Brown Corporation had consistently reported its income by the cash method. The corporation should have used the accrual method because inventories are material to the business. In 2012, Brown timely filed a request to change to the accrual method. At the beginning of 2012, Brown had accounts receivable of $60,000. Also, Brown had merchandise on hand with a cost of $80,000 and accounts payable for merchandise of $25,000. The accounts receivable, inventory, and accounts payable balance per books were zero. Determine the adjustment to income due to the change in accounting method and the amount that is allocated to 2012.
Margaret is trying to decide whether or not to place funds in a qualified tuition program. Her son will be attending college in 4 years. She is in the 35% marginal tax bracket and she believes she can earn 7% before tax return on alternative investments. Thus $10,000 will accumulate to $11,948 (after-tax) in 4 years. Margaret expects tuition to increase at the rate of 5% each year to $12,155 in 4 years. Her son will be in the 15% marginal tax bracket in all relevant years. Given these assumptions, should Margaret participate in the qualified tuition program?
Tom, a calendar year taxpayer, filed his 2007 federal income tax return on April 1, 2008. In 2012, the IRS audits this return and assesses an income tax deficiency against Tom. On the grounds that the statute of limitations has run, Tom disputes the assessment. Is Tom correct? Why?
Chris spends $800,000 to build a qualified low-income housing project, which is placed in service on January 1, 2012. He financed the project using his personal funds. What is the amount of the low-income housing credit that Chris may claim in 2012 (assuming a rate of 7.96%)? What is the total amount of the credit that Chris may claim as a result of the $800,000 expenditure?
Sandra sold 500 shares of Wren Corporation to Bob, her brother. She had paid $20,000 for the stock. Calculate Sandra's and Bob's gain or loss under the following circumstances:
I) Sandra sold the shares to Bob for $18,000. Bob sold them for $17,000.
II) Sandra sold the shares to Bob for $25,000. Bob sold them for $23,000.
III) Sandra sold the shares to Bob for $18,000. Bob sold them for $21,000.
Travel status requires that the taxpayer be away from home overnight. I) What does away from home overnight mean? II) What tax advantages result from being in travel status?
DeWayne is a U.S. citizen and resident. He spends much of each year in the United Kingdom on business. He is married to Petula, a U.K. citizen and resident of London. DeWayne has heard that it is possible that he can file a joint income tax return for U.S. purposes. If this is so, what are the constraints he should consider in making any such decision?