Category: Writing

The Morr iss Corporation is a very successful and profitable
manufacturing corporation. The corporation just comp leted construction of new
corporate offices, primarily for its top executives. The president and founder
of the corporat ion, Mr. Timothy Couch, is an avid collector of artwork and has
instructed that the lobby and selected offices be decorate d with rare
collections of art. These expensive works of arr were purchased by the corpora
– tion in accordance wit h Couch’s directives. Couch justified the purchase of
these artworks on the premise chat (1) they are excellent investments and
should increase in value in the future, (2) they provide an appropriate and
impressive office atmosp here when current and prospective customers visit the
corporation’s offices, and (3) the artwork is depreciable property and the
corporation will be able to rake sizable writeoffs against income. The
Financial Vice-President of the corporatio n has requested your advice as to
whether the works of arr are, in fact, depreciable property . Prepare a researc
h memorandum for the Financia l Vice-President on this issue.
A partia l list of research sources is provided below.
• Rev. Ru/. 68-232, 1968 -1 C.B. 79
• Shauna C. Clinger, 60 T.C.M. 598 (1990).
• Simon v. Comr., 103 T.C. 247 (199 4), aff’d, 95-2 USTC
150,552 (2d Cir. 1995) nonacq. 1996 -2 C.B.l.
• Liddle v. Comr., 103 T.C. 285 (1994), aff’d, 95-2 USTC
~50,488 (3rd Cir. 1995)

Refer to the facts in Problem 1:10-48 for John and Ellen
Brite. The following information is also available for them:
• John and Ellen live at 111 Maple Street, Johnsonville,
Colorado 81733.
• Brite-On is located at 3900 Marker Street, Johnsonville,
Colorado 81733. Its employer identification number is 44-1357924.
• The business uses the accrual method and did nor make any
payments char would require Form 1099 to be filed. Ir has used the cost method
ro value inventory for many years.
• John started using his automobile in his business on July
1, 2011. During 2018, it was used 7,000 miles for John’s business, 1,800 miles
for commuting, and 6,500 miles for other reasons. The automobile and Ellen’s
automobile were available for personal use and during off-duty hours. John has
written evidence to support his deduction for automobile expenses.
Complete the Brites’ 2018 Form 1040, Schedules 1, 4, 5, A,
C, and SE, and Forms 4562 and 4797.

Allowed Verstts Allowable Depreciation. Sandy acquired
business machinery (which qualified as 7-year MACRS property ) on July 15,
2016, for $10,000 . In 2016, Sandy claimed a $1,429 regular MACRS depreciation
deduct ion and she elected not co claim Sec. 179 depreciation or bonus
depreciation . Because of her low tax rate in 2017 – 2019, Sandy did nor claim
any depreciation deduction on her tax returns in those years. She sells the
machine on July 1, 2019, for $6,000.
a. What is the adjusted basis of the machine on the sale
date?
b. How much gain or loss is recognized on the sale of the
machine?

Thom Jones (SSN 000 -00-1111) is an unincorporated
manufacturer of widgets. He uses the LCM method to value his inventory and
reports the following for 2018:
The business operates under the name Jones Widger Company
and is located at 400 W. Main Street in Springfield, Maryland 21368. Its
employer identification number is 55-9876543. The business uses the cash
method, Thom materially participates in it, and it did nor make any payments
that would require it to file Form 1099. Complete Thom’s 2018 Form 4562 and
Schedule C of Form 1040, assuming he elects to expense the maximum amount
possible under Sec. 179 and uses bonus depreciation for any eligible amounts
exceeding the Sec. 179 maximum.

Woburn Corporation uses the calendar year as its tax year.
Woburn purchases and places into service $1.7 million of depreciable property
during 2019:
You are working in Woburn’s tax department and are trying co
decide how to make the Sec. 179 election so as to maximize Wobur n’s 2019
depreciation deduction . What tax issues should you consider for this decision?

John and Ellen Brite are married and file a joint return.
They have no dependents. John owns an unincorporated specialty electrical
lighting retail store, Brite-On. Brite-On had the following assets on January
1, 2018:
Brite-On purchased a competitor’s score on March 1, 2018,
for $206,000. The purchase price included the following:
On June 30, 2018, Brite-On sold the 7-year recovery period
equipment for $12,000. Brite-On leased a car for $860/monrh beginning on June
1, 2018. The car is used 100% for business and was driven 14,000 miles during
the year. Brice-On sold 8,000 light bulbs at a price of $15/bulb during the
year. Also, Brite-On made additional purchases of 4,000 light bulbs in August
2018 at a cost of $7/bulb. Brite-On had the following revenues (in addition ro
the sales of light bulbs) and additional expenses:
John and Ellen also had some personal expenses:
Ellen receives $42,000 of wages from employment elsewhere,
from which $4,000 of federal income taxes were withhe ld. The Brites received
interest income on a bank savings account of $275 and qua lified dividends of
$1,425 . John and Ellen made four $3,900 quarterly estimated tax payments . For
self-employment tax purposes, assume John spent 100% of his time at the store
while Ellen spends no time at the store.
Additional Facts:
• Equipment acqu ired in 2013: The Brires elected out of
bonus deprec iation and did nor elect Sec. 179 . • Equipment acqu ired in 2018:
The Brires elected Sec. 179 to expense the cost of the 5-year equipment. •
Assume that the lease inclusion rules require chat Brite-On reduce its annual
deduct – ible lease expense by $41. Compute the Brice’s taxable income and
balance due or refun d for 2018 .

Computer Softw are. Phillips Corporat ion, a construction
company that specializes in home construct ion, uses special computer software
to schedule jobs and keep track of job costs. It uses generic software for
bookkeeping and spreadsheet ana lysis. During 2019, Phillips Corporation had
the following transactions relating to computer software : 1:10-46
• The corporation purchased a new computer system on May 12,
2019, for $15,000 . The system included computer hardware and built-in computer
software valued at $3,000. The corpora tion has never separated computer
software from the hardware in prior years when a computer system was purchased.
• The corporation separately purchased new bookkeeping
software on September 1, 2019, for $5,760.
• On June 1, 2019, Phillips Corporation acqu ired another
home building company to strengthen its position in higher-priced homes. The
total purchase price was $700,000 allocated to specific assets as follows:
What amount can Phillips Corporation deduct in 2019 with
respect to computer software?

R&E Expenditures . In 2019, Phoenix Corporation acquires
a new research facility and hires several scientists to develop new products.
No new products are developed until 2020, although the following expenditures
were incurred :
a. What are Phoenix Corporation’s deductions for R&E
expenditures in 2019 and 2020 if the expensing method is elected?
b. How would your answer to Part a change if the deferral
and amortization method were elected and the amortization period were 60
months?