SOLUTION MANUAL
Principles of Taxation for Business and Investment Planning 2020
23rd Edition Jones, Catanach
gf
chapter 1 to 18
Copyright ©2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-1
,Table of contents
Ch. 1 Taxes and Taxing Jurisdictions
Ch. 2 Policy Standards for a Good Tax
Ch. 3 Taxes as Transaction Costs
Ch. 4 Maxims of Income Tax Planning
Ch. 5 Tax Research
Ch. 6 Taxable Income from Business Operations
Ch. 7 Property Acquisitions and Cost Recovery Deductions
Ch. 8 Property Dispositions
Ch. 9 Nontaxable Exchanges
Ch. 10 Sole Proprietorships, Partnerships, LLCs, and S Corporations
Ch. 11 The Corporate Taxpayer
Ch. 12 The Choice of Business Entity
Ch. 13 Jurisdictional Issues in Business Taxation
Ch. 14 The Individual Tax Formula
Ch. 15 Compensation and Retirement Planning
Ch. 16 Investment and Personal Financial Planning
Ch. 17 Tax Consequences of Personal Activities
Ch. 18 The Tax Compliance Process
Copyright ©2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-1
,Chapter 1 Taxes and Taxing Jurisdictions
Questions and Problems for Discussion
1. Tax payments differ from government fines and penalties because they aren‘t intended to deter or
punish unacceptable behavior. Tax payments differ from fees or user charges because they don‘t
entitle the payer to a specific government good or service, such as a postage stamp or a driver‘s
license. Tax payments also differ from fees or user charges because they are compulsory.
2. This payment has characteristics of a tax, a penalty, and a user fee. The compulsory payment is not
specifically punitive but does apply selectively to those companies most likely responsible for the
polluted condition of Green River. However, these same companies may be the entities that benefit
most from the environmental clean-up.
3. This payment more closely resembles a fee for a government service than a transaction-based tax
because the transaction occurs between a private party and the jurisdiction itself, rather than
between private parties engaging in a market transaction. The payment also entitles the payer to a
specific benefit (the right to marry under law).
4. To the extent that the decline in exterior maintenance reduces the value of Mr. Powell‘s apartment
complex, he bears the incidence of the increased property tax. To the extent that the decline reduces
the value of adjoining properties or makes the neighborhood less attractive, the owners of the
adjoining properties and the neighborhood residents share the incidence of the tax increase.
5. People who don‘t directly use public schools (such as Mr. and Mrs. Ahern or people who don‘t have
children) indirectly benefit from a public education system for the general population. Arguably, public
education contributes to a skilled workforce and improves the cultural and social environment in
which Mr. and Mrs. Ahern live. Based on this argument, Mr. and Mrs. Ahern should not be exempt
from the local property tax.
6. The consumers who pay the same price for a smaller bar of soap of lesser quality bear the
incidence of the new gross receipts tax.
7. Real property can‘t be hidden or moved, and its ownership (legal title) is a matter of public
record. In contrast, personal property is mobile and may be easily concealed. Moreover,
jurisdictions may not have an effective means to discover or trace ownership of personal
property.
8. Arguably, private golf courses beautify the locality and are environmentally more desirable than
other commercial activities. They also may require more acreage than other businesses and,
therefore, would be at a competitive disadvantage without a preferential real property tax rate.
9. Many jurisdictions that levy property taxes provide an exemption for public institutions, such as
state universities or private colleges. If University K is entitled to such an exemption, every
commercial building or residence acquired the University reduces the local jurisdiction‘s property
gf
tax base.
Copyright ©2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-1
, 10. Excise taxes are imposed on a much narrower range of consumer goods and services than
sales taxes. Consequently, people can more readily avoid purchasing the specific good or
service subject to excise tax.
11. The tax increase may have reduced the aggregate demand for consumer goods and, consequently,
municipal residents are buying fewer goods. A second possibility is that municipal residents are
traveling to other jurisdictions with lower tax rates or making more purchases through mail order
catalogs or on-line.
12. From a political perspective, liquor and cigarettes sales make an excellent tax base because
consumption of the two products is purely discretionary, and any decline in consumption because of
the tax is socially desirable. From an economic perspective, these sales are a good tax base because
the demand for liquor and cigarettes is relatively price inelastic. In other words, people who drink
and smoke on a regular basis buy these products regardless of a heavy excise tax.
13. The federal income has the broader base. The federal payroll tax is imposed on wages, salaries, and
other forms of compensation earned employees. The federal income tax is imposed on all types of
gf
compensation as well as net business profit, investment income, and any other income item from
whatever source derived.
14. A property tax is a periodic (usually annual) tax levied on the ownership of property and based on the
value of the property on a particular assessment date. A transfer tax is a transaction- based tax
levied on the transfer of property from one party to another. A transfer tax is based on the value of
the property at date of transfer.
15. If the federal government could ―piggy back‖ a national sales tax on existing state sales tax
collection systems, the federal government could avoid creating a new federal agency for collecting
the tax. In contrast, the federal government would have to create a new collection system for a
national VAT. However, a national VAT would be less likely to cause jurisdictional conflict between
the federal government and the states because states don‘t depend on VATs as a source of
revenue.
16. The Internal Revenue Code is federal statutory law, enacted Congress and signed the President.
gf gf
Technically, Treasury regulations only interpret and explain the statute and aren‘t laws in their own
right. Thus, regulations are less authoritative than the Code itself. However, because Congress
authorized the Treasury to write regulations, they are the government‘s official interpretation of
statutory law. Practically, the regulations carry considerable authoritative weight.
Application Problems
1. a. The statement of facts identifies three taxpayers: Mr. Josh Kenney, JK Services, and JK
Realty.
b. The government of the locality in which Mr. Kenney resides, the state government of Vermont,
and the U.S. government have jurisdiction to tax Mr. Kenney. The local governments of the four
counties in which JK Services conducts business, the state government of Vermont, and the
U.S. government have jurisdiction to tax JK Services. The city of Boston, the state government
of Massachusetts, and the U.S. government have jurisdiction to tax JK Realty.
2. a. The United States has jurisdiction to tax Mrs. May because she is a permanent resident.
b. The United States has jurisdiction to tax Mrs. May only on the U.S. source rental income
generated the Manhattan real estate.
gf
Copyright ©2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-1
Principles of Taxation for Business and Investment Planning 2020
23rd Edition Jones, Catanach
gf
chapter 1 to 18
Copyright ©2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-1
,Table of contents
Ch. 1 Taxes and Taxing Jurisdictions
Ch. 2 Policy Standards for a Good Tax
Ch. 3 Taxes as Transaction Costs
Ch. 4 Maxims of Income Tax Planning
Ch. 5 Tax Research
Ch. 6 Taxable Income from Business Operations
Ch. 7 Property Acquisitions and Cost Recovery Deductions
Ch. 8 Property Dispositions
Ch. 9 Nontaxable Exchanges
Ch. 10 Sole Proprietorships, Partnerships, LLCs, and S Corporations
Ch. 11 The Corporate Taxpayer
Ch. 12 The Choice of Business Entity
Ch. 13 Jurisdictional Issues in Business Taxation
Ch. 14 The Individual Tax Formula
Ch. 15 Compensation and Retirement Planning
Ch. 16 Investment and Personal Financial Planning
Ch. 17 Tax Consequences of Personal Activities
Ch. 18 The Tax Compliance Process
Copyright ©2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-1
,Chapter 1 Taxes and Taxing Jurisdictions
Questions and Problems for Discussion
1. Tax payments differ from government fines and penalties because they aren‘t intended to deter or
punish unacceptable behavior. Tax payments differ from fees or user charges because they don‘t
entitle the payer to a specific government good or service, such as a postage stamp or a driver‘s
license. Tax payments also differ from fees or user charges because they are compulsory.
2. This payment has characteristics of a tax, a penalty, and a user fee. The compulsory payment is not
specifically punitive but does apply selectively to those companies most likely responsible for the
polluted condition of Green River. However, these same companies may be the entities that benefit
most from the environmental clean-up.
3. This payment more closely resembles a fee for a government service than a transaction-based tax
because the transaction occurs between a private party and the jurisdiction itself, rather than
between private parties engaging in a market transaction. The payment also entitles the payer to a
specific benefit (the right to marry under law).
4. To the extent that the decline in exterior maintenance reduces the value of Mr. Powell‘s apartment
complex, he bears the incidence of the increased property tax. To the extent that the decline reduces
the value of adjoining properties or makes the neighborhood less attractive, the owners of the
adjoining properties and the neighborhood residents share the incidence of the tax increase.
5. People who don‘t directly use public schools (such as Mr. and Mrs. Ahern or people who don‘t have
children) indirectly benefit from a public education system for the general population. Arguably, public
education contributes to a skilled workforce and improves the cultural and social environment in
which Mr. and Mrs. Ahern live. Based on this argument, Mr. and Mrs. Ahern should not be exempt
from the local property tax.
6. The consumers who pay the same price for a smaller bar of soap of lesser quality bear the
incidence of the new gross receipts tax.
7. Real property can‘t be hidden or moved, and its ownership (legal title) is a matter of public
record. In contrast, personal property is mobile and may be easily concealed. Moreover,
jurisdictions may not have an effective means to discover or trace ownership of personal
property.
8. Arguably, private golf courses beautify the locality and are environmentally more desirable than
other commercial activities. They also may require more acreage than other businesses and,
therefore, would be at a competitive disadvantage without a preferential real property tax rate.
9. Many jurisdictions that levy property taxes provide an exemption for public institutions, such as
state universities or private colleges. If University K is entitled to such an exemption, every
commercial building or residence acquired the University reduces the local jurisdiction‘s property
gf
tax base.
Copyright ©2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-1
, 10. Excise taxes are imposed on a much narrower range of consumer goods and services than
sales taxes. Consequently, people can more readily avoid purchasing the specific good or
service subject to excise tax.
11. The tax increase may have reduced the aggregate demand for consumer goods and, consequently,
municipal residents are buying fewer goods. A second possibility is that municipal residents are
traveling to other jurisdictions with lower tax rates or making more purchases through mail order
catalogs or on-line.
12. From a political perspective, liquor and cigarettes sales make an excellent tax base because
consumption of the two products is purely discretionary, and any decline in consumption because of
the tax is socially desirable. From an economic perspective, these sales are a good tax base because
the demand for liquor and cigarettes is relatively price inelastic. In other words, people who drink
and smoke on a regular basis buy these products regardless of a heavy excise tax.
13. The federal income has the broader base. The federal payroll tax is imposed on wages, salaries, and
other forms of compensation earned employees. The federal income tax is imposed on all types of
gf
compensation as well as net business profit, investment income, and any other income item from
whatever source derived.
14. A property tax is a periodic (usually annual) tax levied on the ownership of property and based on the
value of the property on a particular assessment date. A transfer tax is a transaction- based tax
levied on the transfer of property from one party to another. A transfer tax is based on the value of
the property at date of transfer.
15. If the federal government could ―piggy back‖ a national sales tax on existing state sales tax
collection systems, the federal government could avoid creating a new federal agency for collecting
the tax. In contrast, the federal government would have to create a new collection system for a
national VAT. However, a national VAT would be less likely to cause jurisdictional conflict between
the federal government and the states because states don‘t depend on VATs as a source of
revenue.
16. The Internal Revenue Code is federal statutory law, enacted Congress and signed the President.
gf gf
Technically, Treasury regulations only interpret and explain the statute and aren‘t laws in their own
right. Thus, regulations are less authoritative than the Code itself. However, because Congress
authorized the Treasury to write regulations, they are the government‘s official interpretation of
statutory law. Practically, the regulations carry considerable authoritative weight.
Application Problems
1. a. The statement of facts identifies three taxpayers: Mr. Josh Kenney, JK Services, and JK
Realty.
b. The government of the locality in which Mr. Kenney resides, the state government of Vermont,
and the U.S. government have jurisdiction to tax Mr. Kenney. The local governments of the four
counties in which JK Services conducts business, the state government of Vermont, and the
U.S. government have jurisdiction to tax JK Services. The city of Boston, the state government
of Massachusetts, and the U.S. government have jurisdiction to tax JK Realty.
2. a. The United States has jurisdiction to tax Mrs. May because she is a permanent resident.
b. The United States has jurisdiction to tax Mrs. May only on the U.S. source rental income
generated the Manhattan real estate.
gf
Copyright ©2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written consent of McGraw-Hill Education.
1-1
