Tax Research - Memo to the File - Dependency Exemption

In: Business and Management

Submitted By lesliew
Words 2347
Pages 10
Memorandum-to-the-File

Date: May 25, 2011 From: Brenda Hall Re: How many dependency exemptions John and Janet Baker can claim for the year?

Facts
John and Janet Baker are husband and wife and maintain a household of 7, including Janet and John. Calvin and Florence Carter are Janet’s parents, who are retired. During the year, they received $19,000 in nontaxable funds (disability income, interest on municipal bonds and Social Security benefits) from which $8,000 was equally spent between them on clothing, transportation, and recreation. The remaining $11,000 was invested in tax-exempt securities. Janet Baker paid $1,000 for her mother’s dental work and $1,200 premium on her father’s own life insurance policy. Janet’s father, Calvin, incurred medical expenses that he paid for himself. Darin is the Bakers’ 18-year-old son who is not a student. Darin earned $14,000 from his pool-cleaning business. The cash earned is placed in a savings account. Andrea is the Bakers’ 19-year-old daughter who does not work or go to school. During the year, Andrea purchased a Camaro for $21,000 with her own funds. Morgan is the Bakers’ 23-year-old daughter who obtained a student loan of $20,000 and used the full amount to pay her college tuition at a local university. The Bakers’ fair rental value of their residence, including utilities, is $14,000, while their total food expense for the household is $10,500.

Issues
Do Calvin and Florence qualify for a dependency exemption as qualifying relatives by meeting the gross income test and the support tests? Are non-taxable funds to be included in determination of support cost of Carters? Did Bakers furnish more than half of the support of Carters? Does $1,200 payment of life insurance premium qualify for inclusion in computation of support? Do Bakers’ children qualify for a dependency exemption as qualifying children by…...

Similar Documents

Tax Research- Memo

...MEMORANDUM To: File From: Date: October 24, 2012 Re: Craig - Structuring a cash transfer in the case of bankruptcy Facts Craig receives a $50,000 salary for running the day to day operations of Canterbury Corporation. He owns 100% of Canterbury’s stock, which is valued at $200,000. Canterbury currently needs $90,000 to meet short-term cash-flow needs, of which Craig is personally sending over to the business. We assume that when Canterbury goes bankrupt, there is no chance of further repayment of debt. Issues 1. How is debt treated at bankruptcy? 2. What are the tax consequences of contributing capital to a corporation when the company goes bankrupt? 3. If a loan is structured with the intent to protect investment, what are the tax consequences when the company goes bankrupt? 4. If a loan is structured to protect employment, what are the tax consequences at the time of bankruptcy? 5. Which of the above scenarios is the best way to structure a transfer for tax purposes? Conclusions 1. Debt will become wholly worthless upon bankruptcy. 2. The $90,000 capital contribution may be deducted as a capital loss to the extent of gains from such sales or exchanges, plus the lesser of $3,000 and the excess of such losses over such gains. 3. A nonbusiness bad debt may be deducted as a short term capital loss $90,000 in the year the loan becomes worthless to the extent of short term capital gains, plus the lesser of $3,000 and the excess of such losses......

Words: 858 - Pages: 4

Tax Research

...Tax Research – Expensing versus capitalization of business expenditures Sally Jones - McIntire School of Commerce University of Virginia smj7q@virginia.edu Memo to the tax file In 2003, Connor Inc. (a calendar year C corporation) announced its intention to construct a manufacturing facility in the Shenendoah Valley. In order to convince the corporation to locate the facility in Augusta County, the county contributed a six-acre tract of undeveloped municipal land to Connor Inc. The appraised value of the land at date of contribution (December 6, 2003) was $475,000. During 2004, Connor Inc. paid $9,300 to an attorney to do a title search to make sure that the corporation had uncontested ownership of the land. The corporation also paid $3,850 2004 real property tax on the land, $16,400 for a complete survey and detailed site map of the six acres, and $7,900 for two water wells drilled on the land. In January 2005, the attorney discovered that the Estate of Elsa Reynolds claimed title to the six acres and was preparing to file suit in Virginia state court to regain ownership and possession. The attorney advised Connor Inc. that the estate’s claim appeared valid and would be upheld by the court. Consequently, the corporation informed Augusta County that it was renouncing all claim to the land and would build its new manufacturing facility in Rockingham County. In August 2003, Connor Inc. purchased 115 acres of land in the Tidewater area of Virginia for a total...

Words: 523 - Pages: 3

Tax Memo

...Tax Research Memo TO: John Bonham FROM: RE: Alex and Aubrey Jones (tax year 2010) Facts: Alex Jones is a computer engineer living in Phoenix, AZ with his wife Aubrey, who is an attorney. He is an independent contractor at ABC Inc, a small software company. His contribution is on an application that can locate donut shops. The Jones family owns a Christmas tree farm in Oregon. They own the farm since they report the joint federal income tax return about this farm as a sole proprietorship. The Jones also has a home in Honolulu, Hawaii, and put 2 million dollars on remodeling the house. Now the house is leased. The couple who leased Jones' house is running the bed and breakfast business in it. The Jones also have a house in Aspen, Colorado where they stay occasionally when skiing season comes. The family owns a personal jet which costs them 4 million dollars in 2000 for their different types of convenience. It costs about half million every year for them to operate the jet including depreciation. Alex and Aubrey have the records and of the usage of the jet in 2000. They had 15 times flying to Oregon farm, twice to Hawaii home, 8 times to Colorado home, and twice to computer conferences, which happened in San Jose, CA and Seattle, WA. The Jones family reported in 2010 Joint Federal Income Tax Return, the jet expense of half million dollars as a business expense, so that this item is eligible for a tax deduction. However IRS agent Robert Plant,......

Words: 882 - Pages: 4

Index to Tax Research File

...Index to Tax Research File Item Page Reference Determine the Facts 2 Identify the Issues 2 Locate Applicable Authorities 2 Evaluate Authorities 2-7 Analyze the Facts to Terms of applicable Authorities 8 Communicate Conclusion and Recommendations to Others 9 Memorandum to File 9-10 Client Letter 11-12 Determine the Facts Parent Corporation has owned 60% of Subsidiary Corporation’s single class of stock for a number of years. Tyrone owns the remaining 40% of the Subsidiary stock. On August 10, of the current year, Parent purchases Tyrone’s Subsidiary stock for cash. On September 15, Subsidiary adopts a plan of liquidation. Subsidiary then makes a single liquidating distribution on October 1. The activities of Subsidiary are to continue as a separate division of Parent. Identify the Issues The issue is does the liquidation of Subsidiary qualify for nonrecognition treatment under Secs 332 and 337? Must Parent assume Subsidiary’s E&P balance? Locate the Applicable Authorities IRC: 332 (b), 1504 (a) Rev Rul 70-106, 1970-1 CB 70 Rev Rul 75-521, 1975-2 CB 120 Evaluate Authorities Two recent revenue rulings offer additional guidance on the level of stock. We do not have to look any further than the IRC and Rev Rul; we can have confidence in our tax assessment. Sec. 332. Complete liquidations of subsidiaries a) General rule No gain or loss shall be recognized on the......

Words: 3338 - Pages: 14

Tax Research Memo

...Research Memo Date: February 27, 2014 Preparer: Michele Reviewer: Brian Subject: Personal use of Delta Skymiles acquired from company purchased business trips Facts: Latrell recently used his Delta Skymiles to purchase a free roundtrip ticket to Milan, Italy (value $1,200). The frequent flyer miles used to purchase the ticket generated from Latrell’s business travel as a CPA. Latrell’s employer paid for his business trips, and he did not get taxed on the travel reimbursements. Issue: How much income, if any, does Latrell have to recognize because of the purchasing an airline ticket with Skymiles earned from business travel? Authorities: IRS Announcement 2002-18 Conclusion: According to the IRS Announcement 2002-18, Latrell does not need to recognize any of the frequent flyer miles ($1,200 value) used when he purchased his round trip ticket to Milan, Italy. The miles redeemed were for a free airline ticket and he did not convert the miles to cash; so there is no taxable income from the transaction. Analysis: The IRS Announcement 2002-18 states “these promotional benefits may generally be exchanged for upgraded seating, free travel, discounted travel, travel-related services, or other services or benefits. Inquiries centered on the taxability of frequent flyer miles or other promotional items that are received as the result of business travel and used for personal purposes. There are numerous technical and administrative issues relating to these benefits......

Words: 424 - Pages: 2

Tax Research 1

...Tax Research Memo #1 Martin Coldiron ACCT390-VIFF-F14 Annette Hoeltzer August 28, 2014 Tax Research Memo #1 Memo DATE: August 28, 2014 TO: Mr. Brent Ouray FROM: Martin Coldiron RE: Advising on filing status Facts: Brent and Kathy Ouray have been married since 1996. Starting in 2010 until current they both have been experiencing marital issues. They are presently not legally separated, but consider themselves to be estranged. Do you to be financial difficulties of Brent and Kathy they have not been able to go through with a divorce. They have three sons together that they both want to remain in their sons lives. So based on the financial concerns of both Kathy M Brent they are unable at this time to financially support to separate homes for them and the children, so they currently all still live in a single-family home in Chicago, Illinois. Brent and Kathy are both financially supporting their three sons and maintaining the upkeep of the house that they are all currently reside. While comparing Brent and Kathy’s annual income, Brent substantially earns more annually than Kathy. They both agree that even though they both support the children and maintain the home that Brent contributes more. In the current tax season Brent has stated that he would like to file a separate Federal Income Tax from Kathy and he would like to claim head of household as his status on the current year’s return. Brent feels that, if he and Kathy keep separate households while under the......

Words: 936 - Pages: 4

Tax Memo

...October 2, 2014 Tax File Memorandum To: Brett Ouray Facts Kathy and Brett Ouray were married in 1996. In 2014, they consider themselves completely estranged. Due to financial reasons they have decided to not get a divorce or live separately. They also do not have any legal documentation of separation and neither of them has lived outside the home for a significant amount of time. They currently reside together with their three children. They have decided that Brett has contributed more to the upkeep of their home and children than Kathy. They have also decided to file separately. Brett believes he is eligible to file for head-of-household. Question Presented Is Brett Ouray eligible to file for head-of-household? If not, how should he file? Short Answer No, Brett Ouray is not eligible to file for head-of-household. They should file a joint return to maximize tax benefits. Analysis Section 2(b) defines an individual shall be considered a head-of-household if, and only if, such individual is not married at the close of his taxable year. Section 7703(a)(2) defines that a person is considered married unless individuals are legally separated under a decree of divorce or of separate maintenance. Section 7703(b) provides that certain married individuals can file for head-of-household if individuals are not living together. Also, an individual claiming head-of-household must reside more than one-half of the year in the home and provide more than one-half of the cost of......

Words: 846 - Pages: 4

Tax Research Memo

...with the producers of Surprise Home Renovation to lease their home for one week. The consideration for the lease was $50,000 worth of home accessories and an all-expense paid trip to Disney World. During the lease term, Surprise Home Renovation expensed approximately $250,000 in renovating and remodeling the Sanchez home. The Sanchez’ would like to affirm the potential tax consequences of the engagement with Surprise Home Renovation. Issues 1. Should the consideration of the lease be considered rental income, prize, or neither? 2. Was the consideration received, or a portion thereof, for the leasehold rights taxable? 3. Was the compensation received for the leasehold rights adequate consideration for the lease term? 4. Is the value, or a portion thereof, of the improvements taxable to the homeowners upon reversion? Legal Discussion According of §74 of the Internal Revenue Code (IRC), gross income includes amounts received as prizes and awards, unless the income falls under a particular exception . As of 1954, §74 was enacted, in part, to overrule two cases that held a prize and award to be tax exempt. According to the Code, an exception is granted when a prize is the result of religious, charitable, scientific, educational, artistic, literary, or civic achievement. While it may be considered that the intentions of Surprise Home Renovations are civic and charitable in nature, the fact that the Sanchez’ sought the participation in the contest eliminates......

Words: 919 - Pages: 4

Tax Memo

...To: Dr. Green Date: 1/31/2010 RE: Tax Memo #1/Gambling Activities Issue #1 Dr. Green is a practicing physician in Chicago who, as an avid blackjack and slot machine player, travels to Las Vegas every other weekend to gamble. He would like to know what criteria are used to determine whether his gambling activities constitute a trade or business for federal income tax purposes and whether or not you think his gambling activities qualify for trade of business status. In the case of Commissioner v. Groetzinger, 480 U.S. 23 (1987), the Supreme Court "requires an examination of the facts in each case." In addition, the court ruled, "if one’s gambling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business within the meaning of the statutes…." The factors which must be considered in determining whether your gambling activity constitute as a trade or business for federal income tax purposes include: * gambling activities are entered into and carried on in good faith for the purpose of making a profit; * gambling activities are carried on with regularity; * gambling activities are pursued on a full-time basis, or to the fullest extent possible if taxpayer is engaged in another trade or business or has employment elsewhere; * gambling activities are solely for the taxpayer’s own account and taxpayer does not function as a bookmaker; * taxpayer......

Words: 988 - Pages: 4

Tax Research Memo

...deceased individuals interest in the partnership from the deceased’s estate? §2042 Proceeds of life insurance (this would cause the life insurance proceeds to be included in gross estate if life insurance proceeds, even if owned by another individual, are used to benefit the deceased’s estate, either directly or indirectly). How could Mr. Keith and Mr. Lars keep the insurance proceeds out of their perspective gross estates? §2042 Proceeds of life insurance (not have incidents of ownership in the policy on your own life nor use proceeds to directly or indirectly benefit the deceased’s estate) Is the insurance proceeds taxable to Mr. Lars? §101 (a)(1) Certain death benefits (not taxable) Conclusion and Reasoning: Based on my tax research, Mr. Keith’s estate will have to include the $500,000 insurance proceeds in the gross estate because Mr. Keith did have incidents of ownership as defined by the IRC section 2042. Furthermore, Mr. Lars used the insurance proceeds to purchase Mr. Keith’s interest in the partnership from Mr. Keith’s estate. This had a direct benefit to Mr. Keith’s estate therefore based on IRC section 2042 this would also cause the insurance proceeds to be included in Mr. Keith’s gross estate. The reason Mr. Keith retained incidents of ownership, even though he was not the owner of the policy, was because he was able to veto any change to the beneficial owner of the policy. Thus he kept some control over said policy. This element of control......

Words: 787 - Pages: 4

Tax Memo

...TAX FILE MEMORANDUM TO: Ted Jones, Gray Chemical Company President FROM: Yessenia Colon, Big 4 Staff Accountant SUBJECT: Grey Chemical Company Research Conclusion DATE: October 29, 2015 The Environmental Protection Agency cited Gray Chemical Company for violations of toxic waste contamination of the air and water surrounding the plant due to its toxic pesticides. The judge found Gray guilty and imposed fines of $15 million. Gray voluntarily set up a charitable fund of $8 million with the intent of bettering the environment. Gray incurred legal expenses in its defense and in setting up the foundation. The court later reduced the fine from the initial $15 million to $7 million. Gray deducted the $8 million for the foundation along with legal expenses incurred. The IRS disallowed both deductions on the grounds that these funds were a fine and in violation of public policy. In regards to your question of the deductibility of these items, $8 million for the foundation and legal expenses, and the $7 million fine §§162 (a) and (f) Trade Business Expenses states “No deduction shall be allowed under subsection (a) for any fine or similar penalty paid to a government for the violation of any law.” Section 1.162-21(b), Treasury Regulations, further provides: (1) For purposes of this section a fine or similar penalty includes an amount —…(iii) Paid in settlements of the taxpayer's actual or potential liability for a fine or penalty (civil or criminal). The......

Words: 866 - Pages: 4

Tax Research

...Research Problem 3. Millie 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 2014, a hurricane damaged many of the trees surrounding her home. In September 2014, Millie 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 2015. Millie 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. Prepare a Tax File memo and a client letter to discuss whether the casualty loss should be deducted in the calculation of Millie’s 2014 or 2015 taxable income. Partial list of research aids: Reg. § 1.165–1. Oregon Mesabi Corporation, 39 B.T.A. 1033 (1939). Dear Millie, This letter provides you with our firm’s opinion regarding the tax consequences of the casualty loss from withstanding the severe hurricane damage as determined by the Internal Revenue Service. More specifically, does the casualty loss entitle Millie a deduction for the five oak trees in 2014 or 2015? In my research, I found that Millie is entitled to claim a deduction for the casualty loss resulting from hurricane damage (2014) in 2015. I found a case that had circumstances that were almost identical to your situation. In that case the casualty loss was deductible throughout each year it was ascertain there......

Words: 407 - Pages: 2

Tax Research

...| Tax Research | | | Steven King | ACC 620M | July 26, 2011 | | | John R. Lane 1010 Ipsen St. Yorba Linda, CA 90102 Dear Mr. Lane: It is my pleasure to be an accountant to help you calculate your tax return of last year, and thanks for giving this opportunity for me! You asked me to work out your tax return of last year based on your situation and your income, and expenses last year. In my opinion, I think this is a simple case so that we just need to fill the form 1040. In reaching this conclusion, I consulted relevant provisions of the Internal Revenue Code (“IRC”), and applicable Treasury Regulations under the IRC. The facts as I understand them are as follows: you are a single taxpayer, and provided 100% of the support of your cousin. In addition, you want to take advantage of the presidential election campaign check-ff. Your also gave me some relevant information, such as salary, taxable pension, interest income, IRA deduction, and withholding. Since you have already filled out the Schedule A, the itemized deduction can be used directly. Therefore, in your case, we just need to put those numbers into the proper line of the form 1040 simply. First of all, we can check the Presidential Election Campaign on the top right of this form because you want to take the advantage of it. For the income section, we just put $20,000 into line7, which is your salary, $300 into line 8a, which is the taxable interest, and $31,000 into the 16b,......

Words: 551 - Pages: 3

Tax Research

...Memo To: Hunter Hart From: Student Date: Re: 2010 Tax Research Question Facts: During 2010, Hunter Hart lived with Helen Hunt for the whole year in Ferndale, MI. Helen is a 19 year old, single, female U.S. citizen. Hunter supported Helen because her income for the whole year was $3,640 from waitressing jobs. Hunter also was not married for the whole year of 2010. In Michigan, it is a misdemeanor for unmarried individuals to cohabit. Issue: Can Hunter claim Helen as a dependent, qualifying relative and what should his filing status be? Authorities: IRC 152 (d) IRC 2 (b) (1) (A) Tessie A. Manuel v. Commissioner, TC Summary Opinion 2010-111 Conclusion: Hunter can claim Helen as a qualifying relative because she passes all the tests of being a qualifying relative (relationship test, gross income test, support test and qualifying child test). Also, Hunter must file as single because he is not married and does not meet the qualifications to file for Head of Household. Support & Analysis: According to IRC 152 (d), Helen is a qualifying relative to Hunter because she meets all four of the qualifications. The first qualification in IRC 152 (d) (1) (A), deals with the relationship test. Helen meets the relationship test because she “has the same principal place of abode as the taxpayer and is a member of the taxpayer's household.” The second qualification to be a qualifying relative, stated in IRC 152 (d) (1) (B), affirms that one’s “gross income for...

Words: 795 - Pages: 4

Tax Memo

...Tax Memo Facts: Doug Jones timely submitted his 2009 tax return and elected married filing jointly status with his wife, Darlene. Doug and Darlene did not request an extension for their 2009 tax return. Doug and Darlene owed and paid the IRS $124,000 for their 2009 tax year. Two years later, Doug amended his return and claimed married filing separate status. By changing his filing status, Doug sought a refund for an overpayment for the tax year 2009 (he paid more tax in the original joint return than he owed on a separate return). Issue: Can Doug and Darlene change their filing status in 2009 from married filing jointly to married filing separately two years after their original return was filed to receive a refund for over payment Authorities: Reg. Sec. 1.6013-1(a)(1) J.A Haigh v Commr, 97 TCM 1794, Dec. 57,858(M), TC Memo. 2009-140 Conclusion: Doug and Darlene cannot amend their 2009 return to change their filing status. When a couple files a joint return they can amend the return until their original due date. Analysis: Reg. Sec. 1.6013-1(a)(1) states “For any taxable year with respect to which a joint return has been filed, separate returns shall not be made by the spouses after the time for filing the return of either has expired”. James Haigh went to court to argue that he should be allowed to amend his return from married filing jointly; to married...

Words: 612 - Pages: 3

4X logo BMW 60mm Centre roue Embleme badge jante cache moyeux E46 E90 E60 E81 M | Season 0 Episode 11 A Day in the Life | Mothers Day Gifts