Category: Writing

Bttsiness Investigation E.xpenditttres. Assume the same
facts as in Problem I:6-40, except that Big Bang LLC incurs $51,000 in
expenses, and it does not already own the ocher entertainment galleries and it
does not own anything similar.
a. What is the proper tax treatment of these expenses if Big
Bang does not open the new gallery?
b. What is the proper tax treatment of these expenses if Big
Bang decides co open the new gallery on May 1 of the current year and makes the
appropriate election under Sec. 195?

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?

Bttsiness Investigation E.xpenditttres. During Januar y and
February of the current year, Big Bang LLC incurs $13,000 in travel,
feasibility studies, and legal expenses to investigate the feasibility of opening
a new entertainment gallery in one of the new suburban malls in town. Big Bang
already owns two other entertainment galleries in ocher malls in the area.
a. What is the proper tax treatment of these expenses if Big
Bang decides not to open the new gallery? b. What is the proper tax treatment
of these expenses if Big Bang decides to open the new gallery?

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?

Illegal Payments. Indicate whether Glenda can deduct the
$5,000 payment in each of the following independent situations.
a. Glenda is a supplier of medical supplies. In order to
secure a large sales contract to the regional Veterans Affairs Hospital, Glenda
makes a gift of $5,000 co the hospital’s purchasing agent. The payment is
illegal under state law.
b. Assume the same facts as in Part a, except chat the
payment is made to the purchasing agent of a government -owned hospital in
Brazil.
c. Assume the same facts in Parr a, except that the payment
is made to the purchasing agent of a privately owned hospital in Idaho.

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

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?

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