QI:3-4
Explain the meaning of the term wherewithal to pay as it applies to taxation.
The concept of wherewithal-to-pay means that a tax should be imposed when the taxpayer can most easily pay. A taxpayer who owns property that has increased in value does not necessarily have the funds needed to pay any tax. Taxing the gain when it is realized often means that the tax becomes due at the same time the taxpayer collects the sales price.
QI:3-6
A landlord who receives prepaid rent is required to report that amount as gross income when the payment is received. Why would Congress choose to do this? What problem does this create for the taxpayer?
QI:3-7
Office space is often rented without carpet, wall covering, or window covering. Furthermore, many rental agreements specify that these improvements cannot be removed by a tenant if removal causes any damage to the property. What issue does this raise?
QI:3-8
Does the fact that an item of income is paid in a form other than cash mean it is nontaxable? Explain.
QI:3-9
Explain the significance of Lucas v. Earl and Helvering v.
Horst.
QI:3-11
Ricardo owns a small unincorporated business. His 15-year-old daughter Jane works in the business on a part-time basis and was paid wages of $3,000 during the current year. Who is taxed on the child's earnings: Jane or her father? Explain.
QI:3-12
Define the term constructive receipt. Explain its importance.
QI:3-14
When is income considered to be earned by an accrual-basis taxpayer?
QI:3-19
Corporations are taxed on the income they earn, and shareholders are taxed on the dividends they receive. What provisions in the tax law reduce this "double tax" burden?
QI:3-23
Explain the importance of the distinction between alimony and a property settlement.
QI:3-27
Taxpayers who deduct an expense one year but recover it the next year are required to include the recovered amount in gross income. The tax benefit rule provides relief if the original deduction did not result in any tax savings. Does this rule provide relief to taxpayers who are in a higher tax bracket in the year they recover the previously deducted expense?
QI:3-28
George, a wealthy investor, is uncertain whether he should invest in taxable or tax-exempt bonds. What tax and nontax factors should he consider?
Other nontax factors George should consider include the following (Select all that apply.)
QI:3-29
Do you agree or disagree with the following statement: A taxpayer should not have to report income when debt is forgiven because the taxpayer receives nothing. Explain.
PI:3-34
Requirement
For each of the following items indicate, whether the individual taxpayer must include any amount in gross income.
a.
|
Employees of Eastside Bookstore are given their birthdays off with pay.
|
b.
|
Westside Hardware, Inc., gave each employee 10 shares of Westside stock worth $100 per share in lieu of a cash bonus.
|
c.
|
Employees of Northside Manufacturing were allowed to take home the company's old computers when the company purchased new ones. (Assume the computers have some monetary value.)
|
PI:3-35
Requirement
Which of the following constitutes constructive receipt in the current year ended December 31?
a.
|
A salary check received at 6:00 p.m. on December 31, after all the banks have closed.
|
b.
|
A rent check received on December 30 by the manager of an apartment complex. The manager normally collects the rent for the owner. The owner was out of town.
|
c.
|
A paycheck received on December 29 that was not honored by the bank because the employer's account did not have sufficient funds.
|
d.
|
A check received on December 30. The check was postdated January 2 of the following year.
|
e.
|
A check received on January 2. The check had been mailed on December 30.
|
PI:3-42
Ed
owns
Oak Knoll
Apartments. During the year,
Frank,
a tenant, moved to another state.
Frank
paid
Ed
$ 1 comma 100
to cancel the two-year lease he had signed.
Ed
subsequently rented the unit to
Warren.
Warren
paid the first and last months' rents of
$ 700
each and a security deposit of
$ 1 comma 200.
Ed
also owns a building that is used as a health club. The club has signed a fifteen-year lease at an annual rental of
$ 16 comma 000.
The owner of the club requested that
Ed
install a swimming pool on the property.
Ed
declined to do so. The owner of the club finally constructed the pool himself at a cost of
$ 17 comma 000.
Requirement
What amount must
Ed
include in gross income?
In addition to the regular rental income from the apartment and health club
Ed
must include the following in gross income. (If a box is not used, leave the box empty; do not select a label or enter a zero.)
PI:3-43
Susan's salary is $44,000 and she received dividends of $600. She received a statement from SJ partnership indicating that her share of the partnership's income was$4,000. The partnership distributed $1,000 to her during the year and $600 after year-end. She won $2,000 in the state lottery and spent $50 on lottery tickets.
Requirement
Which amounts are taxable? (Complete all answer boxes.)
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