax burden, and the;effect of distributions of property or earnings from the entity to your client


Paper#37724 | Written in 18-Jul-2015

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