Murray and Beverly Goldberg provide you with the following tax information for calendar year 2015.
Murray and Beverly have four dependent children under the age of 12. They also provide all the support for Beverly’s sister Mary Jane who is a resident of Mexico. Mary Jane’s only income is from scholarships, the funds of which are used exclusively for tuition.
Salary from Beverly’s Job as a professor
Salary from Murray’s Job as a Funeral Director
Interest Income
Dividend Income
State of Oregon Municipal Bonds
Gambling Winnings from Lottery (cost of lottery tickets = $4,785)
$350,000
$110,000
$3,250
$18,750
$10,250
$12,250
Prize (won cruise in a church raffle) $20,850
Annuity payments received (annuity cost $45,000, expected return $90,000) $65,000
Life insurance proceeds on the death of their grandmother
Gifts received from Beverly’s Brother
$1,050,000
$800,000
Alimony paid by Beverly to her ex-husband
Debt Forgiveness Income – Credit Card Debt Forgiveness
$35,000
$92,000
Note: Immediately prior to the forgiveness, the Goldberg’s were insolvent to the tune of $78,000.
Scholarship – Beverly (education expenses and tuition $3,750) $7,250
Damages from an physical injury related to a car accident law suit
Compensatory Damages (Lost wages etc. )
Punitive Damages
Damages to reimburse for medical care
$650,000
$580,000
$235,500
Murray Sole Proprietorship Information (Tax Consulting)
Revenue
Office expense
Supplies
Meals and Entertainment
$22,250
$45,500
$26,500
$1,327,000
Rent for Office Space
Country club dues
Business gifts to 20 people at $45 each
Subcontract labor to helpers
$62,000
$12,500
$900
$205,500
Self employed medical insurance $23,000
Fines/penalties paid to local government $6,250
Depreciation for assets placed in service
prior to 2015 $22,250
New Asset Acquisitions
Automobile – Passenger Auto less than 6000lbs – 11/15/15
Computer / networks /printers– 3/15/15
Office Equipment (business machine) – 10/15/15
Storage Facility for files (excluding land) – 9/1/15
Leasehold Improvements on office in service as office space since 2008
$56,500
$685,500
$195,000
$280,000
$142,000
Murray wants to maximize his depreciation using bonus deprecation, where applicable, and Sec. 179.
1

Murray and Beverly co-own and operate a management consulting practice out of the family home. This is also a sole proprietorship. They use one room in the home exclusively for business. His home has 3,800 square feet in total. The room he uses for business is 335 square feet. His tax net profit from the business before considering the office in home expenses is $40,500. The expenses related to the home are as follows:
Mortgage Interest
Property Taxes
Utilities
Homeowners Insurance
$50,000
$15,500
$10,400
$7,200
The home was acquired on 3/15/12 for $480,000 (of which land is valued at $100,000). Figure the depreciation using this information.
Residential Rental Property - 1
Murray and Beverly own jointly a home that they rent to a family. They actively participate in the business.
They acquired the home in 2015. The information for the entity is as follows:
Rent revenue
Mortgage interest on the rental property
$45,600
$48,800
Repair and maintenance
Insurance
Property taxes
$19,000
$8,500
$32,500
They acquired the following assets related to the rental property in 2015.
Rental Home: 2/3/15
Appliances – 10/4/15
$685,000 (land value is $45,000)
$60,000 (do not use section 179 on these)
Residential Rental Property - 2
Murray and Beverly also own a beach home that they use for both personal and business purposes. The rent the home for 150 days per year and use it personally 35 days per years. Information for the property is as follows:
Rent Revenue $37,000
Mortgage Interest
Utilities
Property taxes
Management fees
$32,000
$8,400
$10,250
$7,275
Insurance $8,700
The home was acquired on 1/3/15 for $458,000 (of which $100,000 is the value of the land).
Other Information
Partnership K-1 – owned by Beverly
Ordinary Income/Loss $117,000 (Active participation – This is self-employment income)
S Corporation K-1 (Passive) owned jointly
$32,500 Net income from operations
2

Other Information
Moving expenses to relocate from Texas to Connecticut
SEP Contribution for Murray’s business
State and Local taxes
$25,000
$38,500
$18,000
Personal property taxes (on value of car)
Charity (cash)
$1,250
$36,000
Medical expenses paid to doctors & hospitals (not elective) $175,000 (Bev is battling cancer)
Investment interest expenses $74,500
Investment counsel fees $16,600
Unreimbursed employee business expenses for Beverly $22,250
Other Transactions

Murray sold his investment in VB Co. for $40,000. He originally invested $217,000 in the company that qualified as a Sec. 1244 company. He purchased the stock in 1995 and sold it in 2015.

On 2/1/15 Murray sold the old storage facility. Murray received $205,000 cash and the buyers assumed the remaining $55,000 loan on the building. He originally purchased the building for $80,000. As of the date of sale, he had taken $18,000 of tax depreciation. He also paid the real estate agent 4% of the sales price as a commission.

On 1/15/15, Murray sold his old computer system. He was paid $12,000 for the computer. Murray originally purchased the equipment in 2013 for $38,000 and elected Sec. 179 expense for the asset.

On 8/15/15 Murray and Beverly sold their home that they used their principal residence for 10 years without interruption. They sold the home for $775,000. He originally purchased the home for
$150,000 in 1997.

On 8/4/15 Beverly sold her complete ownership in TimeWarner Inc. She bought the stock for $12,350 on February 2, 2008 and sold it for $10,000.

For purposes of the Sec. 1231 lookback rules, Murray has not had any Sec. 1231 transactions in the last 5 years.
Required – Analysis must be completed using EXCEL
1.
Create a schedule of all sales and exchanges of property transactions and label them accordingly
(e.g., Sec. 1231 gains/losses, Long-term capital, Sec. 1245 recapture, etc.) -
2.
Prepare a depreciation schedule for all assets (Schedules C and E). Be sure to deduct the depreciation on the proper schedules.
3.
Calculate the Schedule C net income for the Goldberg’s
4.
What is the Goldberg’s total Self Employment tax liability for 2015?
Group 1will present Parts 1-4
5.
Calculate the Total Schedule E net income for the Goldberg’s (the rental property)
6.
What is the total passive activity income/loss and how much is includible in gross income for
2015.
7.
Provide a detailed schedule of the Goldberg’s AGI (include Gross Income and Deductions for
AGI)
8.
Provide a detailed schedule of the Goldbergs’s Itemized deductions – show support for all limitations. – Do not elect to use any long-term capital gains for the Investment Interest Expense limitation.
Provide a detailed schedule of the calculation of the Goldberg’s total 2015 tax income tax liability including net investment income tax liability (be sure to show your work here)
Group 3 will presented parts 5-9
3

10.
PREPARE THE GOLDBERGS complete 2015 TAX RETURN USING EITHER THE FILL IN
FORMS AVAILABLE ON THE WWW.IRS.GOV
WEB CITE OR OTHER TAX SOFTWARE. BE
SURE TO INCLUDE ALL NECESSARY FORMS THAT WOULD ACCOMPANY A PROPERLY
FILED RETURN- Present the cross referenced return copy (PDF format) and explain on how the cross-referencing was completed.
11.
12.
Prepare a research memorandum discussing the following income tax doctrines: 1) step transaction doctrine and 2) assignment of income doctrine
13.
Prepare a memorandum explaining the new surtax on Net Investment Income Tax passed as part of the Affordable Care Act.
14.
Prepare a research memo that discusses the Passive Activity loss rules and the proper method for allocation of suspended losses to multiple passive activities. In your answer also discuss the
IRS forms used to report passive activity losses.
Group 5 will present parts 12-14
4