ACCT 5315 – Comprehensive Case #1
Due December 13, 2014
FACTS
Nathanial and Ruth Fischer provide you with the following tax information for calendar year 2014.
Nathanial and Ruth have four dependent children under the age of 12. They also provide all the support for
Ruth’s sister Rosaria who is a resident of Mexico. Rosaria’s only income is from scholarships, the funds of
which are used exclusively for tuition.
Salary from Ruth’s Job as a professor
$450,000
Salary from Nathanial’s Job as a Funeral Director
$100,000
Interest Income
$18,250
Dividend Income (non qualifying)
$12,750
State of Oregon Municipal Bonds
$15,250
Gambling Winnings (gambling costs = $18,785)
$15,250
Prize (won cruise in a church raffle)
$10,850
Annuity payments received (annuity cost $40,000, expected return $100,000) $10,000
Life insurance proceeds on the death of their grandmother
$2,550,000
Gifts received from Ruth’s Brother
$300,000
Alimony paid by Ruth to her ex-husband
$60,000
Debt Forgiveness Income – Credit Card Debt Forgiveness
$35,000
Note: Immediately prior to the forgiveness, the Fischer’s were insolvent to the tune of $20,000.
Scholarship – Ruth (education expenses and tuition $8,750)
$6,250
Damages from an age discrimination law suit
Compensatory Damages
$550,000
Punitive Damages
$980,000
Damages to reimburse for psychiatric care
$25,500
Sole Proprietorship Information (Tax Consulting)
Revenue
Office expense
Supplies
Meals and Entertainment
Rent for Office Space
Country club dues
Business gifts to 20 people at $45 each
Subcontract labor to helpers
Self employed medical insurance
Fines/penalties paid to local government
Depreciation for assets placed in service
prior to 2014
$927,000
$15,250
$40,500
$33,500
$75,000
$12,500
$900
$125,500
$16,000
$3,250
$32,250
New Asset Acquisitions
Automobile – Passenger Auto less than 6000lbs – 11/15/14
Computer / networks /printers– 3/15/14
Office Equipment (business machine) – 10/15/14
Storage Facility for files (excluding land) – 9/1/14
Leasehold Improvements on office in service as office space since 2005
$46,500
$285,500
$295,000
$480,000
$162,000
Nathanial wants to maximize his depreciation using Sec. 179.
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Nathanial and Ruth 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 2,400
square feet in total. The room he uses for business is 300 square feet. His tax net profit from the business
before considering the office in home expenses is $37,500. The expenses related to the home are as
follows:
Mortgage Interest
Property Taxes
Utilities
Homeowners Insurance
$30,000
$10,500
$13,400
$5,200
The home was acquired on 3/15/12 for $375,000 (of which land is valued at $100,000). Figure the
depreciation using this information.
Residential Rental Property - 1
Nathanial and Ruth own jointly a home that they rent to a family. They actively participate in the business.
They acquired the home in 2014. The information for the entity is as follows:
Rent revenue
Mortgage interest on the rental property
Repair and maintenance
Insurance
Property taxes
$55,600
$28,800
$18,000
$8,500
$12,500
They acquired the following assets related to the rental property in 2013.
Rental Home: 2/3/14
Appliances – 10/4/14
$325,000 (land value is $45,000)
$40,000 (do not use section 179 on these)
Residential Rental Property - 2
Nathanial and Ruth also own a beach home that they use for both personal and business purposes. The rent
the home for 120 days per year and use it personally 40 days per years. Information for the property is as
follows:
Rent Revenue
Mortgage Interest
Utilities
Property taxes
Management fees
Insurance
$34,000
$18,000
$6,400
$11,250
$7,275
$4,700
The home was acquired on 1/3/13 for $398,000 (of which $100,000 is the value of the land).
Other Information
Partnership K-1 – owned by Ruth
Ordinary Income/Loss
$225,000 (Active participation – This is self-employment income)
S Corporation K-1 (Passive) owned jointly
Net income from operations
$28,000
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Other Information
Moving expenses to relocate from Texas to Connecticut
SEP Contribution for Nathanial’s business
State and Local taxes
Personal property taxes (on value of car)
Charity (cash)
Medical expenses paid to doctors & hospitals (not elective)
Investment interest expenses
Investment counsel fees
Unreimbursed employee business expenses for Ruth
$15,000
$49,500
$22,000
$1,250
$36,000
$105,000
$55,500
$16,600
$18,250
Other Transactions
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1.
Nathanial sold his investment in VB Co. for $75,000. He originally invested $240,000 in the company
that qualified as a Sec. 1244 company. He purchased the stock in 1995 and sold it in 2014.
On 2/1/14 Nathanial sold the old storage facility. Nathanial received $175,000 cash and the buyers
assumed the remaining $75,000 loan on the building. He originally purchased the building for
$40,000. As of the date of sale, he had taken $10,000 of tax depreciation. He also paid the real estate
agent 3% of the sales price as a commission.
On 1/15/14, Nathanial sold his old computer system. He was paid $18,000 for the computer.
Nathanial originally purchased the equipment in 2010 for $42,000 and elected Sec. 179 expense for the
asset.
On 8/15/14 Nathanial and Ruth sold there home that they used their principal residence for 10 years
without interruption. They sold the home for $575,000. He originally purchased the home for
$150,000 in 2004.
On 8/4/14 Ruth sold her complete ownership in TimeWarner Inc. She bought the stock for $15,350 on
February 2, 2008 and sold it for $11,000.
For purposes of the Sec. 1231 lookback rules, Nathanial has not had any Sec. 1231 transactions in the
last 5 years.
Required – Analysis must be completed using EXCEL
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.)
Group 1 will present Part 1
2.
3.
4.
Prepare a depreciation schedule for all assets (Schedules C and E). Be sure to deduct the
depreciation on the proper schedules.
Calculate the Schedule C net income for the Fischer’s
What is the Fischer’s total Self Employment tax liability for 2014?
Group 3 will present Parts 2-4
5.
6.
7.
8.
9.
Calculate the Total Schedule E net income for the Fischer’s (the rental property)
What is the total passive activity income/loss and how much is includible in gross income for
2014.
Provide a detailed schedule of the Fischer’s AGI (include Gross Income and Deductions for AGI)
Provide a detailed schedule of the Fischers’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 Fischer’s total 2014 tax liability (be sure to
show your work here)
Group 5 will presented parts 5-9
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10. PREPARE THE FISCHERS complete 2014TAX 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. If 2014 forms are not available yet, please use the 2013 forms
with proper 2014 numbers.
11.
The above requirements should be remitted in a cross-referenced workpaper file
that includes summary schedules on top referencing the location of the source
information behind each section
12. Prepare a research memorandum discussing the following income tax doctrines: 1) step
transaction doctrine and 2) assignment of income doctrine
13. 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.
14. Prepare a memorandum explaining the new surtax on Net Investment Income that was enacted
starting 2013.
Group 7 will present parts 12-14
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