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Premium Tax Credit. Randall and Dianne Wall live in St.
Louis, Missouri. Randall and Dianne are each 30 years old, neither smokes, and
they have no children or ocher dependents. Randall is attend ing law school
full time and working part rime (2019 earnings= $9,000). Dianne works full time
(2019 earnings= $38,200) . Their 2019 household income is more than 250% of the
F PG (but nor more than 300% of the FPG). Dianne’s employer does nor offer
employee health insurance coverage . The Walls choose co purc hase insurance
through the federal exchange operat ing in Missouri . They are credit eligible
for all 12 months in 2019 . Their premiums for coverage vary by the type of
plan.
a. Under a Gold plan, monthly premiums are $585 (covers 2)
per month, so the annua l cost of coverage is $7,020.
b. The second -lease-expensive Silver plan (the benchmark
plan) involves premiums of $468 per month (covers 2), or $5,616 per year.
c. Under a Bronze plan, month ly premiums are $390 (covers
2) per month, so the annua l cost of coverage is $4,680.
What is the after-tax -credit cost of health insurance for
the Walls under each of the plans described above?

Rehabili tation Tax Credit. Bob acquired a certified
historic structure and placed it in service August of the current year, as an
office for his business. He paid $20,000 for the building (exclusive of the
land) and spent $40,000 for renovation coses.
a. What is the rehabilitation tax credit (before
limitations)?
b. What is the basis of the building for MACRS depreciat ion
purposes?
c. Compute the deprec iation chat Bob can take on the
building for the current year
For the previous four years, Pharm Inc. had average gross
receipts of $5,000,000. The company’s fixed-base percentage is 3% . Compute
Pharm lnc.’s current year credit for research activities. ls Phann Inc.
entitled to claim any deduction for research and experimentat ion expenses for
the current year?

Earned Income Credit. Carolyn is unmarried and has one
dependent child, age 6, who lived wit h her for the entire year. In 2019, she
has income of $16,000 in wages and $6,000 of unearned income (none of which was
“disqualified income”) . Her AGI is $22,000.
a. What is Carolyn’s tentat ive earne d income credit
(before phaseout)?
b. What is Carolyn’s allowable earned income cred it?
c. If Caroly n has no income tax liab ility (before the
earne d income credit is subtracted), is she entitled co a refund in the
current year?
d. How will your answers to Parts a and b change if Carolyn
is married filing a joint return?

Penalties for Nonp ayment of Withholding and FICA Taxes.
Lake Corporation has severe cash-flow prob lems. You are the company’s
financial and tax consu ltant. The treasurer of the company informed you that
the company has failed to make FICA and federal income tax withholding payments
to the IRS (both the employer and employee contributions) for a period of
approximately six months.
a. What advice can you give to the company treasurer
regarding the nonpayment of taxes?
b. Can the liability for payment of the taxes extend to
parties other than the corporation? Explain.

Withholding Exemptions. Barry is a college student who is
employed as a waiter during the summer. He earns approximately $1,500 during
the summer and estimates that he will nor be required to file a tax return and
will have no federal income tax liability. Last year, however, he made $6,000
and was required co file a return and pay $400 in taxes. Barry is unmarried and
is supported by his parents. He has no dependents and does not have any other
sources of income or deductions.
a. Can Barry claim exempt status on Form W-4 for withholding
purposes?
b. Can Barry claim more than one exemption on Form W-4
(e.g., additional withholding allowances or the standard deduction allowance)
co minimize the amount withheld? Explain.

Withholding Allowances. Bart and Jane Lee are married, file
a joint return and have nvo dependent children (nvins, age 9). Barr begins a
new job and is asked co fill out a Form W-4. His monthly gross earnings will be
$3,200. Jane does nor work outside their home. Bart can claim nvo additional
withholding allowances because he will have large deductions.
a. What is the correct number of withholding allowances on
Form W-4?
b. What is the amount of federal income tax, FICA and
Medicare tax to be withheld using the wage bracket cables (see withholding
cables starting on page T-16)?
c. What disclosure procedures must Bart’s employer follow if
Bart claims more than ten allowances?

Estimated Tax Underpayment Penalty. Jane’s estimated tax
payments for the current year total $14,000, and federal income taxes withheld
from her salary amount to $12,000. Jane’s actual tax liability for the current
year is $30,000. Her income was earned evenly throughout the current year.
Jane’s AGI for the prior year was $160,000 and her tax liability was $25,000.
ls Jane subject to the underpayment penalty? Explain.

Mike Webb, married co Nancy Webb, is employed by a large
pharmaceutical company and earns a salary. In addition, Mike is an entrepreneur
and has nvo small businesses on the side, both of which operate as sole
proprietorships. One is a profitable consulting business where Mike provides
financia l and retirement advice to pharmacists . The other involves the
manufacture of Christmas novelties in China, selling the products in gift shops
in the U.S. This business is struggling . However, Mike feels the Christmas
novelty business has great potentia l. Mike reports the following for 2019:
The Webbs have two dependent children, ages 13 and 11,
and pay child care expenses of $4,000 per year for each          
$21,000
14,000
child. Nancy is nor employed, bur is a full-rime student
(all of 2019 ) at State University, majoring in Accounting
. Federal income tax withhe ld from salary Estimated
taxes paid for 2019
For 2018, Mike and Nancy’s AGI was $175,000 and their actual
federal income tax liability was $29,000. a. Compute the Webbs regular federal
income tax liability for 2019, including selfemployment taxes.
b. Are the Webbs subject to AMT in 2019, assuming they have
additional AMT preferences of $70,000? c. Are the Webbs due a refund for 2019?
d. Are the Webbs subject to any underpayment penalties for
2019?