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Spencer Duck (SSN 000-22 -1111) is single and his
eight-year-old son, Mitch, lives with him nine months of the year in a rented condominium
at 321 Hickory Drive in Ames, Iowa. Mitch lives with his mother, Spencer’s
ex-wife, during the summer months. His mother provides more than half of Mitch
‘s support and Spencer has agreed to allow her to claim Mitch as her dependent.
Spencer has a salary of $39,000 and itemized deductions of $4,000. Taxes
withheld during the year amount to $3,221. On July 14 of the current year, he
sold the following assets:
he sold the following assets:
• Spencer received a K-1 from a partnership indicating that
his share of the partnership STCL is $200.
• Land was sold for $35,000. The land was received as a
property settlement on Januar y 10, 2009, when the land ‘s FMV amounted to
$30,000 . His ex-wife’s basis for the land, purchased on January 10, 2001, was
$18,600.
• A personal-use computer acquired on March 2 last year for
$4,000 was sold for $2,480.
• A membership card for a prestigious country club was sold
for $8,500. The card was acquired on October 10, 2003, for $6,000.
• Marketable securities held as an investment were sold for
$20,000. The securities were inherited from his uncle, who died on March 10 of
the current year when FMV of the securities was $21,000. The uncle purchased
the securities on Ma y 10, 1990, for $10,700.
In addition to the above sales, Spencer received a $100
refund of state income taxes paid last year. Spencer used the standard
deduction last year to compute his tax liability. Prepare Form 1040 and
Schedule D for the current year.

As a political consultant for an aspiring politician, you
have been hired to evaluate the following statements that pertain to capital
gains and losses. Evaluate the statement and provide at least a one-paragraph
explanation of each statement. As you prepare your answer, consider the fact
that the aspiring politician does not have much knowledge about taxation.
a. The tax on capital gains is considered a voluntary tax.
b. High -income taxpayers receive the most benefit from
preferential treatment for capital gains

Tom Williams is an equal partner in a partnership with the
Kansas Corporation. Williams, an inventor, produced a new process while working
for the partnership, which has been patented by the partnership. Before making
any use of the patent, the partnership entered into a contract granting all
rights to use the process for the life of the patent to the Mason Manufacturing
Co. The time between receiving the patent and entering into the contract with
Mason amounted to eight months. Mason agreed to pay 0.3% of all sales revenue
generated by products produced as a result of the process. If Mason fails to
make payments on a timely
basis, Mason ‘s right to use the process is forfeited and
the agreement between the partnership and Mason is canceled. Will any of the
proceeds collected qualify as LTCG under Sec. 1235? A partial list of research
sources is
• Reg. Sec. 1.1235 -2
• George N. Saffron, 35 T.C. 787 (1961)

Lynette, a famous basketball player, is considering the
possibility of transferring the sole right to use her name to promote
basketball shoes produced and sold by the NIK Corporation. NIK will pay $2
million to obtain the right to use Lynette’s name for the next 40 years. NIK
may use the name on the shoes and as a part of any of the company’s
advertisements for basketball shoes. If Lynette signs the contract and receives
the $2 million payment, will she have to recognize capital gain or ordinary
income?
A partial list of research sources is
• Sec. 1221
• Rev. Rut. 65-261, 1965-2 C.B. 281

Web Baker was hired three years ago by the Berry Corporation
to serve as CEO for the company. As part of his employment contract, the
corporation had agreed to purchase his residence at FMV in the event the
company decided to fire him. Last year, Berry, unsatisfied with Web’s
performance, fired him and purchased the residence for $350,000. Berry
immediately listed the house with a real estate agency. Soon after the
purchase, the real estate market in the area experienced a serious decline,
especially in higher-priced homes. Berry sold the house this year for $270,000
and paid selling expenses of $12,000. How should the Berry Corporation treat
the $92,000 loss? A partial list of research sources is
• Sec. 1221
• Rev. Rut. 82-204, 1982-2 C.B. 192
• Azar Nut Co. v. CIR, 67 AFTR 2d 91-987, 91-1 USTC 1150,257
(5th Cir., 1991)s

During the year, Sara sold a capital asset at a loss of
$2,000 . She had held the asset as an investment. This is the only capital
asset she sold during the year. ls her deduction for this capital loss a
deduction for or a deduction from AGI?

For 2019, Mario, a single individual with no dependents,
receives income of $55,000 and incurs deductible expenses of $9,000.
a. What is Mario’s taxable income assuming that the expenses
are deductions for AGI?
b. What is Mario’s taxable income assuming that the expenses
are itemized deductions from AGI?

1. Because expenses incurred both in a business and for the
production of investment income are deductible, why is it important to
determine in which category a particular activity falls?
2. In order for a business expense co be deductible it muse
be ordinary, necessary, and reasonable. Explain what these terms mean.

In March 2019, Otter Corporation sends peo – ple co the
state capita l co lobb y the legislature co build a proposed highway chat is
planned co run through the area where its business is located.
a. If Otter Corp. incurs $3,200 of expenses, what part, if
any, of its expenses are deductible?
b. Would it make a difference if the proposed road were a
city road rather than a state high – way, and Otter lobbied its local
government?
c. Assume the same faces in Part a except chat Otter’s total
in-house expenses are $1,500. Are these expenses deductible?