TAX CASE: ACCT 3350 Robert T. and Lisa J. Polk (ages 42 and

Published by Beth Roe

Oct 18, 2016


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TAX CASE: ACCT 3350 Robert T. and Lisa J. Polk (ages 42 and 41) are married and live at 5555 Orange Blossom Trail, Dallas, TX 75080. Robert is the regional manager for a gaming company (MGM), while Lisa is a self-employed CPA. They file a joint return and use the cash basis for tax purposes. 1. Robert receives a yearly salary of $90,000, plus an annual bonus, from MGM. The annual bonus is determined in December of each year but not paid until January of the following year. Robert’s bonus is $15,000 for 2011 (received in 2012) and $33,000 for 2012 (received in 2012). Robert participates in his employer’s group health insurance plan to which he contributed $6,100 in 2012 for medical coverage. MGM does not provide any retirement benefits, but it has established a 401(k) plan to enable its employees to make voluntary contributions. Robert did not contribute to the plan in 2012. The company provides an office for Robert’s use that is located at Suite 419, 110 Palm Boulevard, Dallas, TX. 2. Robert’s employment-related expenses (which MGM reimbursed Robert a total of $8,000) for 2012 are as follows: Airfare $5,100 Lodging: not at a MGM $4,200 Lodging: value of stays at a MGM $3,300 Meals $800 Entertainment $350 Car rentals, limos, taxis $750 While on business trips in his car, Robert was caught in several small-town speed traps and paid fines of $500. 3: Lisa is a licensed CPA who works part-time on a consulting basis. Her major clients are real estate developers (both residential and commercial). Because she limits her engagements, she does not have a separate office but does her work at the client’s premises or in her office at home (see item 5 below). Her business expenses for 2012 are summarized below: Supplies $4,000 Legal $8,000 CPA license fee $1,500 Subscriptions to professional journals $7500 Dues to professional organizations $250 In addition, she drove the family Acura (purchased on June 7, 2009) 6,000 miles on her job assignments. Regarding the Acura, Lisa uses the automatic mileage method for tax deduction purposes. She drove the car for 20,000 miles during the year. 4. One of Lisa’s clients was interested in building a shopping center on a tract of land she owned in Levy County. Lisa inherited the property from her aunt when she died on June 6, 1990. At that time, the land was worth $400,000. It has since been rezoned for commercial use and has a current value of$700,000. On February 10, 2012, the following exchange took place in the office of an attorney: Lisa exchanged the Levy parcel for a similar tract in Dixie County (worth $500,000) and $200,000 in cash. 5. Home office: Lisa uses 200 sq. feet of a 2,000 sq. foot house as her office. The office has a door and used to be a bedroom. A few times a year when the Polks have guests the guests spend the night in the room on a hide a bed sofa. The house has the following expenses: Ad valorem taxes on personal residence $7,000 Interest on home mortgage $15,000 Repairs to roof $2,000 Utilities $3,000 6. On September 2, 2012, Lisa sold a tract of land in Citrus County to a farmer who owned the adjoining property. The land was inherited from the same aunt and had a value of $200,000 on June 6, 1990. Under the terms of the sale, Lisa received cash of $400,000 and four notes of$125,000 each payable at one-year intervals with simple interest of 8% provided for. To the extent allowed, Lisa wants to defer recognition of gain as long as possible. 7. On August 5, 2008, Robert purchased 5,000 shares of Groupon common stock for $15 a share as part of its initial public offering. The corporation was formed to establish and operate farmers’. markets in mid-size cities throughout the United States. Although some market locations were profitable, as a whole the venture proved to be a failure. By December 2012, Groupon was taken over by creditors, and its stock became worthless. 8. Besides the items previously noted, the Polks had the following receipts for 2012: Lisa’s consulting income $100,000 Interest income: City of Dallas bonds $8,000 Ford Motor Company bonds $9,000 Loan repayment by Sarah Duval $3,000 Cash gifts from Lisa’s parents $20,000 Federal income tax refund (2010 return) $9,000 Lisa’s consulting income includes a $7,000 payment for work she did in 2011 (collected in 2012) but does not include $15,000 she billed in November for work performed in 2012 (collected in 2013). One client who has owed her $6,000 for work done in 2009 was convicted of arson in 2012 and is serving time in state prison. Lisa feels certain that she will never collect the $6,000. 9. In addition to the items already mentioned, the Polks had the following expenditures for 2012: Life insurance premiums $4,000 Medical and dental expense not covered by insurance $14,000 Taxes: State and local sales taxes $7,000 Contributions- Salvation Army (Tampa branch) $500 Texas governor’s election campaign fund $1,000 During 2012, the Polks had gambling winnings of $8,200 and losses of $1,200-all supported by records. 10. The Polks maintain a household that includes two children, Anna Marie (age 20) and Tyler (age 17). Anna Marie graduated from high school on May 18, 2011, and is undecided about college. Tyler is a junior in high school. Anna Marie is an accomplished vocalist and during 2012 was able to earn $17,200 performing at various functions (e.g., weddings, funerals). She placed most of her earnings in a savings account and kept only a small amount to spend on herself. 11. Robert’s Form W-2 from MGM shows $35,000 withheld for Federal income tax. The Polks also have made 4 quarterly income tax payments of $9,000 each. Lisa’s professional activity code is 541310. Relevant Social Security numbers are noted below: Social Security Name Number Birth Date Robert J. Polk 111-11-1111 07/01/1968 Lisa N. Polk 123-45-6781 03/20/1969 Anna Marie Polk 123-45-6784 05/02/1992 Tyler Polk 123-45-6788 06/30/1995 REQUIREMENTS Prepare an income tax return (with appropriate schedules) for the Polks for 2012. Make necessary assumptions for facts not stated in the problem. If a refund results, the taxpayers want it sent to them. The Polks do not wish to contribute to the Presidential Election Campaign Fund. In the past several years, the Polks have itemized their deductions from AGI (have not claimed the standard deduction option). Here is an example of what I am looking for in terms of documentation: 1.1 TAXPAYER BIOGRAPHICAL INFORMATION: Moira qualifies for 3 exemptions determined as follows: Moira qualifies for one personal exemption. Moira may also claim the following as dependents: Oliver Plunkett Ryan. All dependency tests have been satisfied for a qualifying child. Jane ODea Sullivan. She has satisfied all tests as a qualifying relative. Social Security benefits are not counted in the gross income test. Therefore, her gross income was limited to dividend and interest income of $1,775, which falls below the $3,650 threshold. She passed all of the other tests of dependency. Moira cannot claim the following as dependent: Dennis Harrison Ryan. He failed multiple tests as either a qualifying child or as a qualifying relative. 3.1 Medical Expenses: The following medical-related expenses are deductible before the 7.5% of AGI limitation on Schedule A, line 1. Doctor bills for Moira $1,200 Dentist bills for Oliver $2,000 Total qualifying expenses $3,200 Funeral expenses are not deductible.


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