ACCT Q1-5:1 We learned this semester that not only do we have to determine the amount of income that a taxpayer …

1. We
learned this semester that not only do we have to determine the amount of
income that a taxpayer must recognize for tax purposes, but we also need to
determine the type or character of income that is recognized. As we know,
this may depend on the type of transaction that generated the income at
issue. Explain the general types or categories of income that exist under
the Code (e.g., ordinary), and how the amount of each type of income is
calculated and taxed under the Code, including what rates may apply.

2. This
semester, we learned that Congress designed the Code to include deductions that
can be taken for losses that a taxpayer may experience. Two such deductions are
(1) the bad debt deduction and (2) the deduction for casualty losses and theft.
How does the IRS generally interpret deductions (i.e., broadly or
narrowly)? How do we determine whether a taxpayer is entitled to each of
these two deductions? What is the purpose of each of these two deductions?
Are there any limits on the deduction at issue? Finally, what generally
governs when a
taxpayer may take each of these two deductions?

3.
As a tax practitioner, you
often get people asking questions concerning the tax effect of property
transactions. This year is no exception. You’ve had individual clients ask you
the following questions:

I. During the course of the year, I swapped some property for what I consider
to be similar property. Is this a taxable event? If so, how do I calculate my
gain, if any, and my basis in the property that I received?

II. I own part of a C corporation. During the year, the corporation sold me
some property at a loss. What are the tax consequences of this transaction to
me and the corporation?

Answer each of these questions, explaining the rules that apply to each property
transaction and the possible tax consequences of each

4.
One of your corporate clients
has approached you about whether or not its employees are required to include
certain benefits provided by the corporation in their income. In particular,
the corporation has inquired whether the following benefits provided by the
corporation to employees would be included in an employee’s taxable income:

I. The employer would like to provide employees with valet transportation
services to and from work; that is, the employer would like to pick employees
up at their homes, transport them to work, and then return them home at the end
of the day. In order to operate as cheaply as possible, the company
envisions using a number of Toyota Priuses (a relatively small car that holds
about four adults, including the driver) to provide the service. These are
the same cars that run various errands for the employer during the
day. They estimate that the vehicles will be used about 40% of the time to
run various errands, and the remainder of their use will be dedicated to
providing the transportation services. The employer anticipates that the
monthly value of this benefit would be approximately $300 per month.

II. In order to promote healthier lifestyles and exercise, the employer would
like to offer employees the opportunity to use athletic facilities free of
charge. They want to extend the benefit to their employees, as well as to the
employees’ spouses, dependent children, and parents/grandparents (if
applicable). To accomplish this, the employer plans on contracting with a
private gymnasium located nearby (e.g., a Gold’s Gym® or other gym that sells
memberships to the general public). The gymnasium will still maintain its other
customers, who it expects will remain the majority of its overall membership.
The monthly value of this benefit is estimated to be approximately $200.

Explain to your client the general rules surrounding whether an employee must
include benefits provided by the employer in income. Then, for the two proposed
benefits mentioned above, explain whether the employee would have to include
the amount in income or what provision or exception might apply to make the
proposed benefit nontaxable. If the employer would have to make changes to the
proposed benefit to render it nontaxable, explain what changes would have to be
made. Finally, explain what the resulting benefit would be to the employee and
how much, if any, of the benefit the employee could exclude from income. Make
sure to detail any significant exceptions or rules that apply to the benefit
exception at issue

5.
One of your best individual
clients is thinking about starting up a new business, and he is seeking your
advice on which business form he should select. In particular, he’s trying to
decide whether to operate the business as a sole proprietorship or a C
corporation. Explain to him the significant tax and nontax issues that will
arise from choosing each of these entities as compared to the other, including
how income will be treated by the entity, the overall tax burden, and the
effect of distributions of property or earnings from the entity to your client