1. John D. and Rose W. Smith (SSN's 555-12-8899 and 555-21-7788) live at 18 Torchwood Drive, Area 51, AZ 88951. John and Rose have been married for many years and own and operate a profitable real estate business. They have two children, Donna (age 20) and Mickey (age 22), both of whom attend college. During 2010, the Smith's made the following transfers:
1. John paid college expenses of $50,000 in tuition and $12,000 in room and board. To establish financial responsibility with their kids, they gave the money directly to Donna and Mickey.
2. Rose reimbursed Martha (Donna's aunt) for her kidney transplant. Martha is not the dependent of the Smith's.
3. John used $150,000 in insurance proceeds he received on the death of his grandfather to purchase land in Bad Wolf Bay, listing title as "John, Donna, and Mickey Smith, equal tenants in common."
4. As a wedding anniversary present, John and Rose each gave $55,000 to purchase an RV for Rose's parents (Jackie and Ben Tyler).
5. John and Rose each gave a cash contribution of $5,000 to the reelection campaign of the Mayor of Area 51.
In creating several trusts in 2008, the Smith's made taxable gifts of $2million. Consequently, no gift tax was due because of the specific exemption ($1million for each donor spouse).
Prepare 2010 gift tax returns (Form 709 for the Smith's. As in the past, the Smith's made the Section 2513 election to split the gifts.
2. please complete this case below :
Croydon is calendar year, accrual Basis Corporation, MR and Mrs. Croyden (cash basis taxpayers ) are the sole corporation shareholder . Mr. Croyden is president and Mrs. croyden is vise president of the corporation, Croyden's financial records. Prepared in accordance with GAAP, show the following information for the year,
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Revenues from sides goods
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$12,900,000
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Cost of goods sold( LIFO)
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(9,260,000)
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Gross profit
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3,640,000
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Bad debt expense
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24,000
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Administration salaries and wages
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612,000
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State and local business taxes
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135,000
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Interest expense
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33,900
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Advertising
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67,000
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Annual property insurance premiums
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19,800
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Annual life insurance premiums
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7,300
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Depreciation expense
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148,800
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Repairs maintains ,utilities
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81,000
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Croydon's records reveal the following facts.
- Under the UNICAP. Rules,Coryden had no capitalize $ 142,800 of administrative wages to inventory . These wages were expected for financial statement purpose.
- Because of the UNICAP rules, Crodyen's cost of goods sold for tax purposes exceeds cost of goods sold for financial statement purpose by $ 219,000.
- Bad debt expense equals the additional to corporation's allowance for bad debts .Actual wirte -offs of uncollectable accounts during the year totaled $31,200.
- Administrative salaries includes as accrued $ 50,000 year -end bonus to Mr. .Croyden and accrued $ 20,000 year -end bonus to Mrs Croyden .these bonuses were paid on January 17 of the following year .
- Life insurance premium were on the key -person polices for Mr. and Mrs. .Croyden .the Corporation is the policy beneficiary.
- Croyden disposed of two assets during the year (these disposition are not reflected in the financial statement information shown above) .it sold office furnishing for $ 45,000. The original cost of the furnishings was $ 40,000, and accumulated MACRS depreciation through date of sale was $ 12,700. It also exchanged transportation equipment for a 15 percent interest in the partnership. The original cost of the transportation equipment was $ 110, 000, and accumulated MACRS deprecation through date of exchange was $ 38,900.
- MACRS depreciation for assets places in service in prior years (including the office furnishings and transportation equipment disposed of this year) is $ 187,600.the only assets acquired this year was equipment costing $ 275,000 .the equipment has a seven -year recovery period and was placed In the services on February 11 .
- Coryden's prior year tax return show no nonrecaptured section 1231 losses and $ 7,400 capital loss carryforward
- Solely on the basis above facts, compute Crodyen's taxable income