Dr. Stewart Karlinsky SJSU MSA2 BC021
BUS 220P- Taxation of Individuals and Flow Thru Entities
10/16 - 10/31/06 8:00 A.M. to Noon,
Session: Topic: Chapter/Assign:
1. 10/16 Individual Tax Formula and Gross Income
Inclusions and Exclusions DEF pp.1-15; 90-96; 103-106; 123-144
2. 10/17 Individual Capital Gains and Loss Rules Including 1221, 1202, 1045, 1244 DEF 206-210; 240-245; 253-255; 261-268
3. 10/19 Deductions Above and Below the Line
Tax Research Project Due 10/19 DEF 167-187; 404-426
4. 10/20 AMT, MTC, Credits and Estimated Taxes
DEF 429-438 K pp.1-54 & Rich Problem
5. 10/23 Losses Including PALs, NOLs DEF 386-389
Comprehensive Individual Tax Return Due 10/23
6. 10/24 Compare and Contrast Matrix on Flow Thru Entities DEF pp. 16-20 Research Papers Due 10/24
7. 10/26 Paper Presentations
8. 10/27 S Corporations DEF 376-384
Prepare for Competition
9. 10/30 Team Competition (8 AM until 2 PM) Panel of Judges Off Campus Site 180 Rose Orchard Way
10. 10/31 Partnerships & Estate Planning DEF 366-375 and 448-464
Grading Criteria:
Comprehensive Individual Tax Return 35%
Team Competition 35%
Tax Research Project 15%
Tax Case Paper & Presentation 15%
Total 100%
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Texts: Internal Revenue Code of 1986 (2005 or later edition)
DEF Taxation for Decision Makers(2007 Edition) Thompson-Southwest Publishers Dennis-Escoffier and Fortin
K Individual Excerpt from Karlinsky AMT Book
My office hours are every day during this teaching period from 7:00-8:00 A.M. and from 12:00-1:30 P.M. and by appointment. My office number is 408-924-3482, Room BT 856. E-Mail address is:
karlin_s@cob.sjsu.edu My home phone number is 650-561-0087 and my personal fax # is 650-561-0097.
We move quickly through the tax jungle, so I strongly recommend that you keep up with the material on a timely basis.
Basic Research Project Due 10/17 We Review this in class, but no points awarded toward grade.
1. IRC Section 316 mentions subtitle. What title and subtitle is Section 316 in? _______ ________
2. Find the Code Section that presents the individual tax rates: Section _______
2A. Within the section identified in 2., what are the capital gain rates for:
Sale of IBM stock held by an individual for more than two years and sold in August 2006: _____%
What assumption did you make to arrive at your answer?
Sale of a stamp collection held four years and sold in January 2006: _____%
2B. A single taxpayer has $600,000 in taxable income in 2006 and no capital gains. What is her gross tax liability?
$__________
2c. Sale of a building that originally cost $500,000, straight line depreciation of $200,000 was taken (a/b is $300,000) and sold after 10 years for $900,000. What rate of tax would apply to the $600,000 gain, assuming no other 1231 transactions that year or in the past five years, no Section 1231 losses?
3. How and where does the IRC define a person vs. an individual? What is the difference?
4. Find Revenue Ruling 92-29 and briefly discuss what it is about.
5. Find 1.163-9T and describe what it is about.
Dr. Stewart Karlinsky MSA BUS 220P October 2006
Individual Comprehensive Tax Return Due 10/23
You are presented the following information for your dear clients Charlie and Lucy Brown for 2005. You must work on this project by yourself! You may not use a computer program to do the problem! You are to hand in a completed Federal Form 1040 and all related schedules, forms, worksheets, etc. A California tax return is not necessary. Be sure and compute AMT, Schedule D and a safe basis 2006 estimated tax. Any reasonable assumptions, carryovers and tax planning ideas you make or want to recommend to them should be stated on a separate sheet.
Charlie S Brown 45 years old (500-00-0022) and Lucy Q. Brown 43 years old(600-00-1111) live at 1120 Snoopy Lane Schultz, CA. 94000. They have two children, Sally (12 years old #800-33-4444) and Linus (15 years old #700-22-3333). Charlie is a professor/coach and Lucy is a financial analyst. They made estimated tax payments to the IRS on 4/15, 6/15, 9/15/05 & 1/15/06 of $10,000 per date. They also paid the CA Franchise Tax Board on the same dates $6,000 each payment. Their total federal tax liability for 2004 was $59,500, and they paid CA FTB $4,000 in January 2005 and $7,000 in 4/15/05 for taxes due on 2004’s CA-540.
Charlie earned gross wages of $148,000 and had a salary reduction account of $4,000 put into his 403(b) plan. W/h from his gross included maximum FICA, Fed w/h of $36,400, and Ca w/h $12,000. He was also covered under a group term life insurance policy of $74,000 (1/2 his salary) and you understand the school paid premiums of $2,600 on this policy. His employer contributed $8,000 into a defined contribution pension plan on his behalf.
Charlie served on the Board of Directors of the S.J. Crash (Fed. I.D. # 95-1111999) in which he is also an S shareholder. He received fees of $29,000 during 2005 and received a 1099. He incurred business expenses related to being a Board member of $6,000 including $1,000 in meals. In 12/05 he established a Keogh plan in Snoopy Community Bank with a contribution of $200. His share of S corporation income was $9,500 (K-1 line 1) and capital gains $11,300 (15% type), Section 1231 gain of $12,000, and a charitable contribution of $7,000(50% AGI type).
He received interest income of $6,000 from MCI bonds he inherited from his grandma. At the date of her death (March 14, 2004) the bonds were worth $30,000 and he sold them on August 20, 2005 for $39,000. His savings account earned interest of $3,500 during 2005 but he didn’t have the passbook updated until 1/5/06. He earned $19,000 interest on private activity bonds and $24,000 on California bonds. He received $5,000 qualified cash dividends from Microsoft stock and $1,500 dividends from Apple Computer of which CCH Capital Changes says 1/3 is a return of capital. Charlie’s basis in Apple was $4,000.
Charlie pledged a contribution of $3,000 in November 2005 to the Baseball Hall of Fame, but by year end had only paid $800. He also charged on his Mastercard in 12/05 a charitable contribution of $2,500 to the FarSide Foundation. He paid the bill in 1/06. Assume all charities qualify under 501(c)(3).
Lucy earned $270,000 in 2005 on which CA w/h was $36,300 and Fed. w/h was $78,000. She also exercised under an ISO 10,000 shares of Extel stock for $22 per share when its fair market value was $60 per share. She still owns the stock at year end.
In order to exercise the stock, she sold IBM stock that was gifted to her three years ago when its fair market value was $30,000 and the donors’ adjusted basis was $9,000. No gift tax was paid. She sold the stock for $59,000 in 4/05. She also had invested $20,000 in Section 1202 stock in September 1994 and sold it in November 2005 for $200,000. She also received interest income on Treasury notes of $9,000. The couple owned a Larsen original painting that cost them $50,000 four years ago. On December 29, 2005, they sold it for $500,000. They received $100,000 down and the other $400,000 is due in 12/06, plus interest at 10% per year.
The couple owns a principal residence that they paid $47,000 mortgage interest on and $9,200 in real estate taxes in 2005.
The home was purchased in 1/04 for $700,000. On New Years Day (1/1/05) they celebrated the New Year by selling their old principal residence for $480,000 that cost them $80,000 in 1978. They also own a rental property in Schultzville that they rent for $39,000 and paid mortgage interest of $12,000, real estate taxes of $3,800 and insurance of $725. Depreciation expense was $5,000 and maintenance was $425.
They paid $1,400 in credit card interest to buy shoes, blankets, washing machine, etc. They also paid $14,200 in margin account interest to Dilbert’s Brokerage House on their stock portfolio. They paid you $6,800 in 10/05 for your preparation of 2004’s tax return and tax advise, of which half was related to Schedules C & E. They contributed $1,700 to the community house of worship, Snoopy Heaven’s Church.
Lucy had $2,000 withheld from her salary toward a flexible spending account maintained by her employer. She used the money to pay for medical expenses incurred during the year. The couple has a Short term capital loss carryover from 2004 of $16,500 and a MTC carryover to 2005 of $14,000.
SJSU BUS 220P MSA2 Research Paper Due 10/24/06
Choose any 4 of these 6 Projects:
1. An opthamologist client asks you to research whether RK (radial keratotomy) or Lasik surgery is a tax deductible medical expenditure for his patients.
2. An executive and his spouse take a sales tax deduction on their 2004 Schedule A itemized deduction. In June 2005, they receive a state tax refund of $1,000 related to their 2004 California Income Tax return. Are they taxable in 2005 on their state tax refund?
3. An entrepreneur/consultant wants to buy a Humvee for $85,000 and he would like to expense the full cost of the vehicle. He asserts that he will use the vehicle 100% for business and he has another vehicle for personal use. Assuming he bought it in July 2006, and his other tangible and intangible personal property purchases in 2006 totaled less than $300,000, may he deduct the full $85,000 purchase price in 2006? If not, what cost recovery is he permitted?
4. A California client is suffering from cancer and his doctor prescribes taking marijuana orally. Subject to the 7.5% AGI limitations, may the patient deduct his expenditures, assuming it is unreimbursed by insurance?
5. A client wants to contribute valuable appreciated blueprints, know-how and a patentable invention to an S Corporation. She and the other transferors will have control under Section 368(c). The tax partner wants to know the tax consequences of the contribution under Section 351.
6. A husband and wife want to form a partnership. Would the entity be considered a SMLLC or a partnership for tax purposes? Would it matter if they live in a community property state or not?
Write up your results and cite any authority in good form.
MSA 2 Fall 2006
Court Case Research Due: 10/24/06 Presentations 10/26
After clearing the chosen case/ruling with me, each of you will write-up your case/ruling, its fact pattern and the court’s holding. If the case was appealed or the law changed since the decision, make sure you discuss the final outcome. Discuss how the case/ruling applies in today’s tax and business environment and how it effects tax planning. Be sure to citate the case and look at new matters. Your paper should be 4-6 pages long (double spaced). I also want a maximum one page executive summary so that we can circulate your findings with your colleagues; so they may learn from your efforts.
1. Michael Ferguson
2. 303 W. 42nd St. Enterprises
3. Redlark
4. Leonard Pipeline
5. Lucian T. Baldwin III
6. Linda Craven
7. John Seymour
8. Coggin Automotive
9. Joseph Radtke
10. Estate of Leavitt
11. Duberstein
12. Clifford
13. Brown (CA-10, 1976)
14. Thompson Electric
15. David Gitlitz
16. Burnet v. Logan
17. Irene Eisenberg
18. Mandelbaum
19. Valerie Genck
20. David Klaassen
21. Liberty Vending
22. John Malone
23. Charles Allen III
24. Starker
25. Hewitt
26. Dickman
Be prepared to make a 5 minute speech (you will be timed and cut off at the five minute mark) to the rest of the class explaining (not reading!) the significance of your topic. You, in effect, will be teaching the class about your area of expertise.