Acct 483 Paper 1

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RESEARCH PAPER ACCOUNTING 483 - FEDERAL TAX Section 01 1st Research Paper Spring 2014 Due Friday, March 14, 2014

Speedy Karr is the used car sales manager of Fast Talking Ed's Car Sales, a local new and used car dealership in Moscow, Idaho. Speedy Karr’s income is about $90,000 a year from his salary and bonus (his bonus is a percentage of the net income of the dealership). In addition to his income from Fast Talking Ed's, Speedy also has income from rentals of about $35,000 a year. Speedy's wife, Holiday, is employed, earning about $65,000 a year. Several years ago, Speedy became interested in auto car racing. In 2011, Speedy purchased a used car, which he converted into a racing stock car. The cost of the car, and the modifications
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The value of these discounts, or free items, will be about $15,000 this (2014) year. One of his sponsors is Fast Talking Ed’s, which provides all parts at one-half dealer’s cost, the value of these parts are expected to be about $10,000 this year (2014) which are not included in the $15,000 from other sponsors. If Speedy could win a few more races, the sponsor benefits should substantially increase. Speedy has kept good records of all of his income and expenses, recording them in a small cash journal. Speedy uses a separate checking account for the racing activities. Speedy has not recorded in his books and records the items his sponsors provided, but he does have a record of them. Speedy became involved in auto racing because he enjoyed it and because he thought he could someday make some money at it. Also, Speedy feels that the car racing helps promote the sales of the car dealership and the dealership sponsors him and has its name on the car, as do other sponsors. Speedy has taken the losses generated so far on his personal income tax returns. As a result of these losses, Speedy’s income tax returns for the years 2011
RESEARCH PAPER Acct. 483 – Spring 2014 Page 1 of 3

and 2012 are being examined (audited) by the IRS. The revenue agent, Ron Sneaky, has submitted proposed tax adjustments. These examinations have

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