South-Western Federal Taxation 2016 Individual Income Taxes 39th Edition Hoffman Solutions Manual 1

South-Western Federal Taxation 2016
Individual Income Taxes 39th Edition

Hoffman Solution Manual
Full download at link:
Solution Manual: https://testbankpack.com/p/solution-manual-for-

south-western-federal-taxation-2016-individual-income-taxes-39th-
edition-hoffman-young-raabe-maloney-nellen-1305393309-
9781305393301/
Test Bank: https://testbankpack.com/p/test-bank-for-south-western-
federal-taxation-2016-corporations-partnerships-estates-and-trusts-
39th-edition-hoffman-raabe-maloney-young-1305399889-
9781305399884/
CHAPTER 5
GROSS INCOME: EXCLUSIONS
SOLUTIONS TO PROBLEM MATERIALS
DISCUSSION QUESTIONS
1. (LO 2) The $10,000 that John received is compensation for services and, therefore, must be included in
his gross income.
2. (LO 2) Leonard must include $2,500 in his gross income. Because $2,500 was received from his
employer, it cannot qualify as a nontaxable gift, and no other exclusion provision would apply. However,
the amount received from his fellow employees was made out of detached generosity and, therefore, is
a nontaxable gift. The amount Leonard spent to repair the damage is not relevant to determining his
gross income, although the cost may be partially deductible as a personal casualty loss.
5-1
© 2016 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
5-2 2016 Individual Income Taxes/Solutions Manual
3. (LO 2) Dolly should include $92 in her gross income. Even if the funds were received as the result of
a mistake, she has the free and unrestricted use of the funds, with no apparent claims against the funds.
In addition, because she received the amount from a customer in her employment capacity, it is unlikely
that she received a $90 gift.
4 (LO 2) Carey must include all of her tips in gross income. Although the customers have no legal
obligation to pay her, in fact, the payments are for her services to the customer. Therefore, the payments
are compensation for services.
5. (LO 2) Assuming that Lime had taxable income in 2014 of at least $5,000, it received a tax benefit
from writing off the receivable. So Lime would include $3,500 in gross income in 2015 under the tax
benefit rule. The insurance proceeds could not be excluded from gross income because the insurance
contract proceeds were in consideration of the loan and not payable merely as the result of Wally’s
death.
6. (LO 2) No. Billy’s award of $150,000 can be excluded from gross income because it arose out of a
physical personal injury, even though $50,000 was to replace income he would have earned and would
have been subject to tax. The $15,000 he received from the income replacement policy he purchased is
excluded from Billy’s gross income as a recovery of his cost of the policy (but is not taxable even
though the total benefit received may exceed the premiums paid). Amber is taxed on the $30,000 she
received under the income replacement insurance policy because the premiums were paid by her
employer (and would not have been included in her gross income).
7. (LO 2) No. The $10 million amount that Wes received is included in his gross income. However, Sam
is required to include only the $4 million in punitive damages in his gross income. His compensatory
damages are excluded from his gross income, even though the amount replaces a loss of income,
because the amount was received as a result of physical personal injury.
8. (LO 2) Holly can exclude the $12,000 of workers’ compensation benefits she received from her gross
income. Jill can exclude the $12,000 she received for lost income because it was received from an
insurance policy that she had purchased.
9. (LO 2, 5) Both Casey and Jean will experience a decrease in income net of health insurance premiums.
It is merely a question of which is the “least bad” option. As will be seen, both fare better under option
(2) although Jean is much better off with that option.
Under option (1), Casey would be required to pay $8,000 in premiums each year. Assuming that he
cannot deduct the insurance as a medical expense because of the adjusted gross income floor, his cash
flow after-tax and health insurance premiums will decrease by $8,000. Under option (2), Casey’s cash
flow after-tax and health insurance premiums would decrease by $8,500 [(1 − .15) × $10,000].
Therefore, Casey would be better off with option (1).
Jean would fare much better under the second option. As in Casey’s case, with option (1), she is $8,000
poorer than without any change. But under option (2), her after-tax cash flow would decrease by $6,500
[(1 − .35) × $10,000]. Therefore, Jean would be better off with option (2).
10. (LO 2) With a cafeteria plan, the employee receives a salary and is provided by the employer with a
fixed amount that he or she can allocate among a range of possible nontaxable fringe benefits and
taxable benefits. With a flexible spending plan, a portion of the employee’s salary is set aside for
specific uses that would have been excludible from gross income had the employer paid these expenses.
The employee’s gross income is reduced by the amount that goes into the flexible spending account,
and the withdrawals are excluded from gross income. However, any unused funds are forfeited by the
employee.
Gross Income: Exclusions 5-3
11. (LO 2) The discount on the price of the automobile of $4,600 ($33,600 − $29,000) is a qualified
employee discount. The discount can be excluded from Ted’s gross income because the price he paid
was above the employer’s cost. However, Ted must include in gross income 80% of the dealer
preparation fee, a service, of $300, which is $240 ($300 × 80%). The maximum qualified employee
discount that can be excluded for a service is 20%.
12. (LO 2, 5) The additional before-tax salary that is required to purchase the health insurance for $9,000,
when the marginal tax rate is 25%, is $12,000 [$9,000/(1 − .25)].
13. (LO 2, 5)
a. Tom must include the $100 in gross income. Mason is allowed to exclude the $100 as a
qualified transportation fringe.
b. Tom paid $100 for transportation cost and was reimbursed for that amount. Therefore, Tom’s
before-tax cost was $0. However, Tom is required to include the $100 in gross income and thus
must pay an additional $28 ($100 × .28) tax on the reimbursement, which is his after-tax cost
of commuting.
Mason’s after-tax cost of commuting is $0 because he is reimbursed for the out-of-pocket cost
and is not required to include the reimbursement in income.
14. (LO 2) The issues all relate to whether the employees would realize gross income from the employer
providing the facilities. If the employee does have gross income, the next question is whether the benefit
qualifies under one of the exclusions provided in the Code.
• Does the employee experience an economic benefit from using the facility?
• Does the walking trail qualify as an excludible “athletic facility”?
• Is the benefit de minimis?
• Is the benefit a no-additional-cost service? Valuation of the benefit could also be an issue.
15. (LO 2) The facility provides an opportunity to provide the employees with nontaxable income. The
child day care services and exercise facility provided to the employees are specifically excluded from
their gross income. The use of the facility for family events could be provided in a manner that qualifies
as a no-additional-cost employee fringe.
16. (LO 2, 5) The Virginia bond yields the greatest after-tax income.
Virginia North Carolina

Bond Bond
Before-tax interest (on $100,000) $4,500 $4,600
Virginia tax @ .05 –0– (230)
Federal tax benefit from Virginia tax @ .35 –0– 81
Federal tax –0– –0–
After-tax income $4,500 $4,451
17. (LO 2)
a. Andrea must include $10,000 ($25,000 − $15,000) in her gross income (i.e., the fund earnings).
b. Both Andrea and Joanna can exclude the $7,500 from their gross income because this amount
was used to pay for higher education expenses.
18. (LO 3) Dolly is not required to recognize income from the receipt of the state income tax refund of
$2,200. The refund merely corrects for her overpayment, and the original payment did not affect her
taxable income. On the other hand, Molly received a tax benefit in the form of a deduction on her 2014
Federal income tax return. Therefore, the $600 refund is the recovery of a tax benefit. Whether Dolly
and Molly itemize deductions in the year of recovery (2015) is not relevant to whether they realized
gross income from the recovery of 2014 state income taxes.
19. (LO 4) Is the friend forgiving the debt as a gift to Ralph?
• Did the mortgage holder sell the property to Ralph?
• Is Ralph insolvent or undergoing bankruptcy proceedings?
• If Ralph must recognize income from the debt cancellation, does he have losses to offset?
• May Ralph reduce the basis of the asset rather than recognize income?
COMPUTATIONAL EXERCISES
20. (LO 2) Generally, long-term care insurance, which covers expenses such as the cost of care in a nursing
home, is treated the same as accident and health insurance benefits. Thus, the employee does not
recognize income when the employer pays the premiums.
Also, the individual who purchases his or her own policy can exclude the benefits from gross income.
However, statutory limitations (indexed for inflation) exist for the following amounts:
• Premiums paid by the employer.
• Benefits collected under the employer’s plan.
• Benefits collected from the individual’s policy.

The employer or insurance company generally provides the employee with information on the amount
of his or her taxable benefits. The maximum amount excluded must be reduced by any amount received
from third parties (e.g., Medicare, Medicaid).
The amount Valentino may exclude is calculated as follows:
Greater of:
Daily statutory amount in 2015 ($330 × 45 days) $14,850
Actual cost of the care $13,500 $14,850
Less: Amount received from Medicare ($8,000)
Equals: Amount of exclusion $6,850
Therefore, Valentino must include $8,150 ($15,000 − $6,850) of the long-term care benefits received
in his gross income.
21. (LO 2) Under this global system, a U.S. citizen who earns income in another country could experience
double taxation: The same income would be taxed in the United States and in the foreign country. Out
of a sense of fairness and to encourage U.S. citizens to work abroad (so that exports might be increased),
Congress has provided alternative forms of relief from taxes on foreign earned income. The taxpayer
can elect either (1) to include the foreign income in his or her taxable income and then claim a credit
for foreign taxes paid or (2) to exclude the foreign earnings from his or her U.S. gross income (the
foreign earned income exclusion).
Foreign earned income consists of the earnings from the individual’s personal services rendered in a
foreign country (other than as an employee of the U.S. government). To qualify for the exclusion, the
taxpayer must be either of the following:
• A bona fide resident of the foreign country (or countries).
• Present in a foreign country (or countries) for at least 330 days during any 12 consecutive months.
The amount of the foreign earned income exclusion changes each year. Persons who qualify are eligible
to exclude up to $100,800 in foreign earned income for 2015.
Mio’s exclusion is limited to $93,895. computed as follows:
$100,800 (2015 limit) × (340 days in Germany/365 in a year) = $100,800 × 93.15% = $93,895.20,
rounded to $93,895.
22. (LO 2) Life insurance proceeds paid to the beneficiary because of the death of the insured are exempt
from income tax. Congress chose to exempt life insurance proceeds for the following reasons:
• For family members, life insurance proceeds serve much the same purpose as a nontaxable
inheritance.
• In a business context (as well as in a family situation), life insurance proceeds replace an economic
loss suffered by the beneficiary.
The $500,000 Jason receives is exempt from Federal income tax.
23. (LO 2) Generally, if the owner of a life insurance policy cancels the policy and receives the cash
surrender value, the taxpayer must recognize gain equal to the excess of the amount received over
premiums paid on the policy (a loss is not deductible). The gain is recognized because the general
exclusion provision for life insurance proceeds applies only to life insurance proceeds paid upon the
death of the insured. If the taxpayer cancels the policy and receives the cash surrender value, the life
insurance policy is treated as an investment by the insured.
In a limited circumstance, however, the insured is permitted to receive the benefits of the life insurance
contract without having to include the gain in gross income. Under the accelerated death benefits
provisions, exclusion treatment is available for insured taxpayers who are either terminally ill or
chronically ill. A terminally ill taxpayer can collect the cash surrender value of the policy from the
insurance company or assign the policy proceeds to a qualified third party. The resultant gain, if any,
is excluded from the insured’s gross income. A terminally ill individual is a person whom a medical
doctor certifies as having an illness that is reasonably expected to cause death within 24 months.
Therefore, Alfred is not required to include the $106,700 gain ($125,000 − $18,300) on the sale of the
policy in his gross income.
24. (LO 2) There are exceptions to the general rule that life insurance proceeds paid to the beneficiary
because of the death of the insured are exempt from income tax.
A life insurance policy (other than one associated with accelerated death benefits) may be transferred
after it is issued by the insurance company. If the policy is transferred for valuable consideration, the
insurance proceeds are includible in the gross income of the transferee to the extent the proceeds
received exceed the amount paid for the policy by the transferee plus any subsequent premiums paid.
Therefore, Tyler must include $16,000 [$25,000 proceeds − ($7,500 paid for policy + $1,500 in
subsequent premiums)] in his gross income.
25. (LO 2) Payments or benefits received by a student at an educational institution may be (1) compensation
for services, (2) a gift, or (3) a scholarship. If the payments or benefits are received as compensation
for services (past or present), the fact that the recipient is a student generally does not render the
amounts received nontaxable.
The scholarship rules are intended to provide exclusion treatment for education-related benefits that
cannot qualify as gifts but are not compensation for services. According to the Regulations, “a
scholarship is an amount paid or allowed to, or for the benefit of, an individual to aid such individual
in the pursuit of study or research.” The recipient must be a candidate for a degree at an educational
institution.
A scholarship recipient may exclude from gross income the amount used for tuition and related
expenses (fees, books, supplies, and equipment required for courses), provided the conditions of the
grant do not require that the funds be used for other purposes.
Jarrod may exclude $13,500 ($12,000 tuition + $1,500 books and supplies) from his gross income. The
$4,000 spent for room and board and $1,000 spent for personal expenses are includible in Jarrod’s gross
income.
26. (LO 3) Generally, if a taxpayer obtains a deduction for an item in one year and in a later year recovers
all or a portion of the prior deduction, the recovery is included in gross income in the year received.
However, the § 111 tax benefit rule provides that no income is recognized upon the recovery of a
deduction, or the portion of a deduction, that did not yield a tax benefit in the year it was taken. For
example, if a taxpayer had no tax liability in the year of the deduction (e.g., itemized deductions and
personal exemptions exceeded adjusted gross income), the recovery would be partially or totally
excluded from gross income in the year of the recovery.
Because the standard deduction in 2014 was $12,400, the $4,000 of state income taxes the taxpayers
paid in 2014 yielded a tax benefit of only $1,300 ($13,700 itemized deductions − $12,400 standard
deduction) in 2014. Under the tax benefit rule, only $1,300 of the state income tax refund is included
in gross income in 2015.
PROBLEMS
27. (LO 2) The $10,000 received from the general public is an excludible gift. The $12,000 that Ed’s widow
received in her “time of need” may be excluded from gross income if the company has a general policy
of making such payments. Otherwise, the IRS may challenge the payment as a taxable payment for
Ed’s prior services. The $25,000 debt canceled by the hospital should not increase gross income. This
results because to the extent the debt cancellation is included in gross income, Ed should be allowed a
medical expense deduction that is subject to the percentage of AGI nondeductible amount. The debt
attributable to the nondeductible portion should be excluded from gross income under the tax benefit
rule because the recovery of the expense is excluded from gross income to the extent the expense did
not yield a tax benefit. The life insurance proceeds are excluded from gross income because they were
paid to the beneficiary of a life insurance policy.
28 (LO 2)
a. The payments received for not working must be included in Justin’s gross income because he
experienced an increase in wealth when the payment was received (although he may experience
a decrease in future income).
b. The payments received by Trina must be included in her gross income. The payments were not
gifts, although they were made because of her dire circumstances, because the Internal Revenue
Code specifically provides that employers cannot be considered donors to their employees.
c. The life insurance proceeds are excluded from Coral Corporation’s gross income. The
corporation collected the proceeds as the beneficiary of the policy upon the death of the insured.
d. The life insurance proceeds of $40,000 are excluded from Juan’s gross income. He collected
the proceeds as the beneficiary of the policy upon the death of the insured. The fact that the
corporation paid the premiums and the premiums were excluded from Leona’s gross income
does not affect the tax treatment of the proceeds. The accrued salary of $3,500 must be included
in Juan’s gross income because it would have been taxable to Juan’s wife if she had collected
it (“income in respect of a decedent”).
29. (LO 2, 5)
a. The sale of the stock by Laura will result in a $15,000 ($50,000 amount realized
− $35,000 adjusted basis) capital gain. However, Laura’s capital gain rate may be 0% if she is
in the 10% or 15% marginal tax bracket. If she is in the 25% or greater marginal tax bracket,
her alternative tax rate will be 15%. So her tax liability on the $15,000 capital gain could be
either $2,250 ($15,000 × 15%) or $0 ($15,000 × 0%). If Laura is diagnosed as “terminally ill,”
the realized gain on the life insurance policy of $20,000 ($50,000 − $30,000) is excluded from
her gross income.
b. Capital gain treatment would apply to the sale of the stock by Laura’s mother. The $20,000
realized gain on the life insurance policy will be included in the gross income of Laura’s
mother. Laura’s mother cannot qualify for the exclusion because she is not terminally ill. The
mother’s recognized gain of $20,000 will not be eligible for capital gain treatment because
cashing in the life insurance policy is not considered a “sale or exchange,” which is a requisite
for capital gain treatment. Regardless of how the medical bills are financed, Laura’s mother
will be allowed to take an itemized deduction for the medical expenses paid (less the AGI floor)
for her dependent daughter, assuming she itemizes her deductions.
30. (LO 2)
a. $50,000 salary.
b. $3,000, the value of the trip.
c. The $10,000 as compensation, unless this is paid under a nondiscriminatory medical
reimbursement plan available to other employees.
d. The $15,000 is an excluded gift because it was paid based on Blake’s need.
e. Zero. Life insurance proceeds paid to the beneficiary upon death of the insured are excluded
from gross income.
31. (LO 2) Darlene’s gross income from the receipts is $86,000.
Amount Gross
Received Income
a. Employer payments, not excluded as gift. The fact that $ 60,000 $60,000
the payment is part of company policy provides the
earmarks of compensation rather than a gift.
b. Accrued salary, earned before death. $ 20,000 $20,000

c. Group term life insurance proceeds. $480,000 –0–
d. Annuity proceeds $ 30,000
Less: Recovery of capital
($600,000*/$750,000**) × $30,000 24,000 $ 6,000
$86,000
*Investment in contract: nontaxable $600,000 insurance proceeds.
**Expected return: $30,000 × 25 years.
32. (LO 2)
a. Ray is the beneficiary of the life insurance policy and can exclude the proceeds of $800,000
from his gross income.
b. The $16,000 of interest earned on the life insurance proceeds left with the insurance company
is included in Ray’s gross income.
c. Ray did not recognize a gain on the bargain purchase. Ray simply got a good price on the
purchase under an arm’s length contract.
33. (LO 2)
a. The $16,500 received for tuition, fees, books, and supplies can be excluded from Sally’s gross
income as a scholarship. The $6,000 received for room and board and the $1,200 received for
transportation must be included in her gross income. The athletic scholarship is considered a
payment to further the recipient’s education and is not compensation for services.
b. The $8,000 “scholarship” is additional compensation to Willy’s father. The fact that the
“scholarships” are awarded only to the children of executives indicates that the employer is not
simply making payments to assist the student seeking his or her education, but rather to
compensate an employee. However, the $6,000 scholarship received as a contest winner is
excluded from gross income. Although contest winnings are generally subject to tax, the
exception is when the prize is a scholarship.
34. (LO 2) Adrian received a total of $13,700 and spent $9,650 ($3,700 + $3,750 + $1,000 + $1,200) on
tuition, books, and supplies. The amount received for room and board is not excludible from gross
income. Therefore, he must include $4,050 ($13,700 − $9,650) in gross income. When he received the
money in 2015, Adrian’s total expenses for the period covered by the scholarship were not known.
Therefore, he is allowed to defer reporting the income until 2016, when all the uncertainty is resolved.
35. (LO 2)
a. Leigh must include in gross income the punitive damages of $80,000. The other amounts
($15,000 and $6,000) may be excluded as arising out of the physical personal injury, except
the $3,300 amount received for damage to her automobile. This amount is a nontaxable
recovery of capital (i.e., it reduces her basis for the automobile by $3,300).
b. The $25,000 is included in Leigh’s gross income because it did not arise out of a physical
personal injury.
36. (LO 2)
a. The settlement in the sex discrimination case did not arise out of physical personal injury or
sickness. Therefore, the $150,000 is included in Eloise’s gross income.
b. The damages to Nell’s personal reputation are not for physical personal injury or sickness.
Therefore, Nell must include the $10,000 in her gross income. She must also include the
$40,000 punitive damages in her gross income.
c. The damages of $50,000 are included in Orange Corporation’s gross income under the tax
benefit rule, assuming the company received tax benefit from deducting the audit fees in a
previous year.
d. The compensatory damages of $10,000 for the physical personal injury are not included in
Beth’s gross income, but the punitive damages of $30,000 must be included in her gross
income.
e. Because the compensatory damages of $75,000 arose from a physical personal injury, they are
excluded from Joanne’s gross income. The punitive damages of $300,000 are included in her
gross income.
37. (LO 2) Rex is required to include in gross income the $4,500 received from the wage continuation
policy while he was ill. This amount is included in gross income only because the employer paid for
the policy. The other items can be excluded from gross income.
38. (LO 2)
Hoffman, Young, Raabe, Maloney, & Nellen, CPAs
5191 Natorp Boulevard
Mason, OH 45040
September 27, 2015
UVW Union
905 Spruce Street
Washington, DC 20227
Dear Union Members:
You asked me to explain the tax consequences of HON Corporation’s proposed changes in the
employees’ compensation package. The proposed changes include (1) the elimination of the $250
deductible clause in the medical benefits plan, (2) an additional paid holiday, and (3) a cafeteria plan
that would allow the employee to receive cash rather than medical insurance.
The deductible clause will benefit each employee in the amount of $250 each year. That is, the
employee will have an additional $250 for the same medical benefits that the employee presently
receives and, generally, none of the $250 will be includible in arriving at taxable income. The additional
paid holiday will have no effect on after-tax income—the employee’s annual gross income will not
change. The cafeteria plan will mean that some employees who now have excess medical coverage can
substitute cash for the unneeded protection. The cash received will be taxable, but the employee’s after-
tax income will increase.
In summary, the change with the broadest tax implications is the elimination of the $250 deductible for
medical benefits. The effect on the employee will be the same as a $333 raise ($250/.75).
Also, the cafeteria plan may be important for some employees, depending upon how many of them
have working spouses whose employers provided medical benefits for the employee’s entire family.
Please contact me if you have further questions.
Sincerely yours,
John J. Jones, CPA

Partner
39. (LO 2, 5) With a medical reimbursement plan, Mauve would be paying all of an employee’s medical
expenses. The employee would have no incentive to control costs. With the flexible benefit plan, the
employee must contribute to the costs through a salary reduction under the flexible benefit plan.
Therefore, for this plan, the employee has an incentive to minimize costs.
40. (LO 2) Assuming the $300 per day charge is less than the maximum exclusion, none of the amounts
received must be included in gross income.
41. (LO 2) The concern in this situation for Tim is that the house will not be considered “on the employer’s
premises” for Tim to qualify for the meal and lodging exclusion. However, Tim could effectively argue
that the house is an extension of the employer’s office because of the extensive business activities
(communications, entertaining) conducted in the house. He should be prepared to document the extent
of business activities conducted at the house. The presence of an administrative assistant would suggest
that much more than incidental business activities are conducted in the home. Gross income would
include $100 ($350 − $250) per month because the benefit exceeds the qualified parking monthly
exclusion limit of $250.
42. (LO 2)
a. It appears that Ava’s meals are not provided for the convenience of the employer, but rather as
a convenience for the employee. Thus, this is a taxable fringe benefit. Therefore, Ava is
required to include in gross income the difference between the amount she paid for the meals,
$2, and the amount she would be required to pay of $12 to an unrelated restaurant. A
comparison to the poorer quality of the self-prepared lunch is not a valid measure of the benefit
she actually received.
b. Scott is not required to include anything in gross income for the use of the condominium. The
lodging is for the convenience of the employer. Also, because of the close proximity of the
condominium to the office, the condominium is considered to be on the employer’s business
premises according to the Tax Court.
c. Apparently Ira is not being provided the housing for the convenience of his employer.
However, the use of the apartment should qualify as a no-additional-cost service because the
apartment would otherwise be vacant.
43. (LO 2, 5) Only Bertha can decide whether she should take early retirement. As an aid in making her
decision, you can inform her that her disposable income after the effect of the revisions created by
retirement will decrease by approximately $14,400 a year, or by substantially less than 50% of her
current after-tax income.
Disposal
Now Retired Income
Salary/retirement $55,000 $36,000
Reduced commuting and clothing costs (3,600) (–0–)
Social Security and Medicare tax (4,208) (–0–)
Income tax* (8,875) (4,125)
Medical insurance (–0–) (8,000)
$38,317 $23,875
Disposable income associated with employment $38,317

Less: Disposable income associated with retirement (23,875)
Decrease in disposable income $14,442
* Income tax of $8,875 – .25($55,000 – $36,000).
44. (LO 2, 5) Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

Mason, OH 45040
September 18, 2015
Finch Construction Company

300 Harbor Drive
Vermillion, SD 57069
Dear Management:
You asked me to determine the tax implications of requiring the company’s employees who are
carpenters to furnish their own tools, with a compensating increase in their salaries of about $1,500
each. In short, most employees would experience a net decrease in after-tax income.
Under the company’s present way of doing business, the carpenters do not recognize income when the
employer provides tools. This is a “working condition fringe.” If the employee’s salary is increased and
he or she purchases the necessary tools, the employee must include the additional $1,500 in salary in
gross income. But the cost of the tools in many cases will not be deductible, or less than the actual cost
will be deductible. This results from the employee’s expense being a deduction from adjusted gross
income as a miscellaneous itemized deduction. If the employee takes the standard deduction, no
deduction for the tool expenses is allowed. If the taxpayer does itemize deductions, the total
miscellaneous itemized deductions must be reduced by 2% of the employee’s adjusted gross income.
In many cases, the total miscellaneous itemized deductions will be less than 2% of AGI. When the total
miscellaneous itemized deductions do exceed 2% of AGI, less than the entire expenses are deductible
because of the 2% factor.
Another possibility would be for the employees to purchase the tools but account to you for their cost
and obtain reimbursement. Under this plan, the employee would be allowed to directly offset the
reimbursement with the expense in arriving at adjusted gross income. The request for reimbursement
would also provide you with a means of controlling costs.
Please contact me if you would like to discuss this further.
Sincerely,
Amy Evans, CPA
Partner
45. (LO 2, 5)
a. Low High
Benefits $9,000 $ 9,000
Income tax rate 0.15 0.35
Social Security and Medicare tax rate 0.0765 0.0145
Total marginal tax rate (MTR) 0.2265 0.3645
1 − MTR .7735 .6355
Before tax compensation = [$9,000 ÷ (1 − MTR)] $11,635 $14,162
b. Before tax compensation $11,635 $14,162

Employer’s Social Security tax rate 0.0765 0.0145
Employer’s Social Security tax 890 205
Total before income tax cost to employer $12,525 $14,367
Less: Employer’s tax benefit (@ .35) (4,384) (5,028)
Employer’s after-tax cost of taxable
compensation $ 8,141 $ 9,339
c. Exempt compensation to employees $ 9,000 $ 9,000

Less: Employer’s tax benefit (@ .35) (3,150) (3,150)
Employer’s after-tax cost of exempt benefit $ 5,850 $ 5,850
d. For an after-tax cost of $5,850 per employee, Bluebird can provide tax-exempt benefits to its
employees that are equivalent to before-tax taxable compensation of $11,635 and $14,162,
respectively, depending on the employee’s marginal tax bracket. It would cost the company
$8,141 and $9,339 to provide the taxable compensation equivalent of $9,000 tax-exempt
income. Both the employer and the employee benefit from the exemption. Note, however, that
if an employee is already covered in a similar medical benefit plan under a spouse’s plan, the
employee may want the cash compensation instead.
46. (LO 2, 5)
a. If Rosa underfunds the account by $1,000, the cost of the error is her marginal tax rate times
the underfunded amount, or $280 (.28 × $1,000).
b. If Rosa overfunds the account by $1,000, the cost of the error is $720 [(1 − .28) × $1,000].
c. The cost of underfunding is a .28 error, and the cost of overfunding is a .72 × (1 − .28) error;
that is, the underfunding error costs only 39% (.28/.72) of the cost of overfunding.
d. Rosa should fund the flexible benefit account using an amount closer to the low end than the
upper end of the estimate.
47. (LO 2) Polly is both an employee and a controlling shareholder in the corporation. Therefore, benefits
she receives that are not excludible from gross income may be characterized as a dividend. This means
that she might enjoy the lower tax rate applicable to dividends as compared to compensation; however,
the corporation will not be allowed to deduct any amount that is considered a dividend.
a. The $1,500 cost of the retirement planning seminar can be excluded from Polly’s gross income
because it is provided on a nondiscriminatory basis.
b. Employee parking is specifically excluded from gross income. However, the value of Polly’s
free parking of $3,600 ($3,600/12 = $300 per month) exceeds the permitted exclusion amount
of $3,000 ($3,000/12 = $250 per month). So Polly must include $600 ($3,600 − $3,000) in her
gross income. Note that parking can be provided on a discriminatory basis.
c. The use of the phone is excluded from Polly’s gross income as a no-additional-cost benefit. It
also may fit the requirements for a de minimis fringe benefit.
d. The value of the use of the condominium is a no-additional-cost fringe benefit that Polly can
exclude from gross income.
e. The freight is a no-additional-cost benefit made available to all employees (nondiscriminatory).

The $750 can be excluded from Polly’s gross income.
f. The plan is discriminatory. Therefore, the highly compensated employees must pay tax on all
of their discounts. Polly includes $900 in her gross income.
48. (LO 2)
2015
For the 12-month period ending May 31, 2016, George satisfies the 330-day requirement (i.e., was in
London and Paris for 365 days). Therefore, he qualifies for the foreign earned income exclusion
treatment for this period, which includes 214 days in 2015. For 2015, George can exclude the following
amount from his gross income:
214 days
× $100,800* = $59,099
365 days
*Lower of earned income of $275,000 or indexed statutory ceiling of $100,800 for 2015.
George must include $215,901 ($275,000 − $59,099) in his gross income for 2015.
2016
For the 12-month period ending December 31, 2016, George satisfies the 330-day requirement (i.e.,
was in London and Paris for 365 days). Therefore, he qualifies for the foreign earned income exclusion
treatment for this period, which includes 365 days in 2016. For 2016, George can exclude the following
amount from his gross income:
365 days
 $100,800* of salary = $100,800
365 days
*Lower of earned income of $300,000 or indexed statutory ceiling of $100,800 for 2016.
George must include $199,200 ($300,000 – $100,800) in his 2016 gross income.
49. (LO 2, 3) Hazel must include all of the items in gross income except the interest received of $700 on
Augusta County bonds and the $350 patronage dividend. The patronage dividend is not included in
gross income under the tax benefit rule because the cost of the materials used on her lawn and garden
were not deducted. All other items are simply gross income not otherwise excluded. Therefore, Hazel
must include in gross income $1,400 ($800 + $400 + $200).
50. (LO 2)
a. Ezra must include $1,000 in gross income, the amount of cash he could have received.
b. The stock dividend is nontaxable because he did not have the option of receiving cash.
c. Ezra must recognize the income he realized in 2015 of $1,000. He is not permitted to deduct
an economic loss until realization occurs; that is, when he sells the shares.
51. (LO 2) The California bond has the greatest after-tax yield:
California Corporate U.S. Gov.

Bond Bond Bond
Before-tax interest (on $100,000) $3,300 $5,200 $4,600
Federal tax @ .35 –0– (1,820) (1,610)
California tax @ .05 –0– (260) –0–
Fed. tax benefit from California tax @ .35 –0– 91 –0–
After-tax income $3,300 $3,211 $2,990
52. (LO 2)
Mason, OH 45040
September 7, 2015
Ms. Lynn Swartz
100 Myrtle Cove
Fairfield, CT 06824
Dear Lynn:
You asked me to consider the tax-favored options for accumulating the funds for Eric’s college
education. An added complication (and opportunity for tax planning) in your case is that the funds will
come from your parents who are in a much higher tax bracket than either you or Eric. Various options
are discussed below. Within some of the options, suboptions are available; that is, your parents could
give the funds to you or to Eric before the investments are made.
• Your parents could purchase stock certificates, bonds, certificates of deposit, or other investments
in Eric’s name with them as custodian. The first $1,050 of the income (after subtracting a $1,050
standard deduction) would be subject to Eric’s marginal tax rate. Income above that would be taxed
at your marginal tax rate. This option provides the maximum flexibility while removing the income
from your parents’ high marginal tax bracket.
• Your parents could buy tax-exempt bonds and accumulate the interest, which is excludible from
gross income. However, the rate of return on the investment may be much lower than could be
obtained with taxable options.
• Your parents may give the $4,000 a year to you, and you could purchase Series EE bonds in your
name and use the proceeds to pay Eric’s educational expenses. No tax will be due on the interest.
This option would not be available if your parents purchased the bonds because the exemption is
not available to taxpayers in your parents’ income class. That is, the potential exclusion would be
completely phased out for your parents.
• Your parents could invest the funds in Connecticut’s Qualified Tuition Program. This program
provides a hedge against inflation in tuition cost, but little or no other return on the investment. The
earnings of the fund, including the tuition savings, will not be included in gross income provided
the contribution and earnings are used for qualified education expenses.
If I can be of further assistance in helping you make this decision and explain the options to your
parents, please call me.
Sincerely yours,
John J. Jones, CPA

Partner
53. (LO 2)
a. The savings bonds qualify as educational savings bonds. The savings bonds were issued to
Chuck and Luane, who were at least 24 years of age (actually older), and the savings bonds
were issued after 1989. Paying the tuition and fees ($8,000) for Susie, their dependent, qualifies
as higher education expenses. The room and board of $4,000 does not qualify. Because the
redemption amount ($12,000) exceeds the $8,000 of qualified higher education expenses, only
part of the interest qualifies for exclusion treatment as follows:
$5,000 × ($8,000 ÷ $12,000) = $3,333
Because their modified adjusted gross income (MAGI) of $120,000 exceeds the threshold
amount of $115,750 for 2015, part of the potential exclusion is phased out.
MAGI $120,000
Less: Threshold amount (115,750)
Excess over threshold amount $ 4,250
The amount of the potential exclusion that is phased out is as follows:
$3,333 × ($4,250 ÷ $30,000) = $472
Thus, Chuck and Luane can exclude $2,861 ($3,333 − $472) of the savings bond interest
received and $2,139 ($5,000 − $2,861) must be included in their gross income.
b. All of the $5,000 of savings bond interest must be included in Susie’s gross income. The
educational savings bond exclusion under § 135 applies only if the savings bonds are issued to
an individual who is at least age 24 at the time of issuance.
c. If Chuck and Luane file separate returns, they do not qualify for exclusion treatment under
§ 135. Thus, they must include the $5,000 of savings bond interest in their gross income.
54. (LO 2)
a. All of the plan earnings during this period are excluded from gross income because the
expectation is that the entire amount in the accounts will be used for higher education expenses.
b. Neither Albert nor Kim report gross income associated with the $7,500 because it is used for
qualified higher education expenses.
c. Neither Albert nor Kim will be required to include the 10% discount in gross income.
d. Albert’s basis in the account is $20,000. So he must include $22,000 ($42,000 − $20,000) in
his gross income.
55. (LO 3)
a. Orange Furniture must include $1,000 in gross income as the recovery of a prior deduction that
produced a tax benefit. It should be noted that the original income in 2013 was taxed at 35%,
the bad debt deduction reduced taxes at the 15% rate in 2014, and the recovery in 2015 would
also be taxed at 35%. The timing of the income and deductions cost Orange (.35 − .15) × $1,000
= $200.
b. Marvin must include $800 of the refund in his gross income for 2015 because he received a tax
benefit for the deduction in 2014. The other $800 of the refund is not included in his gross
income because it did not produce a tax benefit. Marvin suffered an economic loss from the
overpayment in 2014, when his marginal tax rate (15%) was lower than in the year of the
recovery (35%) of the prior deduction, 2015.
c. Barb must include $3,000 in her 2015 gross income, the amount of the reduction in taxable
income from the medical expenses paid in 2014. The remainder of the amount received can be
excluded as resulting from a personal physical injury.
56. (LO 4, 5)
a. If Fran retires the debt on the residence, she must recognize $20,000 as income from discharge
of indebtedness. Fran does not qualify for the exclusion for cancellation of debt on a personal
residence because the discharge was not because of her dire financial condition. She would be
required to pay $7,000 ($20,000 × 35%) of additional income tax in the year the debt is retired.
Thus, she must pay $7,000 to reduce future after-tax interest expense of 5.2% [(1 − .35) (.08)]
of the outstanding principal and to retain the other $20,000 that would otherwise be paid as
principal on the debt.
b. This alternative yields the same result as a., except that Fran can choose to reduce her basis in
the business assets instead of recognizing $20,000 income, assuming the liability is qualified
business indebtedness. The basis reduction is, in effect, a deferral of the tax (that will be paid
when the asset is sold or as depreciation deductions are reduced). Fran should retire the
mortgage on the business property and thus defer the tax on the $20,000 gain.
57. (LO 4)
a. When the debt is canceled, Vic’s debt will be canceled in consideration of his services to the
estate. Therefore, the $25,000 debt cancellation must be included in Vic’s gross income when
the uncle dies and Vic fulfills his obligation.
b. Vic’s debt was not canceled. Rather, Vic transferred property in satisfaction of the debt and
Vic will have a $20,000 loss ($80,000 − $100,000 basis in the property).
c. The $12,000 reduction in the debt is not included in Vic’s gross income because the debt
reduction was made by the seller of the property. Vic must reduce his basis in the property by
$12,000.
CUMULATIVE PROBLEMS
58. Gross income

Salary ($150,000 + $40,000) $190,000
Group term life insurance (Note 1) 300
Dividends 2,500
State tax refund (Note 2) 1,900
$194,700
Deductions for adjusted gross income
Alimony paid (Note 3) (15,000)
Adjusted gross income $179,700
Itemized deductions
State income taxes ($8,000 + $2,400) (Note 4) $10,400
Home mortgage interest 4,500
Real estate taxes 1,450
Cash contributions 2,400 (18,750)
Personal and dependency exemptions ($3,950 × 2) (7,900)
Taxable income $153,050
Tax on $153,050 (Note 5) $ 29,776

Less: Tax withheld ($24,900 + $7,500) (32,400)
Net tax payable (or refund due) for 2014 ($ 2,624)
See the tax return solution beginning on p, 5-22 of the Solutions Manual.
Notes
(1) Group term life insurance results in gross income for Alfred of $300 as follows:
$300,000 − $50,000
× $.10 × 12 months = $300
$1,000
(2) Under the § 111 tax benefit rule, Alfred and Beulah must include the $1,900 state tax refund in
their gross income. They received a tax benefit from the deduction in 2013.
(3) The $15,000 is deductible alimony. The $50,000 payment is a property settlement and is not
deductible by Alfred.
(4) The state income taxes paid of $10,400 exceed the sales taxes paid of $1,400.
(5) The tax liability on taxable income of $153,150 is calculated using the Tax Rate Schedule for
married filing jointly (applying the 15% rate for the qualified dividends of $2,500), and the
amount is determined as follows:
Tax on dividend income ($2,500 × 15%) $ 375

Tax on remainder of $150,550 ($153,050 – $2,500)
using the Tax Rate Schedule 29,401

$29,776
59. Part 1—Tax Computation
Salary $120,000
Less: Foreign earned income exclusion (Note 1) (12,701)
Interest on Bahamian account (Note 2) 2,300
State income tax refund (Note 3) 1,200
Dividends (Note 4) 800
Gross income $ 111,599
Less: Deductions for adjusted gross income
Alimony paid (6,600)
AGI $104,999
Less: Itemized deductions
State income tax (Note 5) $5,100
Real estate taxes on residence 3,700
Interest on personal residence 2,500
Charitable contributions 2,800 (14,100)
Less: Personal and dependency exemptions
(4 × $4,000) (16,000)
Taxable income $ 74,899
Tax on $74,899 (Note 6) $ 10,312

Less: Withholding by employer (10,750)
Net tax payable (or refund due) for 2015 ($ 438)
Notes
(1) Because Martin satisfies the 330 out of 365 day requirement, he qualifies for the foreign earned
income exclusion for the 46 days in 2015 (January through February 15) he worked in Mexico.
His actual pay of $120,000 exceeded the limit on the exclusion. Thus, he is allowed to exclude
only $12,701 (46/365 × $100,800).
(2) The $2,300 interest on the Bahamian bank account is included in gross income. The $400
interest on the Montgomery County school bonds is excluded from gross income.
(3) The state income tax refund of $1,200 is included in gross income under the tax benefit rule
because the state income taxes were taken as an itemized deduction in 2014.
(4) The fair market value of $2,500 of the Applegate Corporation stock dividend is not included in
gross income because no option was available for receiving cash.
(5) The state income taxes paid of $5,100 exceed the sales taxes paid of $1,100.
(6) Their filing status is married filing jointly.
Tax on $18,450 = $ 1,845

On ($74,099 − $18,450) × 15% = 8,347
On $800 × 15% = 120
$10,312
Part 2—Tax Planning

Mason, OH 45040
April 10, 2016
Mr. and Mrs. Martin S. Albert

512 Ferry Road
Newport News, VA 23601
Dear Mr. and Mrs. Albert:
You asked me to determine the after-tax effect of a $500 increase in your monthly mortgage payment
as the result of buying another house. The $500 increase in your monthly mortgage payment will result
in approximately a $350 monthly increase in mortgage interest and property tax deductions. As the
payments are made on the mortgage, the interest portion will decrease and the principal portion will
increase over the next several years.
You are in the 15% marginal tax bracket in 2015, and you should be in the 25% bracket in 2016 and
thereafter unless there is a change in your income. Therefore, the increase in after-tax payments in 2016
and thereafter would be $413 [$500 − ($350 × 25%)].
I hope this will help you make your decision. If you have further questions, please contact me.
Sincerely yours,
John J. Jones, CPA

Partner
RESEARCH PROBLEMS
1. In Murphy v. United States, 493 F.3d 170 (CA–DC, 2007), the appellate court noted that while the
Sixteenth Amendment to the Constitution grants Congress the power to tax income, the Federal
government is not limited to taxing only income. Thus, based on a long line of Court decisions, the
Federal government has the right to tax a variety of transactions. Congress has indicated in § 104 that
it intended to tax nonphysical personal injury awards. Thus Murphy’s award was taxable. The same
result holds true for Murray.
2. In Ltr.Rul. 201034012 (May 5, 2010), the IRS agreed that employees in similar circumstances
(mandatory contributions to a fund used exclusively for post-retirement benefits) could exclude such
amounts from their gross income.
3. IRC Sec. 61(a) defines gross income as “all income derived from whatever source. . . .” This suggests
that the fair market value of the coupons ($900) would be included in John’s gross income. Further,
C.I.R. v. Glenshaw Glass Co., 47 AFTR 162 (75 S.Ct. 473) (S.Ct. 1955) holds that “clear accessions to
wealth, clearly realized, and over which . . . taxpayers have complete dominion” are included in gross
income. Thus, the fact that all of the coupons were not used does not affect the amount included in
income. Moreover, the coupons do not meet the requirements to be excluded as a prize under § 74, as
discussed in Chapter 4.
4. Based on Rev.Rul. 77–318 whether Aubrey may exclude the $12,000 from his gross income depends
on the nature of the payments. According to the ruling, an individual who receives compensation from
the Veterans Administration for injuries resulting from active service in the Armed Forces (i.e.,
disability payments) may exclude such payments from gross income. However, any payments received
for civil service payments associated with such disability must be included in gross income.
Aubrey’s payments are Social Security disability payments. Based on the ruling, it appears that Aubrey
must include the $12,000 in his gross income.
The Second Circuit Court of Appeals in Reimels affirmed the position taken by the IRS. The Social
Security disability payments were made on account of the taxpayer’s inability to work rather than on
account of the cause of his inability to work. That is, the Social Security benefits were wage-
replacement benefits paid to compensate for the taxpayer’s inability to work and related economic loss
rather than for the disability itself.
5. The client’s situation is similar to the case of James A. Nielsen, T.C. Summ. Op. 2007–53. In Nielsen,
the Tax Court noted that § 119(c), which provides the exclusion for housing in a foreign camp, requires
that the “camp” must be inaccessible to the public. The court reasoned that because the condominium
used by Nielsen was in a neighborhood surrounded by ordinary civilians, the housing was not provided
in a “camp” and, therefore, the exclusion was not available.
Research Problems 6 and 7
The Internet Activity research problems require that students utilize online resources to research and answer
the questions. As a result, solutions may vary among students and courses. You should determine the skill and
experience levels of the students before assigning these problems, coaching where necessary. Encourage
students to explore all parts of the Web in this research process, including tax research databases, as well as
the websites of the IRS, newspapers, magazines, businesses, tax professionals, other government agencies, and
political outlets. Students should also work with resources such as blogs, Twitter feeds, and other interest-
oriented technologies to research their answers.
6. John Deere & Company, in the job listing section of its website, provides information about benefits as
a way to persuade applicants of the desirability of its workplace. Fortune 500 company websites might
be the easiest places to locate this information.
See, for example:

• www.deere.com/en_US/corporate/our_company/careers/why_john_deere/benefits/benefits.
page?
• www.boeing.com/boeing/careers/benefits/index.page?
7. A state may exclude lottery winnings if it is from that state’s lottery. One likely rationale is to encourage
sales of lottery tickets.
CHECK FIGURES
20. $6,850. 37. $4,500.

21. $93,895 ($100,800 × 340/365 = .9315 40. Include $0 in gross income.
× $100,800). 42.a. Include $10 per meal in gross income.
22. $0. 42.b. Included $0 in gross income.
23. $0. 42.c. Lodging excluded from gross income.
24. $16,000. 43. Decrease in disposable income $14,442.
25. $13,500. 45.a. $11,635; $14,162.
26. $1,300. 45.b. $8,141; $9,339.
27. $0 although the IRS may challenge 45.c. $5,850; $5,850.
exclusion of $12,000. 46.a. $280.
28.a. Include in gross income. 46.b. $720.
28.b. Include in gross income. 46.d. Low end.
28.c. $0. 47.a. Include $0.
28.d. $3,500. 47.b. Exclusion allowed for $3,000; include
29.a. $15,000 capital gain on stock sale; $0 $600.
gross income if “terminally ill” on 47.c. Exclusion allowed.
insurance policy. 47.d. Exclusion allowed.
29.b. $15,000 capital gain on stock sale; 47.e. Exclusion allowed.
$20,000 ordinary income on life 47.f. No exclusion for Polly; plan is
insurance policy. discriminatory.
30.a. The salary of $50,000 is included in 48. $215,901 (2015); $199,200 (2016).
gross income. 49. $1,400.
30.b. $3,000 as compensation. 50.a. $1,000.
30.c. $10,000 as compensation. 50.b. $0 gross income.
30.d. $0. 50.c. No current deduction; $1,000 income
30.e. $0. when shares are sold.
31. Include $86,000 in gross income. 51. Greater after-tax yield on California bond.
32.a. Ray has $0 gross income on the receipt 53.a. Exclude $2,861.
of the $800,000 life insurance proceeds. 53.b. Include $5,000 for Susie.
32.b. $16,000 of interest is included in 53.c. Include $5,000.
gross income. 54.a. $0.
32.c. $0 gain. 54.b. $0.
33.a. Room and board of $6,000 is includible 54.c. $0.
as is transportation of $1,200. 54.d. $22,000.
33.b. Additional compensation to Willy’s 55.a. $1,000.
father. 55.b. $800.
34. $4,050 is includible in 2015. 55.c. $3,000.
35.a. Leigh must include $80,000 in 56.a. Additional tax $7,000.
gross income. 56.b. Fran can defer the tax.
35.b. Yes, include $25,000 in gross income. 57.a. $25,000 gross income.
36.a. $150,000. 57.b. $20,000 loss.
36.b. $50,000. 57.c. Reduce basis by $12,000.
36.c. $50,000. 58. Refund due for 2014 $2,624.
36.d. $30,000. 59. Refund due for 2015 $438.
36.e. $300,000.
SOLUTIONS TO ETHICS & EQUITY FEATURES
Should the Terminally Ill Pay Social Security Taxes? (p. 5-6). The critics have a good point if the Social
Security system is viewed as a retirement savings plan. However, the Social Security system often operates as
a taxing component and a benefits component.
Tax Treatment of Damages Not Related to Physical Personal Injury (p. 5-9). Fairness is in the “eye of the
beholder.” A taxpayer receiving a compensatory award or settlement for physical personal injury or sickness
obviously believes that such amounts should be excluded from gross income. In fact, such a taxpayer would
also like to exclude from gross income any amount received for punitive damages.
On the other hand, a taxpayer who receives an award or a settlement in a sex discrimination case or an age
discrimination case surely would like to exclude the amount from gross income. Likely, such a taxpayer feels
unfairly treated by the tax law.
Classifying the Amount of the Claim (p. 5-10). If Lee pursued his original claim, the most he could expect to
receive would be $200,000. Because the $100,000 punitive damages would be taxable, his after-tax amount
will be less. Assuming Lee’s marginal tax rate is 25%, his after-tax damages would be $200,000 −
.25($100,000) = $175,000.
By accepting the $150,000, Lee avoids the risk of a court’s smaller award and additional expenses of pursuing
his claim. Moreover, the $150,000 would be nontaxable.
However, should Lee claim more as compensation for his physical injury than he actually suffered?
Realistically, Lee might resolve this ethical issue by reasoning that measuring physical personal damages is not
an exact science when future consequences are unknown; therefore, perhaps the $150,000 is a reasonable
estimate of his actual injuries.
SOLUTIONS TO ROGER CPA REVIEW QUESTIONS
Detailed answer feedback for Roger CPA Review questions is available on the instructor companion site
(www.cengage.com/login).
1. a. 4. b.
2. c. 5. b.
3. d. 6. c.
58.
58. continued
58. continued
58. continued
NOTES

South-Western Federal Taxation 2016 Individual Income Taxes 39th Edition Hoffman Solutions Manual 1

Uploaded by

Copyright:

Available Formats

You might also like

South-Western Federal Taxation 2016 Individual Income Taxes 39th Edition Hoffman Solutions Manual 1

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

South-Western Federal Taxation 2016 Individual Income Taxes 39th Edition Hoffman Solutions Manual 1

Uploaded by

Copyright:

Available Formats

South-Western Federal Taxation 2016

Individual Income Taxes 39th Edition

Solution Manual: https://testbankpack.com/p/solution-manual-for-

GROSS INCOME: EXCLUSIONS

SOLUTIONS TO PROBLEM MATERIALS

Virginia North Carolina

• Did the mortgage holder sell the property to Ralph?

• Is Ralph insolvent or undergoing bankruptcy proceedings?

• Premiums paid by the employer.

• Benefits collected under the employer’s plan.

• Benefits collected from the individual’s policy.

• A bona fide resident of the foreign country (or countries).

b. Accrued salary, earned before death. $ 20,000 $20,000

Dear Union Members:

Please contact me if you have further questions.

John J. Jones, CPA

Disposable income associated with employment $38,317

44. (LO 2, 5) Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

Finch Construction Company

b. Before tax compensation $11,635 $14,162

c. Exempt compensation to employees $ 9,000 $ 9,000

e. The freight is a no-additional-cost benefit made available to all employees (nondiscriminatory).

California Corporate U.S. Gov.

John J. Jones, CPA

58. Gross income

Tax on $153,050 (Note 5) $ 29,776

Tax on dividend income ($2,500 × 15%) $ 375

using the Tax Rate Schedule 29,401

Tax on $74,899 (Note 6) $ 10,312

(6) Their filing status is married filing jointly.

Tax on $18,450 = $ 1,845

Part 2—Tax Planning

Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

April 10, 2016

Mr. and Mrs. Martin S. Albert

Dear Mr. and Mrs. Albert:

John J. Jones, CPA

Research Problems 6 and 7

See, for example:

20. $6,850. 37. $4,500.

SOLUTIONS TO ETHICS & EQUITY FEATURES

SOLUTIONS TO ROGER CPA REVIEW QUESTIONS

You might also like