Tax Return Problem Cases ACCT 440 Spring 2016 Inst.docx

Tax Return Problem Cases
ACCT 440
Spring 2016
Instructions: Use the relevant tax forms for your computations.
You must download the relevant forms
from the IRS website. Do not use tax software to prepare the
returns. You need not complete the state
tax returns. Make sure to include all the relevant supporting
schedules for your federal return.
There are a total of five returns assignments. All five returns
must be turned in no later than Monday,
May 2 at 5:00 p.m. Please turn in the returns in one envelope to
room JH 1111.
This is an individual assignment. You are not allowed to discuss
or share the answers with any other
student, friend, tax professional, colleague or a professor.
Tax Return 1:
Lance H. and Wanda B. Dean are married and live at 431 Yucca
Drive, Santa Fe, NM 87501. Lance works

for the convention bureau of the local chamber of commerce,
while Wanda is employed part-time as a
paralegal for a law firm.
a. During 2014, the deans had the following receipts:
Salaries ($60,000 for Lance, $41,000 for Wanda)
Interest income -- $101,000
City of Albuquerque general purpose bonds $1,000
Ford Motor Company bonds 1,100
Ally Bank certificate of deposit 400
2,500
Child support payment from John Allen
7,200
Annual gift from parents 26,000
Settlement from Roadrunner Touring Company
90,000
Lottery winnings 600
Federal income tax refund (for tax year 2013) 400
Wanda was previously married to John Allen. When they
divorced several years ago, Wanda was
awarded custody of their two children, Penny and Kyle. (Note:

Wanda was never issued a form 8332
wavier.) under the divorce decree, John was obligated to pay
alimony and child support--the alimony
payments were to terminate if Wanda remarried.
In July, while going to lunch in downtown Santa Fe, Wanda
was injured by a tour bus. As the
driver was clearly at fault, the owner of the bus, Roadrunner
Touring Company, paid for her medical
expenses (including one-week stay in a hospital). To avoid a
lawsuit, Roadrunner also transferred
$90,000 to her in settlement of the personal injuries she
sustained.
The Deans has the following expenditures for 2014:
Medical expenses (not covered by insurance) $7,200
Taxes-
Property taxes on personal residence $3,600
State of new Mexico income tax (includes amount
withheld from wages during 2014) 4,200 7,800
Interest on home mortgage 6,000
Paid church pledge 3,600

Life insurance premiums (policy on Lance’s life) 1,200
Contributions to traditional IRA (on Wanda’s behalf) 5,000
Traffic fines 300
Contributions to the reelection campaign fund of the
major of Santa Fe 500
Funeral expense for Wayne Boyle 6,300
The life insurance policy was taken out but several years ago
and designates Wanda as the beneficiary.
As a part time employee, Wanda is excluded from coverage
under her employer’s pension plan.
Consequently, she provides for her own retirement with a
traditional IRA obtained at a local trust
company. Because the mayor is a member of the local Chamber
of Commerce, Lance felt compelled to
make the political contribution.
The Deans’ household includes the following, for whom they
provide more than half of the
support:
Social Security Number Birth Date
Lance Dean (age 42) 123-45-6786 12/16/1972

Wanda Dean (age 40) 123-45-6787 08/08/1974
Penny Allen (age 19) 123-45-6788 10/09/1995
Kyle Allen (age 17) 123-45-6789 05/03/1997
Wayne Boyle (age75) 123-45-6785 06/15/1939
Penny graduated from high school on May 9, 2014, and is
undecided about college. During 2014, she
earned $8,500 (placed in a savings account) playing a harp in
the lobby if a local hotel. Wayne is
Wanda’s widower father, who died on January 20, 2014. For the
past few years, Wayne qualified as a
dependent of the Deans.
Federal income tax withheld is $5200 (Lance) and $3000
(Wanda). The proper amount of social
security and Medicare tax was withheld.
Determine the Federal income tax for 2014 for the Deans on a
joint return by completing the
appropriate forms. They do not want to contribute to the
Presidential Election Campaign Fund. All
members of the family had health care coverage for all of 2014.
If an overpayment results, it is to be
refunded to them.

Tax Return 2:
Logan B Taylor is a widow whose wife, Sara died on June 6,
2012. He lives at 4680 Dogwood Lane,
Springfield, MO 65801. He is employed as a paralegal by a
local law firm. During 2014, he had the
following receipts:
Salary $80,000
Interest income-
City of Springfield general purpose bond $3,000
Money market account at Omni Bank 300
Savings account at Boone State Bank 1,100 4,400
Inheritance from Daniel 60,000
Life insurances proceeds 200,000
Amount from sale of St. Louis lot 80,000
Proceeds from estate sale 9,000
Federal income tax refund (for 2013 tax overpayment)
700
Logan inherited securities worth $60,000 from his uncle,
Daniel, who died in 2014. Logan also was the
designated beneficiary of an insurance policy on Daniel’s life
with a maturity value of $200,000. The lot

in St. Louis was purchased on May 2, 2009, for $85,000 and
held as an investment. As the neighborhood
has deteriorated, Logan decided to cut his losses and sold the
lot on January 5, 2014, for $80,000. The
estate sale consisted largely of items belonging to Sara and
Daniel (e.g., camper, boat, furniture, and
fishing and hunting equipment). Logan estimates that the
property sold originally cost at least twice the
$9,000 he received and has declined or stayed the same in value
since Sara and Daniel died.
Logan’s expenditures for 2014 include the following:
Medicare expenses (including $10,500 for dental) $11,500
Taxes—
State if Missouri income tax (includes withholdings during
2014) $3,200
Property taxes on personal residence 4,500 7,700
Interest on home mortgage 4,600
Contributions to church (paid pledges for 2014 and 2015)
4,800
Logan and his dependents are covered by his employer’s health
insurance policy for all of 2014.
However, he is subject to a deductible, and dental care is not

included. The $10,500 dental charge was
for Helen’s implants. Helen is Logan’s widowed mother, who
lives with him (see below). Logan normally
pledges $2,400 ($200 per month) each year to his church. On
December 4, 2014, upon the advice of his
pastor, he prepaid his pledge for 2015.
Logan’s household, all of whom he supports, includes the
following:
Social Security Number Birth Date
Logan Taylor (age 48) 123-45-6787 08/30/1966
Helen Taylor (age 70) 123-45-6780 01/13/1944
Asher Taylor (age 23) 123-45-6783 07/18/1991
Mia Taylor (age 22) 123-45-6784 02/16/1992
Helen receives a modest Social Security benefit. Asher, a son, is
a full-time student in dental school and
earns $4,500 as a part time dental assistant. Mia, a daughter,
does not work and is engaged to be
married.
Using the appropriate forms and schedules, compute Logan’s
federal income tax for 2014. Federal

income tax of $5,500 was withheld from his wages. If Logan
has any overpayment on his income tax, he
wants the refund sent to him. Assume that the proper amounts of
Social Security and Medicare taxes
were withheld. Logan does not want to contribute to the
Presidential Election Campaign Fund.
Tax Return 3:
Alice J. and Bruce M. Byrd are married taxpayers who file a
joint return. Their Social Security numbers
are 123-45-6789 and 111-11-1111, respectively. Alice’s
birthday is September 21, 1967, and Bruce’s is
June 27, 1966. They live at 473 Revenue Avenue, Lowell, MA
01850. Alice is the office manager for
Lowell Dental Clinic, 433 Broad Street, Lowell, MA 01850
(employer identification number 98-765432).
Bruce is the manager of a Super Burgers fast-food outlet owned
and operated by Plymouth Corporation,
1247 Central Avenue, Hauppauge, NY 11788 (employer
identification number 11-1111111)
The following information is shown on their Wage and Tax

Statement (Forms W-2) for 2014.
Lines Description Alice Bruce
1 Wages, tips, other compensation $58,000 $62,100
2 Federal income tax withheld 4,500 6,300
3 Social Security wages 58,000 62,100
4 Social Security tax withhold 3,596 3,850
5 Medicare wages and tips 58,000 62,100
6 Medicare tax withheld 841 900
15 State Massachusetts Massachusetts
16 State wages, tips, etc. 58,000 62,100
17 State income tax withheld 2,950 3,100
The Byrds provide over half of the support of their two
children, Cynthia (born January 25, 1990 Social
Security number 123-45-6788) and John (born February 7, 1994,
Social Security number 123-45-6786).
Both children are full-time student and live with the Byrds
except while they are away at college.
Cynthia earned $4,200 from a summer internship in 2014, and
john earned $3,800 from a part-time job.

During 2014, the Byrds provided 60% of the total support of
Bruce’s widower father, Sam Byrd
(Born March 6, 1938, Social Security number 123-45-6787).
Sam lived alone and covered the rest of his
support with his Social Security benefits. Sam died in
November, and Bruce, the beneficiary of a policy
on Sam’s life, received life insurance proceeds of $800,000 on
December 28.
The Byrds had the following expenses relating to their personal
residence during 2014:
Property taxes $5,000
Qualified interest on home mortgage 8,700
Repairs to roof 5,750
Utilities 4,100
Fire and theft insurance 1,900
The Byrds had the following medical expenses for 2014:
Medical insurance premiums $4,500
Doctor bill for Sam incurred in 2013 and not paid until 2014
7,600
Operation for Sam 8,500
Prescription medicines for Sam 900

Hospital expenses for Sam 3,500
Reimbursement from insurance company, received in 2014
3,600
The medical expenses for Sam represents most of the 60% that
Bruce contributed toward his father’s
support.
Other relevant information follows:
o When they filled their 2013 state return in 2014, the Byrds
paid additional state income
tax of $900.
o During 2014, Alice and Bruce attended a dinner dance
sponsored by the Lowell Police
Disability Association (a qualified charitable organization). The
Byrds paid $300 for the
tickets. The cost of comparable entertainment would normally
be $50.
o The Byrds contributed $5,000 to Lowell Presbyterian Church
and gave used clothing
(cost of $1,200 and fair market value of $350) to the Salvation
Army. All donations are
supported by receipts, and the clothing is in very good
condition.

o In 2014, the Byrds received interest income of $2,750, which
was reported on form
1099-INT from Second National Bank.
o Alice employer requires that all employees wear uniforms to
work. During 2014, Alice
spend $850 on new uniforms and $566 on laundry charges.
o Bruce paid $400 for an annual subscription to the Journal of
Franchise Management and
$741 for annual membership dues to his professional
association.
o Neither Alice nor Bruce’s employer reimburses for employee
expenses.
o The Byrds do not keep the receipts for the sales taxes they
paid and had no major
purchases subject to sales tax.
o Everyone in the Byrd family had health care coverage for all
months of 2014.
o Alice and Bruce paid no estimated Federal income tax.
Neither Alice nor Bruce wants to
designate $3 to the Presidential Election Campaign Fund.
Compute net federal tax payable or refund due for Alice and
Bruce Byrd for 2014. If they have overpaid,

they want the amount to be refunded to them. If you use tax
forms for your computation, you will need
forms 1040 and 2106 and Schedule A and B.
Tax Return 4:
Beth R. Jordan lives at 2322 Skyview Road, Mesa, AZ 85201.
She is a tax accountant with Mesa
Manufacturing Company, 1203 Western Avenue, Mesa, AZ
85201 (employer identification number 11-
1111111). She also writes computer software programs for tax
practitioners and has a part-time
practice. Beth is single and has no dependents. Beth’s birthday
is July 4, 1972, and her Social Security
number is 123-45-6789. She wants to contribute $3 to the
Presidential Election Campaign Fund.
The following information is shown on Beth’s Wage and Tax
Statement (Form W-2) for 2014.
Line Description Amount
1 Wages, tips, other compensation $65,000.00
2 Federal income tax withheld 10,500.00

3 Social Security wages 65,000.00
4 Social Security withheld 4,030.00
5 Medicare wages and tips 65,000.00
6 Medicare tax withheld 942.50
15 State Arizona
16 State wages, tips, etc. 65,000.00
17 State income tax withheld 1,954.00
During the year, Beth received interest of $1,300 from Arizona
Federal Savings and Loan and
$400 from Arizona State Bank. Each financial institution
reported the interest income on Form 1099-INT.
She received qualified dividends of $800 from Blue
Corporation, $750 from Green Corporation, and
$650 from Orange Corporation. Each corporation reported
Beth’s dividend payments on form 1099-DIV.
Beth received a $1,000 income tax refund from the state of
Arizona on April 29, 2014. On her
2013 Federal income tax return, she reported total itemized
deductions of $8,200, which included
$2,200 of state income tax withheld by her employer.

Fees earned from her part-time practice in 2014 totaled $3,800.
She paid $600 to have the tax
returns processed by a computerized tax return service.
On February 8, 2014, Beth bought 500 shares of Gray
Corporation common stock for $17.60 a
share. On September 12, 2014, she sold the stock for $14 a
share.
Beth bought a used sports utility vehicle for $6,000 on June 5,
2014. She purchased the vehicle
from her brother-in-law, who was unemployed and was in need
of cash. On November 2, 2014, she sold
the vehicle to a friend for $6,500.
On January 2, 2014, she acquired 100 shares of Blue
Corporation common stock for $30 a share.
She sold the stock on December 19, 2014, for $55 a share.
During the year, Beth records revenue of $16,000 from the sale
of a software program she
developed. She incurred the following expenditures in
connection with her software development
business.
Cost of personal computer $7,000
Cost of printer 2,000

Furniture 3,000
Supplies 650
Fee paid to computer consultant 3,500
Beth elected to expense the maxim portion of the cost of the
computer, printer, and furniture allowed
under the provisions of §179. These items were placed in
service on January 15, 2014, and used 100% in
her business.
Although her employer suggested that Beth attend a convention
on current developments in
corporate taxation, she was not reimbursed for the travel
expenses of $1,420 she incurred in attending
the convention. The $1,420 included $200 for the cost of the
meals. During the year, Beth paid $300 for
prescription medicines and $2,875 for doctor bills and hospital
bills. Medical insurance premiums were
paid for her by her employer. Beth paid real property taxes of
$1,766 on her home. Interests on her
home mortgage was $3,845, and interest to credit card
companies was $320. She contributed $30 each
week to her church and $10 each week to United Way.
Professional dues and subscriptions totaled

$350. Beth paid estimated Federal income taxes of $1,000
Compute the net federal tax payable or refund due for Beth R.
Jordan for 2014. You will need forms
1040, 2106-EZ, and 4562 and Schedule A, B, C, D and SE.
Tax Return 5:
David R. Ella M. Cole (ages 39 and 38, respectively) are
husband and wife who live at 1820 Elk Avenue,
Denver, CO 80202. David is a regional sales manager for Wren
Industries, a national wholesaler of
plumbing and heating supplies, and Ella is a part-time dental
hygienist for a chain of dental clinics.
compensation for 2014 (based on
commissions) of $95,000. He is expected to maintain his own
office and pay for all business
expenses from this amount. Wren does not require him to render
any accounting as to the use
of these funds. It does not withhold Federal and state income
taxes but does not withhold and

account for the payroll taxes incurred (e.g. Social Security and
Medicare). The Coles are
adequately covered by Wren’s noncontributory medical plan but
have chosen not to participate
in its §401(k) retirement plan.
David’s employment-related expenses for 2014 are summarized
below.
Airfare $8,800
Lodging 5,000
Meals (during travel status) 4,800
Entertainment 3,600
Ground transportation (e.g., limos, rental cars, and taxis)
800
Business gifts 900
Office supplies (includes postage, overnight delivery, and
copying) 1,500
The entertainment involved business meals for purchasing
agents, store owners, and
building contractors. The business gifts consisted of $50 gift
certificates to a national restaurant.
These were sent by David during the Christmas holidays to 18
of his major customers

In addition, David drove his 2012 Ford Expedition 11,000 miles
for business and 3,000 for
personal use during 2014. He purchased the Expedition on
August 15, 2011, and has always
used the automatic (standard) mileage method for tax purposes.
Parking and tolls relating to
business use total $340 in 2014.
hased their present residence in April
2011, they devoted 450 of the 3,000
square feet of living space to an office for David. The property
cost $440,000 ($40,000 of which
is attributable to the land) and has since appreciated in value.
Expenses relating to the residence
in 2014 (except for mortgage interest and property taxes; see
below) are as follows:
Insurance $2,600
Repairs and maintenance 900
Utilities 4,700
Painting office area; rugs and plants (in the office) 1,800
In terms of depreciation, the Coles use the MACRS percentage
tables applicable to 39-

year nonresidential real property. As to depreciable property
(e.g., office furniture), David tries
to avoid capitalization and uses whatever method provides the
fastest write-off for tax
purposes.
ill or on vacation or when one of
the clinics is particularly busy (e.g., prior to the beginning of
the school year). Besides her
transportation, she must provide and maintain her own
uniforms. Her expenses for 2014 appear
below.
Uniforms $690
State and city occupational licenses 380
Professional Journals and membership dues in the American
Dental
Hygiene Association 340
Correspondence study course (taken online) dealing with teeth
whitening procedures 420

Ella’s salary for the year is $42,000, and her form W-2 for the
year shows income tax
withholding of $4,000 (Federal) and $1,000 (state) and the
proper amount of Social Security and
Medicare taxes. Because Ella is a part-time employee, she is not
included in her employer’s
medical or retirement plans.
the following receipts during 2014.
Interest income—
State of Colorado general purpose bonds $2,500
IBM bonds 800
Wells Fargo Bank CD 1,200 $4,500
Federal income tax refund for year 2013 510
Life insurance proceeds paid by Eagle Assurance Corporation
200,000
Inheritance of savings account from savings account from Sarah
Cole 50,000
Sales proceeds from two ATVs 9,000
For several years, the Cole’s household has included David’s
divorced mother, Sarah, who has
been claimed as their dependent. In late November 2014, Sarah

unexpectedly died of coronary
arrest in her sleep. Unknown to Ella or David, Sarah had a life
insurance policy and a savings
account (with David as the designated beneficiary of each). In
2013, the Coles purchased two
ATVs for $14,000. After several near mishaps, they decided that
the sport was too dangerous. In
2014, they sold the ATVs to their neighbor.
Funeral expenses for Sarah $4,500
Taxes—
Real property taxes on personal residence $6,400
Colorado state income tax due (paid in April 2014 for tax
year 2013) 310 6,710
Mortgage interest on personal residence 6,600
Paid church pledge 2,400
Contributions to traditional IRAs for Ella and David
($5,500 +$5,500) 11,000
In 2014, the Coles made quarterly estimated tax payments of

$1,400 (Federal) and $500 (state)
for a total of $5,600 (Federal) and $2,000 (State).
Using the appropriate forms and schedules, compute the Cole’s
Federal income tax for 2014.
Disregard the alternative minimum tax (AMT) and various
education credits. Relevant Social
Security numbers are:
David Cole 123-45-6788
Ella Cole 123-45-6787
Sarah Cole 123-45-6799
The Coles do not want to contribute to the Presidential Election
Campaign Fund. Also, they want
any overpayment of tax refunded to them and not applied
toward next year’s tax liability.

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