121 Midterm 2 Fall 12

2453 Words Mar 22nd, 2015 10 Pages
University of California Prof. Alan Cerf
Haas School of Business Midterm 2 exam, v. A
UGBA 121 Fall 2012

Name ______________Q & A_______________________ Date ______________

Please sign the following:
I pledge that I will not receive help from anyone, nor will I give help to anyone during this exam.

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SID student’s signature

For problems 1-3, write answers on exam and show calculations to justify your answers.

Question I. 10 pts

Rod is employed as an auditor by a CPA firm. On most days, he commutes by auto from his home to the office (18 miles round trip). During one month, however, he has an extensive audit assignment closer to home. For this
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Discuss Joe’s tax objectives and all tax issues related to his actions. (Show calculations.)

Joe is attempting to accelerate his charitable contribution deduction into 2013. There are several potential advantages to accelerating the deduction by donating the land in 2012.

His contribution will be deducted in a tax year when his marginal tax rate is 33% rather than 25%.

He might avoid disallowance of part of the deduction due to AGI percentage limitations because his contribution base will be higher in 2012 than in 2013.

He can deduct the fair market value of the land without recognizing the $40,000 appreciation as income.

He can step up his basis in the land from $10,000 to $50,000 when he reacquires it in 2012.

Joe’s plan will generate many favorable outcomes if he does not run afoul of the IRS. While it does not appear that Joe has done anything that does not comply with the tax law, the IRS might collapse the transaction; that is, focus on the outcome and ignore the steps involved. The outcome is that Joe has transferred $50,000 cash to his church. The IRS might disallow the deduction for the land contribution in 2011 and treat the transaction as a cash contribution in 2012. In this case, Joe’s basis for the purchased land would be $10,000 and his deduction would be at the lower 2012 marginal tax rate.

Question 5. XX pts.?

John and Jenny decide to give $75,000 to two and the spouses of the

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