Income Tax Problems
Will Craven
Fall 2010
CH. 2 - GROSS INCOME
I. Problem # 1:
A. (a) - all amounts.
B. (b) - $5,000.
C. (c) She has accession to wealth, but bargain sales do NOT create GI until goods are disposed of.
Cessarini
i. Exception - compensation from firm - if the firm knew desk worth $500, but sell for $50, it
is GI as form of compensation.
D. (d) - likely not incomes, as can differentiate from McCann.
E. (f) - normally, would have to include, but situation complicated since Bill is her brother. (g) NOT GI.
II. Problem # 2:
A. Yr. 1: accession to wealth, but not realized, thus NO GI.
B. Yr. 2: no realization, thus NO GI.
C. Yr. 3: Using appreciation of property for loan is not realization, thus no GI.
D. Yr. 4: When repay 2k, no GI. Burnt certificate, no GI.
E. Yr. 5: gives stock to creditor, which is realization event. Thus, have GI
i. Davis: Code not concerned w/form, but substance of transaction
CH. 3 - EFFECTS OF AN OBLIGATION TO REPAY
I. Problem # 1:
A. Receipt of $25,000 in Yr. 1 - full amount is GI, b/c has a claim of right and unfettered control.
NA Oil.
B. In Yr. 2, Taxpayer may:
i. Take deduction in 2nd year for returned $5,000
ii. Take tax credit, depending on tax rates (§ 1341)
II. Problem # 2:
A. Yr. 1: $25,000 GI. $5,000 of that is illegal income
B. Can’t get § 1341 credit b/c had no claim of right … but is entitled to deduction in Yr. 2.
III. Problem # 4:
A. GI?
i. Under West Pak, NO, b/c dependent on a contingency. However, not a volume discount
case, so doesn’t apply here.
ii. Under Karns, YES, b/c contingency not sufficient to prevent recognition of income.
B. Would be prudent to determine what normally happens w/ advance royalties
CH. 4 - GAINS DERIVED FROM DEALINGS IN PROPERTY
I. Problem # 1:
A. How much Income? 1 million (Amt. Realized) - 250,000 (Adj. Basis) = $750,000 gain.
B. What if he subdivides into five parcels to get better price? Must divide basis equitably
i. $400K (AR per parcel) - (250K / 5 = $50K Adj. Basis) = $350K per parcel gain.
ii. What if parcels were different in value? Calculate according to the portion of total value;
don’t always have to divide equally.
iii. Note that distinction doesn’t matter if all parcels sold in same year.
II. Problem # 2:
A. (a) - What is her basis? Full $500K. Doesn’t matter if borrowed $ to help pay, still include in
basis. Crane & Tufts.
i. What if she financed through seller? Still $500K basis. Doesn’t matter who she borrows $
from.
B. (b) - How do principal payment affect basis? NO change to basis, b/c original basis included
this debt.
C. (c) - What impact does refinancing have on basis? Is this a realization event?
i. Woodson - borrowing a/g appreciated property is NOT a realization event. Thus, no gain
need be recognized.
ii. As for basis, how did she use proceeds?
a. § 1016 - basis adjusted for improvements or betterments made to property. She used
$50K to remodel, thus basis  by amount.
b. $100K spent on land. § 1012 - basis in land is cost.
c. $50K for vacation - no basis adjustment.
D. (d) - How much gain realized on sale of home?
i. Does AR include outstanding debt assumed by buyer? YES, b/c same benefit whether debt
paid or assumed by buyer.
ii. (450K cash + 350K debt assumption = 800K AR) - 550K Adj. Basis = 250K gain
III. Problem # 3:
A. Painting swapped for services, thus generating GI on both sides.
B. Clare - uses painting to pay legal fees of $5.5K, still owes $4.5K
i. GI?
a. Realization event - used painting to pay off legal debt.
b. Amt. Realized = $5.5K, b/c this is amount of debt satisfied.
c. Adj. Basis = Cost, i.e. whatever it took to create painting. $100 of supplies. What a/b
her time? NO Basis!
d. Gain = 5.5K - 100 = 5.4K.
C. Liz - paid for services w/ piece of property
i. Realization Event - receipt of property, i.e. compensation for services
ii. Amt. Realized = $5.5K
iii. Has new asset, so basis = $5.5K (tax cost basis).
iv. When sells painting, what happens? $10K Amt. Real. -- $5.5.K Basis = $4.5K gain.
IV. Problem # 4:
A. (a) What gain and basis in prop rec’d for Katie and Patrick?
i. Katie: Gain = 450K - 150K = 200K. Basis = 450K (FMV of property rec’d in exchange)
ii. Patrick: Gain = 450K - 50K = 400K. Basis = 450K.
B. (b) Katie’s land has FMV of $500K, and Patrick agrees to exchange his land + $50K in cash.
i. Katie: Gain = (450K + 50K) - 150K = 350K. Basis = 500K (FMV of prop rec’d + any other
cash rec’d)
ii. Patrick: Gain = 500K - 50K = 450K. Basis = 500K.
C. (c) Katie’s land has FMV of $500K, and Patrick assumed $50K in mortgage rather than giving
up $50K in cash.
i. Katie: Gain = (450K + 50K) - 150K = 350K. Basis = 500K
ii. Patrick: Gain = 500K - (50K + 50K) = 400K. Basis = 500K
CH. 5 - GIFTS, BEQUESTS, AND INHERITANCES
I. Problem # 1(41 min)
A. Gift is like bonus. Employer not acting w/ “disinterested / detached generosity.” § 102(c) - GI
includes any amt transferred by employer to employee
B. What a/b two associates who give $ payments?
i. Ask: is this a regular gift? Is this like Duberstein? Are they friends, i.e. was amt a friendly
transfer?
C. What a/b client?
i. If Carrol worked w/ client on case:
a. Were they friends outside of this setting? Did she work w/ them in the past? Does the
client expect that treatment in the future?
II. Problem # 2
A. Sounds like Wolder, b/c getting pd out of estate for serving as administrator.
B. However, have grandfather / daughter relationship here. Also, greater amt that entitled too under
state statute. Thus, maybe part for admin, part as gift
C. Assume not only grandchild, ask:
i. What are other grandchildren getting?
ii. If all other got less, clearly that amt is gift, rest is compensation.
III. Problem # 3 (9/21) 18 min
A. Neither recognize income on the transfer, b/c NO disposition of property.
B. Rob’s basis determined by § 1015, which says lesser of
i. Basis in hands of donor ($60K) OR
ii. FMV at time of gift ($150K)
C. Thus, Rob’s basis = $60K
IV. Problem # 4
A. Yes, b/c now has flavor of compensation. § 102(c).
B. However, b/c this is family situation, must ask whether looks more like compensation for
services or like a gift.
i. Is it for a special event that would warrant a gift?
ii. Has she made similar gifts to other children, even those not employed by her?
iii. Has Rob done something warranting a bonus, i.e. make a big sale?
iv. Do other employees receive such compensation, or do they simply get commissions?
C. Assume compensation for services:
i. Rob would have income, and his basis would be 150K.
ii. Bernadette would have deduction for salaries, and a realization event. Thus, must recognize
gain of 150K -- 60K = 90K.
V. Problem # 5
A. If property ultimately disposed of at a loss, recipient’s basis = FMV at date of gift, i.e. $45K.
His loss will = $30K - $45K = $15K.
B. IF sold lot for $70K, would use donor’s basis
C. If sold lot for $55K, would be b/t partial recovery situation
i. No gain or loss recognition.
VI. Problem # 6
A. Part gift / part sale. Still realization event. But, what’s her basis?
B. Bernadette: $75K (AR) - $60K (AB) = $15K gain
C. Rob: Take greater of donor’s basis or § 1012 cost basis. Thus, Basis = $75K
i. Reg. § 1.1015-4
VII.
Problem # 7
A. Bernadette: Assumption of debt is treated as though she received cash. AR 75K (30K cash +
45K assumption of debt) -- AB 60K = 15K gain.
B. Rob: Basis = 75K (cost). § 1012.
C. Exception: part sale / part gift to non-family member
i. Different, b/c now may get charitable deduction
ii. Must allocate basis amongst charitable gift and sale
VIII. Problem # 8
A. Takes FMV at date of death, 150K. § 1014
B. Bernadette’s gain never gets taxed, IF § 1014 applies… (43 min)
i. § 1014(f): “This section shall not apply w/ respect to decedents dying after 12/31/2009”
ii. § 1022: for basis purposes, bequest treated like a gift.
iii. For exam purposes, assume 1014 applies!!!
IX. Problem # 9 52 min
A. Court was evaluating these case by case to see whether there was truly any gift intent
i. Create conflicts of interest for lawyers
ii. § 1014(e): If appreciated property acquired by decedent by gift w/in 1 year of death, and
such property is bequeathed to donor of property, basis = AB of property in hands of the
decedent immediately b/f their death
B. Bernadette: take basis in lot when she gave it to granddad, b/c time period in § 1014(e) not met
C. Rob: stepped-up FMV basis b/c Bern disposed of prop to granddad to someone else. (Granddad
must have complete control of property to be counted as a gift to granddad)
CH. 6 - SALE OF PRINCIPAL RESIDENCE
I. Problem # 1 1 hr, 10 min.
A. § 1012 Basis = 350K. § 1016 adjustment of 50K. Amt Realized = 600K + 250K = 850K. Thus,
gain = ?.
i. Meet requirements.
B. If title held by Jennifer alone, o.k. if …
i. Both married;
ii. Both used;
iii. One owned (Jennifer);
iv. Neither has used exclusion w/in last two years;
v. File jointly.
II. Problem # 2 9/23
A. (a): Gain = 750K -- 600K = 150K. Can exclude? Depends on:
i. Does rent use count for use requirement? YES. Reg. 1.121-1, example 3.
ii. Does ownership count when not living their? YES.
iii. Do ownership and use have to be concurrent? NO. Reg. 1.121-1
B. (b):
i. Gain = 1 mil -- 400K = 600K.
a. Only one spouse must meet ownership requirement, thus her ownership irrelevant.
b. If file joint return, he would get 250K, but should would get none, b/c hasn’t met use
requirement and doesn’t meet § 121(c), i.e. no job transfer, etc.
ii. What if sold July 2nd, 2008? NO deduction for her, even though use requirement fixed.
Problem is that she took advantage of credit w/in last 2 years. § 121(b)(2)(iii).
C. (c):
i. Again, Matt clearly qualifies. Can Chris get hers? Doesn’t meet use requirement, BUT they
moved for Chris’ job.
a. § 121(c)(2): have change in employment, but is non-owner’s change sufficient? Regs
say that TP’s spouse is sufficient.
b. Matt gets full 250K. Chris gets proportionate share of (1.5 yrs used, thus ¾ of 2
years) ¾ * 250K = 187.5K.
ii. Although state may recognize gay marriage, federal gov’t doesn’t. Thus, can’t file joint
return and receive 500K deduction. If filed separately, must BOTH meet ownership
requirement, which Chris does not here.
III. Problem # 3
A. Spouse dies. Al doesn’t meet § 121(a) or (b)
B. §121(d)(2): so long as surviving spouse is unmarried, period of use ownership includes that of
deceased prior to death. B/c she lived in home for over 10 years, and Al was unmarried, he may
use exclusion for gain.
IV. Problem # 4
A. Major issue is determining whether Montana home was principal residence. Need to look at
regs and case law, i.e. Guinan.
i. How do you define PR? Give list of factors (above).
ii. What a/b vacation time? Reg. 121-1(c)(2): short or temporary absences shall count as
periods of use
B. Also, need to know whether used § 121 exclusion on previous sale
C. Gain = 500K --250K = 250K.
V. Problem # 5
A. Simply moving to Maine likely won’t solve her problems, as other factors will play in, such as
here working in New York, etc.
i. Needs to change license, voter registration, etc.
B. Also, problems w/ unqualified use. § 121(b)(4)[5]
CHAPTER 8 - LIFE INSURANCE, ANNUITIES, & IRAS 9/28
I. Problem # 1:
A. No GI under § 101, b/c premiums pd by reason of death. Immaterial what Andrew uses
proceeds for.
B. If payable to bank to pay off mortgage, makes no difference
II. Problem # 2:
A. Whole LI policy paid by reason of death, thus § 101 applies (all other information is irrelevant).
Exclude face amt of policy paid by reason of death, w/ Mary getting 40k face value (not GI).
III. Problem # 3:
A. See § 101(c)(d) (states post-death earnings are GI) B. When insured dies, beneficiary had right to 40k. When Ins Co. holds $ investing on behalf of
beneficiary, must pay tax on gain. 40k excluded, remainder taxed as GI.
IV. Problem # 4:
A. Usually, to take out policy on someone, must have an insurable interest. However…
B. Transfer for Value - buy life ins. policy already outstanding rather than through Ins. Co.
i. § 101(a)(2): only able to exclude price pd for policy + any premiums paid thereafter
ii. Tax consequences - 75K + 10K = 135K gain
C. Since named son as beneficiary, son will get § 101 exclusion (exception).
D. If policy was sold directly to son, can NOT use § 101.
CH. 9 - DISCHARGE OF INDEBTEDNESS
I. Problem # 1:
A. Not technically insolvent.
B. (a) Bank - likely is discharge of debt
C. (b) Employer - depends on whether was compensation for services
D. (c) Brother - was there donative intent?
II. Problem # 2:
A. (a) NO discharge of indebtedness income, because contested debts when settled are NOT ROI.
B. (b)
i. When borrowed 20k, did not have GI b/c had offsetting obligation to repay.
ii. When forgiven, have 9K of GI. Will be ROI unless there is an exclusion Kevin would fit
under, which there is not here.
C. (c) 10K of ROI income
i. What if lender says if you pay 10K, will relieve, and parents give Kevin 10k.
a. Money is not GI, but clearly a gift (disinterested generosity…)
b. Gives 10K to lender, lender relieves 9K of debt, K has GI of 9k from ROI
ii. What if parents want to pay lender 10k directly, and lender will then relieve other 9k?
a. Same as above b/c § 108(e)(4): Acquisition of indebtedness by person related
to debtor.
b. Treat parents actions as actions of Kevin
a. What if parents were mean and did not want to make a gift, buy note for 10k and make
Kevin pay 19K?
1. Still 9K ROI.
2. If parents make him pay, will get deduction for 9K paid to parents.
ii. (d)
a. Have R of I income, unless there is an exclusion exception. § 108(e)(2).
b. Exclusion Exception Exists:
1. If pmt of debt would have generated a deduction, there is no GI.
2. If Kevin had to work for 4K, would have had a 4K deduction, so logical.
iii. (e) - Purchase Price Adjustments
a. Do PPA rules apply here?
b. § 108(e)(5) - must be b/t original buyer / seller, NO GI for purchase price reduction
III. Problem # 3
A. Must separate transactions
i. 15K of ROI.
a. Will have GI, UNLESS have § 108 exclusion
1. Insolvent?
i) Contingent debt usually not included (Merkel), unless more than 50%
chance that Dad will pay debt to include. Thus, 25K doesn’t count.
ii) Assets to Liabilities = 115K < (75K + 50K)
ii. On property disposition: Amt. Realized -- Adjusted Basis = 60K -- 20K = 40K.
a. Any exclusion under 108? No, b/c this is gain from property, not ROI.
b. However, will be subject to 1(h) capital gains rates.
IV. Problem # 4
CHAPTER 10 - COMPENSATION FOR PERSONAL INJURY & SICKNESS
I. Problem # 1
A. Recovered 350K for destruction of building and 150K in lost profits. AB was 200K, and FMV
was 350K.
B. Tax consequences?
i. 150K must be reported as GI. These are economic-type damages.
a. “In lieu of what?” Raytheon.
ii. Gain = AR (350K) -- AB (200K) = 150K.
a. If she uses cash to build another building for business (similarly related in use or
function), able to exclude gain under § 1033. But … basis in new building will be
basis in old building. Thus, gain not permanently excluded, but deferred.
iii. Does FMV of building matter???
II. Problem # 2
A. (a) Tax consequences of the settlement
i. Pmt for pain / suffering excluded
ii. May exclude only 94K of reimbursed medical expenses, since previously took 6K
deduction
iii. Future medical expenses excluded
iv. Lost wages excluded
v. Punitive included
vi. Truck damages not covered by § 104. Thus, treated as involuntary disposition of property
and falls under § 1001, so need to know AR and AB to calculate gain / loss
a. AR (20K) -- Basis (unknown) = gain
b. What if truck not totaled?
B. (b) Allocation
i. Can he say all 900K from P&S. NO. IRS will challenge, b/c Π’s initial claim asked for
lost wages, punitive, medical expenses, etc.
C. (c) Loss of consortium excluded. If agree to take pmts over time, can she still exclude? YES.
Thus, essentially excluding interest for time value of money (good thing!)
III. Problem # 3 1hr, 1 min
A. Can she exclude any of award?
i. Primarily NO, b/c no physical injury, just physical manifestation of emotional distress. But
… medical expenses will be excluded.
B. If unwelcome physical contact, still no physical injury, so no § 104.
C. If actually bruised, have a physical injury, thus w/in § 104.
IV. Problem # 4 10/12 37 min
A. 30K incurred in medical expenses.
B. Paid 50 K through self-provided insurance policy. Under §104(a)(3), full amount is excludable
from GI, even though exceeds actual costs of 30K.
C. Additionally, rec’d $ through employer provided insurance policy.
i. Under § 105(a), lost wages must be included in GI.
ii. However, § 105(b) provides exception for medical care, so 20K from this policy may be
excluded.
iii. Also, § 105(c)(1) provides exception for permanent loss of use of “member” (i.e. eyesight),
son another 20K may be excluded from GI.
iv. Medical expenses - 30K total, but compensated 15K + 20K = 35K. Will have to allocate %
of employer provided and self provided policies.
a. How much came from each policy?
b. From employer, rec’d 20K of 35K total reimbursement. Thus, (20/35) * 30K =
17,142. ONLY this amt may be excluded. 20K -- 17,142 must be included.
CH. 12 - BUSINESS & PROFIT-SEEKING EXPENSES 10/14
I. Problem # 1 21 min
A. (a)
i. Oridnanry and Necessary? Yes, so long as salary is R.
a. Is it R to pay less experienced daughter?
b. Did she produce more? How valuable is an MBA?
c. But … it is her daughter, so may be gift.
ii. If UR, NO deduction for UR portion. Would be treated as gift. Dad likely in lower tax
bracket, so if gift, no deduction for dad. If salary, get deduction, and less of tax
consequence for daughter.
a. IRS red flags:
1. Family relationships
2. Closely held corporation where employees are SHs (disguised dividends).
Dividends aren’t deductible, but salary is! Brings corporation’s tax liability .
b. R-ness Factors:
1. P. 254
2. Independent Investor approach i) If independent investor looking at business, would they believe salaries
appropriate?
ii) What return is employee generating (top executives)?
iii) If return reasonable in comparison too what is expected, o.k.
iii. If salary, Brennan has GI and Casey has deduction.
B. (b) Corporation now paying extra $.
i. Doesn’t change analysis at first level. Thus, is salary R?
a. If UR, deduction disallowed, but daughter still has $. Thus, dad would pay tax on
dividend.
II. Problem # 2 34 min
A. (a)
i. 25K NOT deductible b/c not ordinary and business expense. Welch.
ii. But . . . Jenkins said where reputational damage could happen, deduction allowed. Also,
link in Welch was the possibility of negative effect on his current ability to generate
income.
B. (b) 20K chauffer service may be overly lavish and extravagant.
III. Problem # 3 42 min
A. Are they carrying on a T or B?
B. Sam:
i. Summer work is not sufficient to be in T or B, thus NOT deductible.
ii. Generally school and looking for work does not fall w/in § 162, as considered personal
expense.
C. Sally:
i. Argue already in T or B b/c worked for year. When looking for new job in T or B of being
a lawyer, thus expenses should be deductible.
ii. Gov’t will argue clerkship is very diff than being in firm, b/c not in T or B of being a
lawyer.
iii. Next, ask if expenses involved in carrying on T or B.
a. Since she did sightseeing, have to see whether trip primarily for fun or T or B (only in
domestic travel).
b. W/ intn’l travel, must split expenses. If primarily for T or B, can deduct all. If
primarily for sightseeing, no deduction.
c. For hotel, split up into days which were T or B.
d. For meals, must have overnight stay or rest, which she does. Thus, meals on T or B
days are deductible.
1. See § 274: limit on meals of 50% of expense.
iv. What if firm paid travel costs?
a. No inclusion and no deduction for Sally.
b. Firm entitled to 50% deduction for meals.
IV. Problem # 4 52 min
A. Test for Deductibility of Clothing
i. Objective standard, if clothes fit for normal, regular wear, not deductible.
ii. Ex: Uniforms, safety clothing, etc . . . would be deductible
B. Here, likely NOT deductible
V. Problem # 5 59 min
A. These are mostly start-up expenses, which are not deductible under § 162, b/c not yet in T or B.
B. However, Franchise Cost is not start-up expense. It is not currently deductible (even if in T or B
already), so must amortize over life of franchise.
C. Rent, training, etc. would have been deductible if already in T or B under § 195. Will be
deductible from time he opens.
VI. Problem # 6 1 hr, 4 min
A. No § 162 deductions.
i. See Higgins: investing on own acct, not T or B
B. § 212
i. Expenses of Production of Income are deductible.
a. Thus, WSJ, newsletter, and accountants fees deducible under 212(3).
1. What a/b attorney’s fees? Yes.
b. If owns tax-exempt bonds, guide to tax-exempt bonds not deductible. See § 265:
Expenses & Interest Relating to Tax-Exempt Income.
c. Safe deposit box, if partially used would have to be pro-rated b/t personal use and P of
I use.
ii. If some portion of the bonds were tax-exempt, would have to pro-rate.
CH. 16 - TRAVEL EXPENSES 10/19
I. PROBLEMS
A. Problem # 1 10 min
i. (a) No, commuting, still wearing commuter hat.
ii. (b) Yes, b/c now wearing T or B cap once went to regular place of business. Doesn’t
matter that still in Suburbia
iii. (c) Rev. Ruling 99-7, p. 399. (2) works, b/c going from home to temporary work location.
If outside Suburbia, would could deduct under (1) or (2). Answer would not be diff. w/
home office, b/c expenses already deductible.
iv. (d) Under old rules, answer is no. However, under new rules, may deduct when driving
back from temporary work location. If driving home from regular business location, NOT
deductible.
v. (e) Sleep or rest rule - travel must be sufficiently long for need to stop and sleep / rest in
order to deduct meal.
B. Problem # 2 27 min
i. Amounts from accountable plan excluded from GI. W/ non-accountable plan, have GI, and
gets deduction. Why do we care?
§ 61 GI
-- Deductions
§ 62 AGI
-- Itemized Deductions
§ 63 TI
a. W/ itemized deductions, subject to certain limits in §§ 67 and 68. These disallow
certain portion of TPs miscellaneous IDs, thus  overall tax liability.
b. How do we know which deductions subject to §§ 67 and 68.
1. ATL - § 62 - must be specifically listed. Everything else falls BTL!!! Purely
mechanical!
2. BTL - personal (§ 262). Note: w/ PoI, some will be ATL and some BTL.
3. § 67 - Miscellaneous itemized deductions get reduced
i) (b) gives list in the negative.
ii) § 212 will be subject to § 67.
C. Problem # 3 51 min
i. First question: direct travel expenses - doesn’t matter if car or by air - what was primary
purpose of expenditure?
a. W/ domestic, all or nothing
b. W/ international, may divvy b/t business and play
ii. Arguments:
a. Gov’t: primary purpose was personal, as 3 days conference, 4 days play
b. Family: reason went was for business
iii. Here, be careful advising client to “play the audit lottery.” But … ultimately their decision.
iv. Of three days for cabin rental, may only deduct amt for single BR cabin.
v. Meals for her deductible, but only 50%. § 274(n).
D. Problem # 4 1 hr, 3 min
i. NOT deductible under § 162, b/c one rental doesn’t rise to the level of T or B.
ii. §212: ordinary and necessary expenses of PoI and preservation, mtnc., etc. of rental
property deductible.
a. ATL, b/c for production of income
E. Problem # 5 1 hr, 6 min
i. Henderson says not deductible. But . . . he does actually pay his parents. Also, he
practices golf there. If paid parents all the time, court more willing to find duplication of
expenses.
CH. 17 - ENTERTAINMENT AND BUSINESS MEALS 10/21
I. Problem # 1 36 min
A. Lunch
i. Probably not deductible.
ii. Not very many of them, free to choose where eat.
iii. 1-162-(1)(b)(5). If not traveling away from home overnight, lunch expenses are personal,
t/f must have some additional T or B component. Moss gives us standard.
B. Dinner
i. Maybe under § 162, b/c taking students, similar to clients
ii. Assume he gets past § 162. What a/b § 274:
a. Directly related to T or B (teaching)? Won’t get any additional income. Doesn’t
meet.
b. Associated w/? Probably not a bona fide T or B discussion.
C. Wednesday lunch w/ stock broker
i. Probably not BF business deduction, so won’t meet§ 274.
ii. 1-274-2(c)(3): substantial business discussion w/ goal of generating T or B activity
D. Thursday
i. Not deductible
E. Friday lunch w/ inventors
i. Is he trying to generate specific income for later? Is he pitching business? If so, sounds
directly related.
ii. Associated w/? Probably can meet this one. 1-274-2(d)(1)
a. Must establish TP was “actively engaged”
b. Also, must show discussion substantial in relation to the entertainment.
II. Problem # 2 45:30 min
A. Dinner
i. Must show § 274:
a. Cab discussion - not bona fide discussion. Conversation was brief, not specific
enough as to paintings. But, she could stretch “immediately b/f or after” language.
B. Meal
i. Gray area, but probably close enough. Immediately b/f or after.
C. Tickets
i. TP must be present requirement is for meals ONLY.
D. What a/b her husband’s meal?
i. As long as spouse of § 274, can deduct spouse as well
III. Problem # 3 51:30 min
A. Club dues specifically excluded under § 274(a)(3).
B. Tennis courts
i. Can deduct, even if entertainment, if satisfies § 274(a) test:
a. Directly related:
1. 20 days w/ clients - reviews insurance coverage, likely trying to sell more
insurance. Probably met.
b. Associated w/:
1. 20 days Lawyers - hoping to retain referrals. Probably met.
ii. 40/50 deductible.
a. Can reduce if need too
iii. Note: Tom needs to establish that $1,000 is separate fee for tennis courts. Same problem
not present w/ meals.
C. Meals
i. May only deduct amt related to T or B.
ii. 50% deductible. § 274(n).
iii. Must substantiate!!!
IV. Deduction Analysis 1hr, 2 min
A. Disallowance
i. Gambling operations
a. Bribes, kickbacks and illegal payment to gov’t employees not deductible. § 162(c)(1).
b. However, flash paper, bags, etc. deductible?
c. Knee breakers? Not deductible. § 162(c)(2).
B. How Much of Expense is Deductible?
i. Could be statutory provision, like § 274
a. Specific limitations.
b. General limits. §§ 67 and 68.
1. Ex:
i) AGI
100K
ii) Misc. Item. Ded. From unreimbursed e’ee expenses
20K
iii) Specific disallowance? No.
iv) Specific limits? No.
v) General limits?
a) § 67: Misc. ID -- 2% of AGI = 20K -- (2% * 20K) = 20K -- 2K = 18K
CH. 13 - CAPITAL EXPENDITURES 10/26
I. Problem # 1
A. (a)
i. Sounds like improvement. Betterment from when she acquires, adapts to use in which
intend to use building.
ii. What if wasn’t general plan of rehabilitation, just repainting exterior? Not capital
expenditure, b/c not dealing w/ paint, but w/ building. Keeps building in its proper
functioning use, will otherwise deteriorate and not last for UL.
B. (b)
i. Depends on where line crosses, i.e. how awesome are the shingles?
C. (c)
i. Depends on prior condition of building. How much improvement to the overall value of
building?
ii. Arguments:
a. TP - restoring to functional use. Not a significant or substantial benefit beyond the
current tax year.
D. (d)
i. 7K - likely deductible under § 162, even though looking for long term benefit. Too
speculative to treat as cap xp.
ii. New sign - cap xp
iii. 2 yr ad campaign - gov’t will argue cap xp, TP will argue too speculative.
iv. Removal of old sign - disposition of an asset
a. Utility pole case - court cited w/ TP
b. Note: are specific statutes regarding demolition costs
E. (e)
i. Oven - clearly capital exp. Basis will be 5K, unless can separate cost of 1 yr. mtnc. plan
F. (f)
i. Because doesn’t start this year, can’t deduct.
ii. 12 month rule: Must be used up w/in 12 months of payment or close of next tax year,
whichever is earlier
G. (g)
i. 1.263-3. § 162 expense
H. (h)
i. Defense of title is capital expenditure.
ii. What a/b profits? Legal fees allocable here would be deductible. However, would be hard
to separate the two here.
I. (i)
i. If truly lease, would be entitled to deduct lease payments. However, is she really
disguising this?
ii. If purchase, capital expenditure, b/c have distinct asset, improvement, etc. Basis would be
the cost of the sprinkler system (3.5K * 3 years). Then, entitled to depreciation deductions
(low, spread over long period, t/f deduction in any given year will be very low).
a. Imp point: substance over form!!! Be careful where people trying to disguise sales in
order to get rent expense deduction rather than depreciation.
b. Facts suggesting not lease: buy back option for nominal price, custom made system
iii. (j)
a. 2K to build fence: amortize over 5 years
b. 10K for lease: even though intangible asset, still must be capitalized / amortized
c. 1K bonus: de minimus deduction for employee costs in creating intangible assets
II. Problem # 2
A. Distinguishing b/t expanding a T or B (deductible) and creating new T or B (capital expenditure)
CH. 14 - DEPRECIATION
I. Problem # 2 3 min
A. Need to know
i. Recovery period
a. Listed in § 168;
b. If not, look at Rev. Pro. In Text; OR
c. If no class life assigned, falls into catch-all category
ii. Depreciation method
iii. Convention
B. (a) Depreciation computed on basis. Five year property, t/f recovery period is 5 yrs. §
168(b)(1)(B): generic 5 yr personal / tangible property gets 200% DDB. What is our
convention? § 168(d)(1): apply half-year convention. What is this? § 168(d)(4): half yr
convention treats all property as placed in service / disposed of at midpoint of tax year. Thus,
even though placed in service in January, only getting half-yr depreciation. Now, go to Rev.
Proc. 87-57.
i. 200K x 20% = 40K first year depreciation
200K x 32% = 64K 2nd year
200K x .192 = 38,400
“” x .1152 = 23,040
“” x .1152 = 23,040
“” x .0576 = 11,520
Total = 200K . Note that we deduct yearly depreciation from basis. Note also that w/
convention, the first year calculation takes it into effect. However, if have disposition in
later year (like (b)), then must ½ depreciation.
C. (b) Entitled to half year depreciation, b/c of ½ year convention. Thus, normally would have
gotten 38.4K depreciation, only entitled to half, though, b/c of half yr convention. Basis will be
76800 for purposes of sale.
D. (c) Now, fall into anti-abuse provision. § 168(d)(3): trying to avoid TPs buying right at the end
of year and getting large depreciation deduction. If backload property into last quarter too much,
don’t get mid year, but get mid quarter convention. Changes the first year depreciation. Don’t
get half year, but mid quarter (1/8th depreciation). Go to Table 5 (property placed in service in
fourth quarter): 200K x .05 = 10K in first year. Over 5 yrs, still get same total deduction, just
not as much early on.
E. (d) Puts in place 200K worth of property. How much can she deduct? All 200K.
i. What if cost was 700k? Deduct 500K this year under § 179. Would have 200K basis, take
to § 168, depreciate just as if bought 200K piece of property. Deduct both § 179 and § 168
amounts in year 1.
a. Can use § 168(k). Do in this order:
1. § 179 - 500K limit
2. §168(k) - deduct half remaining basis
3. Regular § 168(a) depreciation from remaining basis after § 168(k) deduction
b. Listen to 35 min - 53 min!!!! - will explain § 168(k), which is important
1. 1016 adjustments
II. Problem # 4 54 min
A. Basis is 1.5 million. But must allocate b/t underlying Real Property and Improvements on Land.
Basic land doesn’t suffer obsolescence.
B. (a) No. This is real property, need tangible personal property.
C. (b)
i. § 168: Recovery period - residential rental property = 27.5 years. Recovery method
(§168(b)(3)) = straight line method. Convention ((b)(2)) = mid-month convention.
ii. How much depreciation? 1 mil allocated to improvement / 27.5 yrs = $36,363.63 per year.
But… in first year, get ½ month for April (assuming placed in service this month) + 8 full
months = 8.5 months. So, $36,363.63 * (8.5/12) = 25,760. OR … go to tables!
III. Problem # 3 1hr, 4:30 min
A. For 2K a month, depreciable when paid. § 162. Can you argue cap xp? NO, b/c only pays for
one month.
B. What a/b 10K? Provides a benefit for 10 yrs, even though not separate and distinct asset. Thus,
will be treated as cap xp and capitalized under § 263A. How long amortizable? 10 yr period, so
deductible 10K a year. What a/b 1st year. NO conventions in § 179, thus deduct for amt of
months making pmts that year (9 payments). In 2nd year, get full 1K amortization.
ii.
iii.
iv.
v.
vi.
vii.
CH. 15 - LOSSES AND BAD DEBTS
I. Problem # 1
A. AB = 32K -- 14.4K = 25.6K. AR = 24K. Creates loss of 1,600
B. (a) Meets all elements of § 165
C. (b) No.
D. (c) Yes.
E. (e) Realization event? Abandonment, maybe. Rev. Ruling 2004-58: is taking it out in field and
dumping sufficient act of abandonment? Probably. But… would be better to take to junk yard
(irrevocable act of abandonment).
II. Problem # 4 48 min
A. Has she had any conversion at all. Generally, holding asset is NOT a conversion.
B. What basis would she take depreciation on? 225K, i.e. lower of basis or FMV at time of
conversion.
C. Why can’t she use the 250K of basis? Would be able to deduct loss occurring during personal
use
D. What if held out for rent to find T, never found one, then sold it. Sufficient conversion for §
212? Loss on disposition? No, b/c higher bar for conversion, didn’t actually rent property.
E. What if sold for 240K? Basis should be 235K.
III. Problem # 5 58:30 min
A. Harry’s basis: 300K. Can he deduct loss? Yes! Previous personal use from decedent does not
carry over (property starts out neutral at date of death). If had lived there for a while, no longer
neutral, deduction would be unavailable.
IV. Problem # 6 11/9 15 min
A. Must make sure:
i. True debt at initiation
ii. Worthlessness
iii. Debt uncollectible (i.e. not a gift, b/c family members)
B. Assume debt wholly worthless. Entitled to deduction? Yes. How much? Basis = 200K, which
is amount of deduction.
C. What a/b Paul? Can he take 250K deduction? Need to know method of accounting. If cash
method, would have included zero, t/f not entitled to deduction. If accrual, already included
250K in GI, t/f entitled. Are these business bad debts? Debt didn’t arise in T or B, not in B of
lending $, t/f non business bad debt for Peter.
V. Problem # 7 22 min
A. Entitled to deduction? Yes, for basis of stock under § 165. Hasn’t had sale or exchange , so no
RE. But … statutorily provided RE is worthlessness.
B. Entitled for deduction for loan? Sure. Basis = 20K.
i. T or B v. Non T or B
a. Gov’t: argue she is protecting investment, t/ f non-business bad debt.
b. Gloria will argue T or B, b/c even though not in T or B of lending $, b/c she is
employed by corporation. Thus, argue she made 20K loan to protect her job.
c. Generes: dominate motive test - factors:
1. Salary - had other job
2. Status as investor
d. How could she distinguish Generes
1. This was her only job
2. Only owns 5% of company
CH. 24 - CASUALTY LOSSES
I. Question # 1 1hr, 2 min
A. (a) If was going to be deductible, would be authorized. Not deductible.
B. (b) Casualty event, but probably limited by AGI limit. Likely not any amt to be deducted. But
… if gets insurance recovery, puts in pocket, doesn’t fix bumper. Wouldn’t trigger gain, but is a
return of his basis. NO accession to wealth, thus, basis goes from 30K to 29K. If uses to repair
car, same result (repair, not capital expenditure).
C. (c) If have insurance, must file and take insurance reimbursement. Otherwise, lose deduction. If
no insurance, still not entitled to deduction, b/c of AGI limit.
D. (d) Deductible, but only to extent exceeds $100 minus 10% of AGI. Loss = FMV b/f Causualty
-- FMV after causalty. Thus, loss = 10K.
II. Question # 2 1hr, 10:30 min
A. (a)
i. Guest house: some things will negate your deduction, i.e. “willful act or willful N.”
a. Gov’t: willfully N in where he built house, t/f no deduction
1. But, storms seem to get a “pass”, so likely get a deduction.
ii. His home? Not deductible. O.J. case: merely a temporary flux of loss in value. This is
NOT sudden, abrupt, unusual physical damage.
B. (b) Theft? 11/11
i. Fortune teller case - didn’t put gun to your hand, voluntary gave over $
C. (c)
i. What’s the nature of a casualty? Were you being an idiot? To be casualty loss, must show
sudden, unexpected, unusual, physical force.
ii. Have physical force, but is it a casualty? What does it take to be a casualty? Popa told
us…
a. Cats knock things over ALL the time, so its NOT UNEXPECTED.
b. Look at unusualness of vase.
iii. What a/b cats? How unusual to be bitten by dogs? NOT unusual. These are the “slings
and arrows of everday living.”
a. Assume dies from infection: N not to take cat to vet. But … assume didn’t realize
how sick it was. Still, NOT sudden.
1. Mayer: loss due to a disease is NOT as casualty loss.
D. (d)
i. Ring case.
ii. Gov’t: simply losing jewelry NOT a casualty, no evidence.
iii. Well come down to credibility of TP’s testimony.
iv. Jacobson: TP entitled to theft loss where property stored in home no longer occupied, and
previously shared w/ estranged husband, was removed from the home and never recovered.
CH. 22 - THE INTEREST DEDUCTION
I. Problem # 1 42 min
A. (a) Fully deductible, b/c proceeds used in T or B
B. (b) Opposite end of spectrum, so NOT deductible.
C. (c) Cross reference § 221. Deductible if borrow from bank. If borrow from brother, NOT
deductible, b/c related party. Cross reference § 267(b): members of family as defined in (c)(4),
i.e. only brothers, sisters, parents, and other lineal decedents. Significance: if borrow from
uncle, can deduct.
D. (d) In § 163, have T or B speaking. T/f generally, fully deductible. BUT … problem here is that
the interest is prepaid for 5 years. Thus, even under § 263, must spread over time. Go to §
461(g): must capitalize.
i. What a/b points? They are prepaid interest benefiting the whole mortgage. Thus, in
absence of special provision, must spread over term of mortgage. But do have exception …
461(g)(2): if buying PR (NOT 2nd residence or your equity), pay points, can deduct in first
year.
E. (e) Illustrates limitation on investment income.
i. How much is his investment income? Generating interest from other investments, and
getting dividends from other stocks. Thus, 700 of investment income. Has 50 of
investment expense. Net of 650, which is how much he can deduct. May carry 350 over to
next year.
a. What’s in this 700? Interest he earned, and stock paid dividends. This illustrates
“what is law right now, what will it be next year.” Now, dividends taxed at
preferential rate of 15%. Thus, cost of including dividends in investment income
gives up chance to use preferential rate, thus will be taxed at ordinary rates. May want
to leave out of investment income. 52 min
F. Problem # 2 55:30
i. (a) all of it, b/c its acquisition debt for qualified residence, and the mortgage is secured by
the home
ii. (b) Need to know what he uses 600K for. If pre existing was acquisition, refinance will be
acquisition.
iii. What a/b other 200K? Use 140K to remodel home, which is treated as improvements, t/f
now acquisition debt is 540K (still w/in 1 mil limit). Uses other 60K to pay off car loans
and credit card balances. May deduct, b/c home equity debt. Doesn’t matter what he uses
it for, so long as w/in limits AND SECURED BY THE HOME.
a. Of 39K, all would be deductible.
iv. (c) Total of 1 million for both properties, NOT one property each. Interest deductible. If
had gone over 1 million, some portion of interest would not be deductible.
v. (d) When is TP entitled to deduction, i.e. in what year?
a. Timing controlled in part by method of accounting, and in part by § 461.
CH. 31 - CAPITAL GAINS
I. Problem 1A 34:30 min
A. (a) Not capital asset, but inventory of corporation.
B. (b) Used in T or B, and subject to depreciation, t/f kicked out of capital asset definition.
However, gets to use § 1231.
C. (c) Property, but not inventory. Not used in T or B. Not copyright, etc. Not A/R. NOT ON
LIST, t/f capital asset!!!
i. If sold at gain (unrealistic), would be long term capital gain if held over year. 15% bracket
ii. Any loss would be capital loss. Deductible? NO, b/c personal. § 165 says NOT deductible
UNLESS is a casualty.
D. (d) NO, real property used in T or B. But gets picked up by § 1231.
E. (e)
i. Assume sale land. Capital asset? Yes. Investment assets are classic examples.
ii. If don’t sell for cash, buyer gives you a note, what happens? Can defer gain recognition,
but when collect payment in year 2, what type of gain will it be? Takes same character as
underlying property.
F. (f) NO, b/c truck was inventory, and any debt instrument from transaction will still be ordinary.
§ 1221(a)(4).
G. (g) Capital asset? Yes. Don’t care, b/c already have 500K exclusion. But … if have over 500K
of gain, will care.
H. (h) If takes by way of gift, takes mother’s basis. Next example is capital asset.
i. Holding periods: 1223(9) if take by way of bequest, treated as holding for a year and a day.
ii. If take by way of gift, get to “tap” your holding period, i.e. count your holding period plus
that of person receiving property from.
I. (i) Capital asset? YES.
J. (j) In hands of corporation, ends up in 1231. When sent to T & M, capital asset.
i. Significance: very few assets are always capital or always ordinary. Often depends on the
relationship b/t owner and asset.
II. Problem 1B 51 min
A. Analysis
i. Do they have GI? YES, = 470K
ii. Now, must break down different income types to be applied to different TRs.
a. Ordinary
b. Capital
1. Long term
2. Shorter term
B. (a) Vacation home - long term capital gain. Painting - long term capital gain. Corporate stock short term capital gain. Salary - ordinary income. Stock dividend - ordinary income, but
taxed at 15%, b/c § 1(h)(11) allows certain dividends to be taxed at 15% UNTIL THE END
OF THE YEAR.
III. Problem 2 11/18 10 min
A. Factors in both directions - gray area
B. OCOB?
i. Some improvements, but not as many as in Bynum
ii. However, sells a fair amount of lots - already sold 10, and intends to sale more. Tilts
toward direction of T or B and t/f OI.
C. Not OCOB?
i. NOT actively looking for customers (no advertising)
D. Conclusion
i. Given substantiality of sales, more likely will fall on Bynum side, but good arguments that
is shouldn’t.
ii. Note: Court will also look at what happens in subsequent years.
iii. Have both investment gains and T or B gains. But ALL get taxed as OI.
iv. Judicial gloss but on § 1231(a)(1)
IV. Problem 3 13:30 min - good review problem
A. Gets job, 250K salary, clearly GI
B. What a/b house?
i. Compensation for services, so must include FMV in GI. Basis in the house = 400K FMV.
ii. University gives him 1 mil and asks for house back. What is this?
iii. Paying him for house or for buying out K?
a. House
1. Will have to divide 1 mil b/t components
2. Assume paid 500K for house. Treat under § 121. 500K AR -- 400K Basis =
100K. Gain. Primary residence for 2 out 5 years
3. But … maybe, wasn’t their for two years. Now, wouldn’t have full access to §
121 exclusion.
4. But … maybe can argue sympathy provision, change of employment.
5. Assume of 100K gain, 80K excludable under § 121. What happens to other
20K?
i) Is house capital asset? Yes (doesn’t meet a specific exclusion)
ii) Long term? Yes, b/c their over 1 year.
iii) T/f, have LTCG.
b. K
1. How treated?
2. If receive something that is a substitute for OI, taxed as ordinary income
3. T/f, payments replacing salary are OI.
4. He would like to allocate more to house, b/c would generate LTCG preferential
rates.
V. Prob C(1) 1 hr, 8 min
A. (a) Still a capital asset, doesn’t matter that bought for business purpose. Apply statute liberally.
B. (b) Hedging transaction.
VI. Prob C(2) 1 hr, 10:30 min
A. Not really just a loss, but a return of the money he rec’d year b/f.
B. Return of these funds treated as LTCL, if linkage w/ transaction from prior year. Return treated
as having same character (arrow smith).
VII.
Prob C(3) 1 hr, 12 min
A. AR = 500. Basis was 2500. Thus, have 2000 loss. Entitled to loss deduction? YES, under 165.
Capital asset? YES.
B. Deduction?
C. LT
VIII. Prob 4 1 hr, 15 min
A. Sale or exchange? Yes.
B. AR?
i. 25K loss? Capital asset? NO. LT CL, b/c owned for many years.
PRACTICE PROBLEM
I. ANALYSIS FRAMEWORK 10 min
A. Any items of GI?
B. Are any items deductible? Authorized by specific section? Am I entitled at all? Any
limitations?
i. ATL or BTL?
a. Compute AGI w/ ATL deduction
b. Compute BTL (some depend on AGI amount)
ii. What limits of §§ 67 and 68 apply?
iii. Itemize or standard deduction?
iv. Personal Exemptions
C. Compute Taxable Income
i. Apply § 1 OI rates
ii. Apply § 1(h) CG tax rates
II. OUR PROBLEM
A. Gross Income? § 61
a. Ordinary Income
1. H
i) Salary of 100K
ii) Roth IRA - if qualified w/d, NOT taxable, but excluded, and NOT GI
2. W
i) 50K compensation for services is GI.
3. Condo
i) 15K. § 61.
b. ABC Stock
1. 5K Gain from Property. § 61(a)(3).
i) LTCG
c. Other Stock
1. 7K - 10K = 3K loss. Deductible under § 165
i) STCL
ii) ATL
B. Deductions?
i. H
a. Under § 162, unreimbursed deductible. Had 5K.
b. 2K limited to 50% b/c meals, so cut to 1K. Thus, total is 4K.
1. ATL or BTL? § 62 lists as BTL.
ii. W
a. 20K of Law Practice Expenses. § 162.
1. ATL. T or B XP.
iii. Condo - must be PoI
a. 2K Insurance. § 212.
b. 1K Property Tax. § 164.
c. 1K Mtnc. XP. § 212
d. 7K Depreciation. § 168
e. 5K investment interest. § 163. Limited to NET investment income (15K - 2K - 1K 1K - 7K = 4K). T/f, limited to 4K, carryover 1K to next year.
f. Are these ATL or BTL?
1. ALL ATL!
iv. Own residence
a. 2K of property tax. § 164
1. BTL
b. § 262 says personal / family / home insurance NOT deductible.
c. 10K Interest deductible under § 163, so long as not more than 1 million of debt
1. BTL
v. Casualty Loss
a. 20K. Deduct economic loss NOT covered by insurance. Amt of loss = 45 - 25 = 20K.
BTL, b/c NOT sale or disposition.
1. Limits = -100 and 10% of AGI (haven’t reached this yet)
C. Tax Liability Computation
i. Total GI
a. 100K + 50K + 15K + 5K = 170K
ii. Total § 62 AGI
a. 170K -- ATL Deductions
b. 170K -- [(2K + 1K +1K + 7K + 4K) + (20K) + (3K Stock Loss)] = 132K AGI
iii. Calculate Taxable Income (AGI -- BTL)
a. BTL Deductions
1. Unreimbursed E’ee XP = 4K
2. Home Interest = 10K
3. Home Property Tax = 2K
4. Casualty Loss = 20K - (10% of 132K) - 100 = 6.7K
b. Anything subject to § 67? 38 min
1. Miscellaneous Itemized Deductions only allowed to extent exceed 2% of AGI.
2. Which of our ID are subject to § 67?
i) Property Taxes? NOT subject to § 67
ii) Interest? NOT subject to § 67.
iii) Casualty loss? NOT subject to § 67.
iv) 4K of unreimbursed ARE subject. Thus, reduce by 2% of 132k, i.e. 2640.
4K --2640 = 1360.
c. Anything subject to § 68? 41 min
1. Blah Blah Blah
2. (g) - Says § 68 doesn’t apply in 2010.
d. What’s left?
1. 1360 Unreimbursed
2. 2K from property tax
3. 10K home interest
4. 6.7K casualty loss
5. Total = 20,060
e. Which is Higher, Itemized (20,060) or Standard (11,400)?
1. Itemized
f. § 63 Taxable Income (AGI -- BTL -- Personal Exemption)
1. 132K -- 20,060 -- (3.650 x 2 = 7,300) = 104,640 Taxable Income
2. Note: personal exemption subject to phase out, but not in 2010
iv. Tax Liability
a. § 1 - everything taxed at OI rates, unless §1(h) applies (preferential rates for NCG).
b. § 1222 - Netting Process
1. Did we have any CGs or CLs, and where they ST or LT?
i) 5K LTCG -- 0 STCL = 5K NLTCG
ii) 0K STCG -- 3K STCL = 3K NSTCL
2. NLTCG -- NSTCL = NGC
i) 2K NCG
3. Take to Tax Rates
i) 2K taxed at 15% = 300.
c. What about remaining taxable income?
1. 102,640  Table 1
2. 9362.50 + Excess over 68 taxed at 25% (8660) = 18,022.50
d. Total Tax Liab = 18,022.50 + 300 = 18,322.50
EXAM Q & A
I. E’ee Expenses
A. Reimburesed
i. Accountable - exclude reimbursement
ii. Non-accountable - include reimbursement
B. Unreimburesed
C.