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Question;Kevin deliberately omitted $40,000 of gross income from the;restaurant that he owned from his 2012 tax return. The return indicates gross;income of $200,000 when he files it on April 14, 2013. As of what date can the;IRS no longer pursue Kevin with the threat of collection of the related tax;interest, and penalties?;When Keith created a new corporation as the sole;shareholder, he was advised by his accountant to treat 50 percent of the amount;invested as a loan and 50 percent as a purchase of stock. What are the;advantages and disadvantages of this structure as compared with treating the;entire investment as a purchase of stock?;Fred Fisher is a licensed scuba diver who lives in Key;Largo. He is employed full-time as an engineer. Five years ago he had been;employed as a professional diver for a salvage company. While working for the;salvage company, he became interested in marine archaeology and treasure;hunting. Until last year he gave diving lessons on weekends and trained;individuals in the sport of treasure hunting under the name of ?Fred?s Diving;School.? Three of the diving students he taught subsequently found shipwrecks.;Fred generally did not engage in recreational diving.;Last year, Fred began a treasure-hunting business named;?Treasure Seekers Company.? He bought a boat specifically designed for treasure;hunting and did extensive research on potential locations of ship- wrecks. Fred;located several shipwrecks, but none were of substantial value. He did retrieve;several artifacts but has not sold any yet. Although these artifacts may have;some historical significance, they have a limited marketability. Thus, Fred has;not yet had any gross income from his treasure hunting activities.;Other than retaining check stubs and receipts for his;expenses and an encoded log, Fred did not maintain formal records for Treasure;Seekers Company. Fred maintains as few written records as possible because he;fears for his safety. He took steps to keep his boat and equipment from public;view and took precautionary measures to maintain the secrecy of his search;areas. Fred incurred $5,000 of expenses relating to his treasure-hunting;activities last year. Can Fred deduct the expenses of his treasure-hunting;business, or will the IRS claim it is a hobby and disallow the expenses?;Go to www.aicpa.org (the AICPA?s Web site) and search for;Statements on Standards for Tax Services. Read the history section of the most;recent version of the Statements on Standards for Tax Services. What reasons;were provided for revising the SSTS?;Realty Corporation, an accrual-basis, calendar-year;corporation, agrees to rent office space to Tenant Company for $3,000 per month;beginning on January 1, year 2. On December 15, year 1, Tenant gives Realty;Corporation a $3,000 deposit in addition to rent for the months of January and;February. In year 2, Tenant pays rent for the months of March and April. On May;15 Tenant closes its business and vacates the office. Realty withholds $1,500;from the deposit for unpaid rent and $1,000 for damages. Realty Corporation;refunds the balance of the deposit to Tenant on May 20, year 2. a. How much;income should Realty Corporation report in year 1 from the above transactions;for tax and financial accounting? b. How much income should Realty Corporation;report in year 2?;Markum Corporation owes a creditor $60,000. Markum transfers;property to the creditor to satisfy the debt. Markum purchased the property;four years ago for $45,000 and it is currently worth $60,000. Does Markum have;any gross income as a result of this transaction?;In year 1, Highrise Company contracts to manufacture a piece;of cus- tomized equipment for a customer. The contract will take two years to;complete. The contract price is $250,000 and the company estimates its total;costs at $220,000. Actual costs incurred are as follows;Year 1 $121,000 Year 2 105,000 $226,000;What amount of gross income and deductions does the company;recog- nize in each of the two years, assuming the company uses (1) the com-;pleted contract method and (2) the percentage-of-completion method of;accounting for long-term contracts?

 

Paper#41419 | Written in 18-Jul-2015

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