Author: admin

During November and December of last year, Tommy’s, Inc.,
incurred the following expenses in investigating the feasibility of opening a
new restaurant in town:
Explain the proper treatment of these expenses under the
following scenarios :
a. Tommy’s, Inc., already owns another restaurant in town
and is wanting to expand. Tommy’s, Inc. opens the new restaurant in February of
the current year.
b. Assume chat Tommy’s, Inc. is in the book selling business
and feels chat its bookstore business is nor making a high enough return and it
wanes to move into the restaurant business. le opens the restaurant in February
of the current year.
c. Same as Part b except Tommy’s decides against opening a
restaurant after the investigation .

1. What documentation is required in order for a travel or
entertainment expense to be deductib le?
2. Under what circumstances can prepaid expenses be deducted
in the year of payment by a taxpayer using the cash method of accounting?
3. Under what circumstances would a taxpayer use both the
cash method and the accrual method of accounting at the same time?

1.Why did Congress enact the wash sale provisions?
2. The wash sale rules disallow a loss in the year of sale
when substantially identica l stock or securities are acqu ired by the taxpayer
with in a 61-day period. What types of stock or securities are considered
substantially identica l?

1. Under the related parry rules of Sec. 267, why has
Congress imposed the concept of constructive ownersh ip?
2. If property is sold at a loss to a related taxpayer,
under what circumstances can at least partial benefit be derived from the
disallowed loss?

Legal and Accounting Expenses. Sam is a sole proprietor who
owns, leases, and manages several apartment complexes and office buildings.
During the current year, Sam incurs the following expenses. Which of these
expenditures are deductible? Are they for or from AGI deductions? a. $200 in
attorney’s fees for title searches on a new property Sam has acquired. b. $450
in legal fees in an action brought to collect back rents. c. $500 to his CPA
for the preparation of his federal income tax return. $400 is for the
preparation of Schedule C (Profit or Loss from Business). d. $300 in attorney’s
fees for drafting a will. e. $250 in attorney’s fees in an unsuccessful attempt
to prevent the city from rezoning the area of the city where several of his
office buildings are located.
a. What is the taxable income of Damian Corporation from the
illegal business activity?
b. Assume the same facts as in Part a except that Damian ‘s
business consists of buying and selling illegal drugs. What is Damian ‘s
taxable income from this illegal business activity?