Research Problems
Research Problem 1. During 2016, John was the chief executive officer and a shareholder of Maze, Inc. He owned 60% of the outstanding stock of Maze. In 2013, John and Maze, as co-borrowers, obtained a $100,000 loan from United National Bank.
This loan was secured by John’s personal residence. Although Maze was listed as a co-borrower, John repaid the loan in full in 2016. On Maze’s Form 1120 tax returns, no loans from shareholders were reported. Discuss whether John is entitled to a bad debt deduction for the amount of the payment on the loan.
Research Problem 2. Mary Marble took out a homeowner’s insurance policy on her residence. One of the policy provisions listed the insured’s duties with respect to a loss. This provision required the policyholder to give notice and required an inventory of damaged personal property within 60 days of the insurance company’s request and to supply proof of loss.
In November of the current year, Mary’s home was damaged by a fire. Shortly after the fire, Mary reported the loss to the insurance company. In December, the insurance company generated a claim report sheet with a claim number and sent Mary a proof of loss form. Mary failed to provide the insurance company with the proof of loss form within the required 60-day period; hence, the insurance company denied
Mary’s claim for damages. Discuss whether Mary is entitled to a casualty loss deduction for the damage to her home caused by the fire.
Research Problem 3. Esther owns a large home on the East Coast. Her home is surrounded by large, mature oak trees that significantly increase the value of her home.
In August 2015, a hurricane damaged many of the trees surrounding her home. In
September 2015, Esther engaged a local arborist to evaluate and treat the trees, but five of the largest trees were seriously weakened by the storm. These trees died from disease in 2016. Esther has ascertained that the amount of the casualty loss from the death of the five trees is $25,000; however, she is uncertain in which year to deduct this loss. Discuss whether the casualty loss should be deducted in the calculation of
Esther’s 2015 or 2016 taxable income.
Research Problem 4. Find a newspaper article that discusses tax planning for casualty losses when a disaster area designation is made. Does the article convey the pertinent tax rules correctly? Then list all of the locations identified by the President as
Federal disaster areas in the last two years.
Research Problem 5. Many states that have corporate income taxes “piggyback” onto the Federal corporate income tax calculation. In other words, these states’ corporate income tax calculations incorporate many of the Federal calculations and deductions to make both compliance and verification of tax liability easier. However, some state legislatures were concerned that the domestic production activities deduction, if allowed for state tax purposes, would result in significant revenue losses. Determine whether states with corporate income taxes allow or disallow the domestic production activities deduction in the calculation of the state’s corporate income tax liability. Be sure to state the sources for your answer.
Roger CPA Review Questions
1. Glenn and Mary’s house was damaged by a hurricane in 2016. The fair value of their home before the hurricane was $150,000. After the hurricane, the fair value of their home was $125,000. They received $10,000 from their homeowner’s insurance policy.
What is their casualty loss deduction for 2016 if their adjusted gross income was $40,000?
a. $10,900
b. $11,000
c. $14,900
d. $15,000
2. Hank’s home is burglarized on December 22, 2016. Personal property with a fair market value of $40,000 and an adjusted basis to Hank of $25,000 is stolen. Hank paid an independent appraiser $700 on December 29 to determine the fair market value of the property at the time of the break-in. Hank’s homeowner’s insurance policy leads him to believe he is entitled to receive $15,000 in reimbursement for the event, but no settlement has been made with the insurance company by yearend.
Hank’s AGI in 2016 is $30,000. How much may Hank deduct from AGI as a result of these facts on his 2016 tax return? Assume Hank itemizes, and assume there has still been no settlement with the insurance company at the time of filing.
a. $7,000
b. $21,900
c. $6,900
d. $22,000
3. On the night of October 14, 2016, a hurricane caused serious damage to Paige’s personal vehicle and to the roof of her personal residence, a townhome. Just prior to the hurricane, Paige had a $200,000 basis in her home and a $12,000 basis in her vehicle, which had a fair market value just prior to the hurricane of $10,000. The damage to the roof is appraised at $7,000, and the fair market value of the vehicle immediately after the hurricane is appraised at $5,000. Paige is uninsured and has a
Use the tax resources of the Internet to address the following questions. Do not restrict your search to the Web, but include a review of newsgroups and general reference materials, practitioner sites and resources, primary sources of the tax law, chat rooms and discussion groups, and other opportunities.
Internet
Activity
2016 AGI of $40,000. What amount of casualty loss deduction may Paige claim on her 2016 tax return as a result of the hurricane?
a. $9,800
b. $7,900
c. $9,900
d. $7,800
4. Regarding the tax treatment of a business’s research and experimental (R&E) expenditures, which of the following statements is true?
a. A common reason for electing tax deferral for such expenses is the expectation of lower tax rates in the future.
b. Expenses associated with the acquisition of land upon which a purpose-built
R&E facility is constructed are considered R&E expenditures for tax purposes.
c. Companies generally prefer to expense R&E costs immediately, but may elect instead to defer and amortize such costs over a minimum of 60 months.
d. Companies may elect to immediately expense R&E costs incurred in the first applicable taxable year and all future years through an appropriate filing with the IRS.
5. Identify the correct statement below regarding the domestic production activities deduction (DPAD).
a. Qualified production activities income (QPAI) is calculated by applying a percentage to net income from an IRS rate table based on specific criteria.
b. The DPAD cannot exceed attributable W–2 wages paid.
c. A sole proprietorship cannot claim the DPAD, but a partnership or an S corporation with more than one shareholder can.
d. Taxable income for the purposes of calculating or amending the DPAD includes any net operating loss (NOL) deduction, such as an NOL carryforward or NOL carryback.
Research Problem 1. During 2016, John was the chief executive officer and a shareholder of Maze, Inc. He owned 60% of the outstanding stock of Maze. In 2013, John and Maze, as co-borrowers, obtained a $100,000 loan from United National Bank.
This loan was secured by John’s personal residence. Although Maze was listed as a co-borrower, John repaid the loan in full in 2016. On Maze’s Form 1120 tax returns, no loans from shareholders were reported. Discuss whether John is entitled to a bad debt deduction for the amount of the payment on the loan.
Research Problem 2. Mary Marble took out a homeowner’s insurance policy on her residence. One of the policy provisions listed the insured’s duties with respect to a loss. This provision required the policyholder to give notice and required an inventory of damaged personal property within 60 days of the insurance company’s request and to supply proof of loss.
In November of the current year, Mary’s home was damaged by a fire. Shortly after the fire, Mary reported the loss to the insurance company. In December, the insurance company generated a claim report sheet with a claim number and sent Mary a proof of loss form. Mary failed to provide the insurance company with the proof of loss form within the required 60-day period; hence, the insurance company denied
Mary’s claim for damages. Discuss whether Mary is entitled to a casualty loss deduction for the damage to her home caused by the fire.
Research Problem 3. Esther owns a large home on the East Coast. Her home is surrounded by large, mature oak trees that significantly increase the value of her home.
In August 2015, a hurricane damaged many of the trees surrounding her home. In
September 2015, Esther engaged a local arborist to evaluate and treat the trees, but five of the largest trees were seriously weakened by the storm. These trees died from disease in 2016. Esther has ascertained that the amount of the casualty loss from the death of the five trees is $25,000; however, she is uncertain in which year to deduct this loss. Discuss whether the casualty loss should be deducted in the calculation of
Esther’s 2015 or 2016 taxable income.
Research Problem 4. Find a newspaper article that discusses tax planning for casualty losses when a disaster area designation is made. Does the article convey the pertinent tax rules correctly? Then list all of the locations identified by the President as
Federal disaster areas in the last two years.
Research Problem 5. Many states that have corporate income taxes “piggyback” onto the Federal corporate income tax calculation. In other words, these states’ corporate income tax calculations incorporate many of the Federal calculations and deductions to make both compliance and verification of tax liability easier. However, some state legislatures were concerned that the domestic production activities deduction, if allowed for state tax purposes, would result in significant revenue losses. Determine whether states with corporate income taxes allow or disallow the domestic production activities deduction in the calculation of the state’s corporate income tax liability. Be sure to state the sources for your answer.
Roger CPA Review Questions
1. Glenn and Mary’s house was damaged by a hurricane in 2016. The fair value of their home before the hurricane was $150,000. After the hurricane, the fair value of their home was $125,000. They received $10,000 from their homeowner’s insurance policy.
What is their casualty loss deduction for 2016 if their adjusted gross income was $40,000?
a. $10,900
b. $11,000
c. $14,900
d. $15,000
2. Hank’s home is burglarized on December 22, 2016. Personal property with a fair market value of $40,000 and an adjusted basis to Hank of $25,000 is stolen. Hank paid an independent appraiser $700 on December 29 to determine the fair market value of the property at the time of the break-in. Hank’s homeowner’s insurance policy leads him to believe he is entitled to receive $15,000 in reimbursement for the event, but no settlement has been made with the insurance company by yearend.
Hank’s AGI in 2016 is $30,000. How much may Hank deduct from AGI as a result of these facts on his 2016 tax return? Assume Hank itemizes, and assume there has still been no settlement with the insurance company at the time of filing.
a. $7,000
b. $21,900
c. $6,900
d. $22,000
3. On the night of October 14, 2016, a hurricane caused serious damage to Paige’s personal vehicle and to the roof of her personal residence, a townhome. Just prior to the hurricane, Paige had a $200,000 basis in her home and a $12,000 basis in her vehicle, which had a fair market value just prior to the hurricane of $10,000. The damage to the roof is appraised at $7,000, and the fair market value of the vehicle immediately after the hurricane is appraised at $5,000. Paige is uninsured and has a
Use the tax resources of the Internet to address the following questions. Do not restrict your search to the Web, but include a review of newsgroups and general reference materials, practitioner sites and resources, primary sources of the tax law, chat rooms and discussion groups, and other opportunities.
Internet
Activity
2016 AGI of $40,000. What amount of casualty loss deduction may Paige claim on her 2016 tax return as a result of the hurricane?
a. $9,800
b. $7,900
c. $9,900
d. $7,800
4. Regarding the tax treatment of a business’s research and experimental (R&E) expenditures, which of the following statements is true?
a. A common reason for electing tax deferral for such expenses is the expectation of lower tax rates in the future.
b. Expenses associated with the acquisition of land upon which a purpose-built
R&E facility is constructed are considered R&E expenditures for tax purposes.
c. Companies generally prefer to expense R&E costs immediately, but may elect instead to defer and amortize such costs over a minimum of 60 months.
d. Companies may elect to immediately expense R&E costs incurred in the first applicable taxable year and all future years through an appropriate filing with the IRS.
5. Identify the correct statement below regarding the domestic production activities deduction (DPAD).
a. Qualified production activities income (QPAI) is calculated by applying a percentage to net income from an IRS rate table based on specific criteria.
b. The DPAD cannot exceed attributable W–2 wages paid.
c. A sole proprietorship cannot claim the DPAD, but a partnership or an S corporation with more than one shareholder can.
d. Taxable income for the purposes of calculating or amending the DPAD includes any net operating loss (NOL) deduction, such as an NOL carryforward or NOL carryback.