tax questions

117. Taylor, a widow, makes cash gifts to her five married children (including their spouses) and to her seven grandchildren. What is the maximum amount Taylor can give for calendar year 2014 without using her unified transfer tax credit?

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118. Without obtaining an extension, Pam files her income tax return 55 days after the due date. With her return, she pays an additional tax of $60,000. Disregarding any interest element, what is Pam’s penalty for failure to pay and to file?

119. On his 2014 income tax return, Andrew omitted income and overstated deductions to the extent that his income tax was understated by $500,000. Disregarding any interest element, what is Andrew’s penalty if the understatement was due to:

a. Negligence.

b. Civil fraud.

c. Criminal fraud.

120. Several years ago, Logan purchased extra grazing land for his ranch at a cost of $240,000. In 2014, the land is condemned by the state for development as a highway maintenance depot. Under the condemnation award, Logan receives $600,000 for the land. Within the same year, he replaces the property with other grazing land. What is Logan’s tax situation if the replacement land cost:

a. $210,000?

b. $360,000?

c. $630,000?

d. Why?

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121. For the tax year 2014, Noah reported gross income of $300,000 on his timely filed Federal income tax return.

a. Presuming the general rule applies, when does the statute of limitations on assessments normally expire?

b. Suppose Noah inadvertently omitted gross income of $76,000. When does the statute of limitations on assessments expire?

c. Suppose the omission was deliberate and not inadvertent. When does the statute of limitations on assessments expire?

122. Paige is the sole shareholder of Citron Corporation. During the year, Paige leases a building to Citron for a monthly rental of $80,000. If the fair rental value of the building is $60,000, what are the income tax consequences to the parties involved?

123. In 1985, Roy leased real estate to Drab Corporation for 20 years. Drab Corporation made significant capital improvements to the property. In 2005, Drab decides not to renew the lease and vacates the property. At that time, the value of the improvements is $800,000. Roy sells the real estate in 2014 for $1,200,000 of which $900,000 is attributable to the improvements. When is Roy taxed on the improvements made by Drab Corporation?

124. The Federal income tax is based on a pay­as­you­go system and has become a “mass tax.” Explain this statement.

ANSWER: The pay-as-you-go system is present in the wage and other withholding procedures. In the case of self- employed persons, it is manifested in the required quarterly payments for estimated taxes. The income tax became a mass tax during World War II when its coverage was extended to 74% of the population (from less than 6% in 1939).

125. In terms of Adam Smith’s canons of taxation, how does the Federal income tax fare as far as economy is concerned?

126. Due to the population change, the Goose Creek School District has decided to close one of its high schools. Since it has no further need of the property, the school is listed for sale. The two bids it receives are as follows:

United Methodist Church $1,700,000

Planet Motors 1,600,000

The United Methodist Church would use the property to establish a sectarian middle school. Planet, a well-known car dealership, would revamp the property and operate it as a branch location.

If you were a member of the School District board, what factors would you consider in evaluating the two bids?

127. Morgan inherits her father’s personal residence including all of the furnishings. She plans to add a swimming pool and sauna to the property and rent it as a furnished house. What are some of the ad valorem property tax problems Morgan can anticipate?

128. In 2012, Deborah became 65 years old. In 2013 she added a swimming pool, and in 2014 she converted the residence to rental property and moved into an assisted living facility. Since 2011, Deborah’s ad valorem property taxes have decreased once and increased twice. Explain.

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129. A lack of compliance in the payment of use taxes can be resolved by several means. In this regard, comment on the following:

a. tration of automobiles.

b. Reporting of Internet purchases on state income tax returns.

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130. What are the pros and cons of the following state and local tax provisions?

a. An ad valorem property tax holiday made available to a manufacturing plant that is relocating.

b. Hotel occupancy tax and a rental car surcharge.

c. A back-to-school sales tax holiday.

131. What is a severance tax? How productive can it be in terms of generating revenue?

132. What is the difference between an inheritance tax and an estate tax? Who imposes these taxes?

133. Logan dies with an estate worth $20 million. Under his will, $10 million passes to his wife while $10 million goes to his church. What is Logan’s Federal estate tax result?

134. With regard to state income taxes, explain what is meant by the “jock tax”?

135. Virtually all state income tax returns contain checkoff boxes for donations to various causes. On what grounds has this procedure been criticized?

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