Category: Writing

Bryce, a bank official, is 40 years old, unmarried and has
no dependents. During 2019 he engages in the following activities and
transactions:
a. Being an avid fisherman, Bryce develops an expertise in
tying flies. Ar rimes during the year, he is asked to conduct fly-eying
demonstrations, for which he is paid a small fee. He also periodically sells
flies char he makes. Income generated from these activities during the year is
$2,500. The expenses for the year associated with Bryce’s fly-eying activity
include $125 personal property taxes on a small trailer that he uses
exclusively for chis purpose, $2,900 in supplies, $270 in repairs on the
trailer, and $200 in gasoline for traveling to the demonstrations.
b. Bryce sells a small building lot to his brother for
$40,000. Bryce purchased the lot four years ago for $47,000, hoping to make a
profit.
c. Bryce enters into the following stock transactions: (None
of the stock qualifies as small business stock.)
d. Bryce’s salary for the year is $100,000. In addition to
the items above, he makes $5,000 charitable contributions and pays $4,800 of
state income tax. Determine the following:
1. Bryce’s taxable income for 2019.
2. Bryce’s basis in the Silver stock he continues to own.

Rental of Vacation Home. During 2019, Kim incurs the
following expenses with respect to her beachfronr condominium in Hawaii:
During 2019, Kim used the condominium 20 days for vacation.
She rented it out for a total of 60 days, generating a total gross income of
$9,100.
a. What are the total amounts of deductions for and from AGI
that Kim may take during 2019 with respect to the condominium using the IRS
allocation method?
b. What is the effect on the basis of the condominium?

Hobby Losses. Chuck, a dentist, raises prize rabbits for
breeding and showing purposes. Assume that the activity is determined to be a
hobby. During 2019, the activity generates the following items of income and
expense:
a. What is the total amount of income and deductions Chuck
shou ld report for 2019 with respect to the rabbit raising activities?
b. Identify which expenses may be deducted and indicate
whether the y are deductions for or from AGL c. By what amount is the cost
basis of the rabbit hutches to be reduced for the year?

Hobby Loss Presumptive Rule. Emily is an interior decorator
who does consu lting work for several furniture stores. Additionally, she has
been designing and creating rubber stamps for the past several years. She sells
the stamps to local stationary and novelty shops. Emily has reported the
following net income or loss from the rubber stamp activity:
Emily is audited for the year 2019, and the agent disallows
the $800 loss. Can Emily make an election for 2019 ro keep the year open in
anticipation of meeting the presump – tive rule for the year? Why or why nor?

Related Party Transactions. During the current year, CVI
Corporation sells a tract of land for $75,000. The sale is made to Sandi, CVI
Corporation’s sole shareholder. CVI Corporation originally purchased the land
five years earlier for $98,000.
a. What is the amount of gain or loss that CVI Corporation
will recognize on the sale during the current year?
b. Assume that in the following year, Sandi sells the land
for $85,000. What is the amount of gain or loss Sandi will recognize? What are
the tax consequences to CVI Corporation upon the subsequent sale by Sandi?
c. Assume that in the following year, Sandi sells the land
for $70,000. What is the amount of gain or loss Sandi will recognize?
d. Assume that in the following year, Sandi sells the land
for $105,000. What is the amount of gain or loss Sandi will recognize?

Related Party Transactions. Sally is an attorney who
computes her taxable income using the cash method of accounting. Sage
Corporation, owned 40% by Sally’s brother, 40 % by her cousin, and 20% by her
grandmother, uses the accrual method of accounting. Sally is a calendar-year
taxpayer, whereas Sage Corporation’s fiscal year ends on January 31. During
2019, Sally does some consulting work for Sage Corporation for a fee of
$10,000. The work is completed on December 15 and Sage receives Sally’s invoice
on that date. For each of the following assumptions, answer the following
questions: During which tax year must Sally report the income? During which tax
year must Sage Corporation deduct the expense?
a. The payment to Sally is made on December 27, 2019.
b. The payment to Sally is made on January 12, 2020.
c. The payment to Sally is made on February 3, 2020.

Constructive Ownership . PIB Partnership is owned 20% by
Sara, 40 % by Steve, and 40% by Thann. Burnham, Inc. is owned 70% by PIB
Partnership, 10% by Ralph, 10% by Thann, and 10% by Sara. Ralph and Tham1 are
brothers. All other individuals are unre – lated. During the current year,
Ralph sold a piece of land to Burnham, Inc., for $90,000. Ralph originally
purchased the land as an investment a few years ago for $100,000.
a. How much of the loss may Ralph recognize?
b. Now assume all the same facts except that the sale
occurred benveen Thann and Burnham, Inc. How much of the loss may Thann
recognize?
c. Now assume the same facts as in b except that Burnham,
Inc., is owned 60% by Sara and 40% by Ralph. Thann sells the land to Burnham,
Inc. How much of the loss may Thann recognize?

Constructive Ownership. During the current year, Troy sells
land to Berry Corporation for $165,000. Troy purchased the land for investment
in 2002 for $170,000. Berry Corporation is owned as follows:
Troy and Jimmy are equal partners in a separate entity, TJ
Partnership.
a. What is Troy’s constructive ownership in Berry
Corporation?
b. What is the amount of loss Troy may recognize?
c. How would your answers to Parts a and b change if TJ
Partnership owned 25%, instead of Nicole?

to provide designs. After Oil Company declared bankruptcy
the architectural firm’s business noticeably decreased. Richard felt the
decline in business was related to the bankruptcy of Oil Company. Richard
convinced his partner to use the accumulated earnings of the firm to repay all
the creditors of Oil Company. Richard has asked you whether his firm can deduct
the expenses of repaying Oil Company’s creditors. After completing your
research explain to Richard why the expenses are or are not deductib le. A
partial list of research sources is as follows:
• Sec. 162
• Thomas H. Welch v. Helvering, 12 AITR 1456, 3 USTC ‘l(1164
(USSC, 1933)
• William A. Thompson, Jr., 1983 PH T.C. Memo ‘l(83,487, 46
TCM 1109

Wash Sales. Mr. Cougar owns 1,000 shares of Western
Corporation common stock, which it purchased on March 8, 2011, for $12,000 . On
October 3, 2019, Cougar purchases an additional 300 shares for $3,000. On
October 12, 2019, he sells the original 1,000 shares for $8,500. On November 1,
2019, he purchases an additional 500 shares for $4,000.
a. What is Mr. Cougar’s recognized gain or loss as a result
of the sale on October 12, 2019?
b. What are the basis and the holding period of the stock he
continues to hold?
c. How would your answers to Parts a and b change if the
stock Cougar purchases during 2019 is Western nonvoting, nonconvertible,
preferred stock instead of Western common stock?