Federal Taxation Test Paper

Hoffman, W., Maloney, D., Raabe, W., & Young, J. (2013). Federal Taxation Comprehensive Volume. (36 ed.). Ohio: South-W

Note: (1) The building is subject to a nonrecourse liability of $10,000, which is assumed by the partnership.

* What are the differences between the following components of taxable income? Provide at least one example of each.

They have one child, Naomi, who is 3 years old and lived with them all year.

People do not enjoy talking about taxes because they are too political, confusing, and depressing. It is no secret that the American tax code is a mess and something many economists describe as too broken to fix. Despite this, politicians have never stopped from trying to “fix” the code, yet they have had very little success. The U.S. Government’s tax code currently comprises “more than 67,000 pages of complexities” (Boortz, Linder, & Woodall 14). The Americans for Fair Taxation (AFFT) was founded in 1995 with one goal: create the simplest and best tax reform plan that would work in the modern market and economy. The AFFT’s best solution was a bill which they promptly called the FairTax.

The Internal Revenue Service (“IRS”) issued regulations called the “Clifford Regulations” in 1946. The Clifford Regulations formed the basis for Congressional codification of the grantor trust rules in current Subpart E in 1954. While income tax rates today are not as far apart as they were in 1954, and even though the IRS targeted abuses with the grantor trust rules, those rules offer favorable opportunities for taxpayers today.

Parent Corporation owns 85% of the common stock and 100% of the preferred stock of Subsidiary Corporation. The common stock and preferred stock have adjusted bases of $500,000 and $200,000, respectively, to Parent. Subsidiary adopts a plan of liquidation on July 3 of the current year, when its assets have a $1 million FMV. Liabilities on that date amount to $850,000. On November 9, Subsidiary pays off its creditors and distributes $150,000 to Parent with respect to its preferred stock. No cash remain to be aid to Parent with respect to the remaining $50,000 of its liquidation preference for the preferred stock, or with respect to any common stock. In each of Subsidiary’s tax years, less than %10 of its gross

Ann paid $500 for her books and supplies and she incurred living expenses of $7,400.

1. Section 351 (which permits transfers to controlled corporations to be tax deferred) can be justified under the

Facts: Murray Taxpayer was previously employed by a company who was illegally dumping chemicals into a river. Murray had knowledge concerning these illegal activities of his employer and made an ethical decision to report this to the Environmental Protection Agency. Upon inspection, the Environmental Protection Agency determined that Murrays employer was in fact illegally dumping and was appropriately fined for the charges. Murray’s employer reacted to his whistleblowing by firing him and making deliberate efforts to prevent Murray from gaining employment elsewhere. Murray then sued his former employer for damaging

There are countless tax saving strategies related to gift and estate taxes that can be utilized by taxpayers in the form of estate freezing or other estate planning methods. Estate freezing is a strategy for asset management that can use trusts to “minimize taxes on future appreciation” of assets, taking the burden away from any heirs. There are endless types of estate freezing that taxpayers can use, ranging from annuities to intentionally defective grantor trusts. One illustration of estate freezing that can be used is a qualified personal residence trust, which is more commonly referred to as a QPRT. In short, these trusts are a form of estate planning that have tax advantages

1. All distributions (excluding reasonable salary) to Paula and Mary will be taxed as dividends to them. And the corporation could not deduct this part of distribution.

The chapter also discussed four types of charitable lead trusts: 1) qualified reversionary grantor trust, 2) qualified nonreversionary grantor trusts, 3) qualified

Throughout history, taxation on United States citizens has proven to be a necessary component of a growing economy as means of generating revenue for the federal budget. The federal budget funds the many government programs implemented to keep the disabled, elderly, and unemployed from falling bellow the poverty level. Unfortunately, this fund is not always available when catastrophic evens, such as an economic recession, deplete the revenue coming in and create a budget deficit. In order to regenerate money coming in and replace the deficit, the government calls on money gained from taxes. What happens when tax money is already appropriated to other programs? A tax reform. A tax increase has many times been the

. (TCO 2) Barry owns a 30% interest in a partnership that earned $300,000 this year. He also owns 30% of the stock in a C corporation that earned $300,000 during the year. The partnership did not make any distributions, and the corporation did not pay any dividends. How much income must Barry report from these businesses? (Points : 2)