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Brian Brown, an executive at a manufacturing enterprise,
comes to you on December 1 of the current year for tax advice. He has agreed co
donate a small tract of land to the Rosepark Community College. The value of
the land has been appraised at $58,000. Mr. Brown purchased the land 14 months
ago for $50,000. Mr. Brown’s estimated AGI for the current year is $100,000. He
plans to retire next year and anticipates that his AGI will fall to $35,000 for
all subsequent years. He does not anticipate making any additional large
charitable contributions. He understands that there are special rules dealing
with charitable contributions and wanes your advice in order co get the maximum
overall tax benefit from his contribution. Because the college plans to use the
property, selling the land is not an alternative. You are to prepare a letter
to Mr. Brown explaining the tax consequences of the different alternatives. His
address is 100 East Rosebrook, Mesa, Arizona 85203. For purposes of your
analysis, assume chat Mr. Brown is married and files a joint return. Also
assume that Mr. Brown feels that an appropriate discount rate is 10%. In your
analy – sis, use the tax race schedules for the current year.

For several years, you have prepared the tax return for
Alpha Corporation, a closely held corporation engaged in manufacturing garden
tools. On February 20 of the current year, Bill Johnson, the president of Alpha
Corporation, delivered to your office the files and information necessary for
you to prepare Alpha’s tax return for the immediately preced – ing tax year.
Included in chis information were the minutes of all meetings held by Alpha’s
Board of Directors during the year in question. Then on February 27, Bill stops
by your office and hands you an “addendum” co the minutes of the
director’s meeting held December 15 of the tax year for which you are preparing
the tax return. The addendum is dated the same day as the director’s meeting,
and authorizes a charitable contribution pledge of $20,000 to the local
community college. With a wink and a big smile, Bill explains chat the addendum
had been misplaced. In reviewing the original minutes, you find no mention of a
charitable contribution pledge.
What should you do? (See Appendix E and the Statements on
Standards for Tax Services section in Chapter I:15 (or C:1 of the Comprehensive
volume) for a discussion of these issues.)

Mark Hancock is a self-employed attorney who operates his
law practice as an unincorporated sole proprietorship. In 2018, the IRS
disallowed several business deductions he took in 2016 and 2017. In addition to
paying the deficiency and assessed penalties, he also pays $18,000 in interest
on the tax owed. Can he deduct that interest in the current year?
• Sec. 162, Sec. 163
• Reg. Sec. 1.163-9T
• Kikalos v. Comm., 84 AFfR 2d 99-5933

Last year, Mr. Smith was involved in an automobile accident,
severely injuring his legs. As part of a long-term rehabilitation process, his
physician prescribes a daily routine of swimming. Because there is no readily
available public facility nearb y, Smith investigates the possibility of either
building a pool in his own back yard or purchasing another home with a pool. In
the current year he finds a new home with a pool and purchases it for $175,000.
He then obtains some estimates and finds that it would cost approximately
$20,000 to replace the pool in the home he has just purchased. He also obtains
some real estate appraisals, which indicate that the existing pool increases
the value of the home by only $8,000. During the current year, Smith also expends
$500 in maintaining the pool and $1,800 in other medical expenses. What is the
total amount of medical expenses he may claim in the current year? Smith’s AGI
for the year is $60,000.
• Sec. 213
• Reg. Sec. 1.213 -l(e)(l)(iii)
• Richard A. Polacsek, 1981 PH T.C. Memo 1181,569, 42 TCM
1289
• Paul A. Lerew, 1982 PH T.C. Memo 1182,483, 44 TCM 918
• Jacob H. Robbins, 1982 PH T.C. Memo 1182,565, 44 TCM 1254

1.What is the closed transaction doctrine, and why does it
exist for purposes of recognizing a loss realized on holding property?
2.When property is disposed of, what factors influence the
amount of the deduct ible loss?
3.Describe the usual tax consequences that apply to a
worthless security.

1.Under what circumstances will a loss that is realized on a
worth less security not be treated as a capita l loss?
2.What two general requirements must be met for a transact
ion to result in a capital loss?
3.What requirements must be met for stock to be considered
Sec. 1244 stock?

1.What tax treatment applies to gains and losses on Sec.
1244 stock?
2.Describe a situation where a loss on the sale of business
or investment property is not curre ntly deductible, and explain why.
3.a. What is a passive activity? b. Who is subject to the
passive loss limitation rules?

1. a. For purposes of the passive loss rules, what is a
closely held C corporation? b. In what way do the passive loss rules differ
from the regular passive loss rules when applied to closely held C corpora
tions?
2. Why is it important to identify exactly what constitutes
an activity for purposes of the passive activity rules?

a. If a taxpayer is involved in several different business
operations during the year, how is the determinat ion made as to how many
activities these opera tions constitute for purposes of the passive activity
loss rules?
b. Can a business operat ion and a rental operation ever be
combined into one activity? Explain.