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Solution Manual For South-Western Federal
Taxation 2027: Comprehensive 50th Edition
By James Young, Annette Nellen, Mark
Persellin , Sharon Lassar, Andrew Cuccia
D Want to earn $1.236
extra per year?
, Stuvia.com - The Marketplace to Buy and Sell your Study Material
solution and answer guide
RAABE, NELLEN, YOUNG, CRIPE, LASSAR, PERSELLIN, CUCCIA, SWFT CORPORATIONS , PARTNERSHIPS , ESTATES & TRUSTS 2024,
9780357900673; CHAPTER 1: UNDERSTANDINGAND WORKING WITH THE FEDERAL TAX LAW
TABLEOFCONTENTS
discussion questions ................................................................................................................................. 1
problems............................................................................................................................................8
research problems .................................................................................................................................13
check figures ........................................................................................................................................15
solutiontoethics & equity feature ................................................................................................................. 16
DISCUSSION QUESTIONS
1. (lo 1) when enacting tax legislation, congress often is guided by the concept of revenue neutrality so that any
changes neither increase nor decrease the net revenues raised under the prior rules. revenue neutrality does not
mean that any one taxpayer’s tax liability remains the same. since this liability depends on the circumstances
involved, one taxpayer’s increased tax liability could be another’s tax saving. revenue- neutral tax reform does
not reduce deficits, but at least it does not aggravate the problem.
2. (lo 2) economic, social, equity, and political factors play a significant role in the formulation of tax laws.
furthermore, the treasury department, the irs, and the courts have had impacts on the evolution of tax laws. for
example, control of the economy has been an important economic consideration in passing a number of laws
(e.g., rapid depreciation, changes in tax rates). but ultimately the tax law is written bycongress.
3. (lo 2) the tax law encourages technological progress by allowing immediate (or accelerated) deductions and
tax credits for research and development expenditures.
4. (lo 2) saving leads to capital formation and makes funds available to finance home construction and
industrial expansion. for example, the tax laws provide incentives to encourage savings by giving
private retirement plans preferential treatment.
5. (lo 2)
a. code § 1244 allows ordinary loss treatment on the worthlessness of small business corporation stock
(discussed in chapter 4). since this stock normally would be a capital asset, the operation of § 1244
converts a less desirable capital loss into a more attractive ordinary loss. this tax treatment was designed
to aid small businesses in raising needed capital through the issuance of stock.
2
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b. the s corporation election (see footnote 5 and a detailed discussion in chapter 12) allows the profits (or
losses) of the corporation to flow through to its individual shareholders (avoiding the corporate income
tax). in addition, the qualified business income deduction may apply to any flow-through profits
(allowing a maximum 20% deduction to the shareholders). however, with the corporate tax rate being
21% (and individual marginal tax rates potentially being higher), individuals need to compare the
benefits of avoiding the corporate tax rate with the taxes on any s corporation flow-through profits.
6. (lo 2) reasonable persons can, and often do, disagree about what is fair or unfair. in the tax area, moreover,
equity is generally tied to a particular taxpayer’s personal situation. for example, one equity difference
relates to how a business is organized (i.e., partnership versus corporation). two businesses may be equal in
size, similarly situated, and competitors in the production of goods or services, but they may not
becomparably treated under the tax law if one is a partnership and the other is a corporation. the corporation
is subject to a separate federal income tax of 21%; the partnership is not. the tax law can and does make a
distinction between these business forms. equity, then, is not what appears fair or unfair to any one taxpayer or
group of taxpayers. equity is, instead, what the tax law recognizes.
7. (lo 2) this deduction can be explained by social considerations. the deduction shifts some of the financial and
administrative burden of socially desirable programs from the public (the government) sector to the
private (the citizens) sector.
8. (lo 2) preferential treatment of private retirement plans encourages saving. not only are contributions to
keogh (h.r. 10) plans and certain individual retirement accounts (ira) deductible, but income from these
contributions accumulates on a tax-free basis.
9. (lo 2) the availability of percentage depletion on the extraction and sale of oil and gas and specified mineral
deposits and a write-off (rather than capitalization) of certain exploration costs encourage the development
of natural resources.
10. (lo 2) favorable treatment of corporate reorganizations provides an economic benefit. by allowing
corporations to combine and split without adverse consequences, corporations are in a position to reduce
their taxes and possibly more effectively compete with other businesses (both nationally and
internationally).
11. (lo 2) although the major objective of the federal tax law is the raising of revenue, other considerations
explain many provisions. in particular, economic, social, equity, and political factors play a significant
role. added to these factors is the impact the treasury department, the internal revenue service, and the
courts have had and will continue to have on the evolution of federal tax law.
12. (lo 2) the deduction allowed for federal income tax purposes for state and local income taxes is not
designed to neutralize the effect of multiple taxation on the same income. at most, this deduction provides
only partial relief. the $10,000 overall limitation on state and local taxes also reduces the tax benefit of these
taxes. only allowing a full tax credit would achieve complete neutrality.
3
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a. with the standard deduction, a taxpayer is indirectly obtaining the benefit of a deduction for any state
or local income taxes he or she may have paid. the standard deduction is in lieu of itemized
deductions, which include any allowed deductions for state and local income taxes.
b. if the taxpayer is in the 10% tax bracket, $1 of a deduction for state or local taxes would save $0.10 of
federal income tax liability. in the 32% tax bracket, the saving becomes $0.32. the deduction approach (as
opposed to the allowance of a credit) favors high-bracket taxpayers.
13. (lo 2) under the general rule, a transfer of a partnership’s assets to a new corporation could result in a taxable
gain. however, if certain conditions are met, § 351 postpones the recognition of any gain (or loss) on the
transfer of property by heather to a controlled corporation (see example 4).
the wherewithal to pay concept recognizes the inequity of taxing a transaction when heather lacks the means
with which to pay any tax. besides, heather’s economic position would not change significantly should the
transfer occur. heather owned the assets before the transfer and still would own the assets after a transfer to a
controlled corporation. see chapter 4 for a more detailed discussion of § 351.
14. (lo 2) yes. once incorporated, the business may be subject to the federal corporate income tax. however, the 21%
corporate tax rate might be lower than heather’s individual tax rates, especially if dividends are not paid to
heather.
the corporate income tax could be avoided altogether by electing to be an s corporation. an s corporation is
generally not taxed at the corporate level; instead, the income flows through the corporate veil and is taxed at the
shareholder level. an s election allows a business to operate as a corporation but be taxed like a partnership.
with a partnership, there is no double tax.
income and expenses flow through to the partners and are taxed at the partner level.
15. (lo 2) examples include like-kind exchanges, involuntary conversions, transfers of property to a
controlled corporation, transfers of property to a partnership, and tax-free reorganization.
16. (lo 2) generally, a recognized (taxable) gain cannot exceed the realized gain.
17. (lo 2) recognition of gain ultimately occurs when the property is disposed of.
18. (lo 2) one year.
19. (lo 2) the installment method on the sale of property permits the gain to be recognized
over the payout period.
20. (lo 2) requiring ataxpayer to make acontribution to a keogh retirement plan by the end of the year would force an
accurate determination of net self-employment income long before the income tax return must be prepared
and filed.
21. (lo 2) the difference between common law and community property systems centers around the property
rights possessed by married persons. in a common law system, each spouse owns whatever he or she earns.
under a community property system, one-half of the earnings of each spouse is considered owned by the other
spouse. assume, for example, that harold
4
Solution Manual For South-Western Federal
Taxation 2027: Comprehensive 50th Edition
By James Young, Annette Nellen, Mark
Persellin , Sharon Lassar, Andrew Cuccia
D Want to earn $1.236
extra per year?
, Stuvia.com - The Marketplace to Buy and Sell your Study Material
solution and answer guide
RAABE, NELLEN, YOUNG, CRIPE, LASSAR, PERSELLIN, CUCCIA, SWFT CORPORATIONS , PARTNERSHIPS , ESTATES & TRUSTS 2024,
9780357900673; CHAPTER 1: UNDERSTANDINGAND WORKING WITH THE FEDERAL TAX LAW
TABLEOFCONTENTS
discussion questions ................................................................................................................................. 1
problems............................................................................................................................................8
research problems .................................................................................................................................13
check figures ........................................................................................................................................15
solutiontoethics & equity feature ................................................................................................................. 16
DISCUSSION QUESTIONS
1. (lo 1) when enacting tax legislation, congress often is guided by the concept of revenue neutrality so that any
changes neither increase nor decrease the net revenues raised under the prior rules. revenue neutrality does not
mean that any one taxpayer’s tax liability remains the same. since this liability depends on the circumstances
involved, one taxpayer’s increased tax liability could be another’s tax saving. revenue- neutral tax reform does
not reduce deficits, but at least it does not aggravate the problem.
2. (lo 2) economic, social, equity, and political factors play a significant role in the formulation of tax laws.
furthermore, the treasury department, the irs, and the courts have had impacts on the evolution of tax laws. for
example, control of the economy has been an important economic consideration in passing a number of laws
(e.g., rapid depreciation, changes in tax rates). but ultimately the tax law is written bycongress.
3. (lo 2) the tax law encourages technological progress by allowing immediate (or accelerated) deductions and
tax credits for research and development expenditures.
4. (lo 2) saving leads to capital formation and makes funds available to finance home construction and
industrial expansion. for example, the tax laws provide incentives to encourage savings by giving
private retirement plans preferential treatment.
5. (lo 2)
a. code § 1244 allows ordinary loss treatment on the worthlessness of small business corporation stock
(discussed in chapter 4). since this stock normally would be a capital asset, the operation of § 1244
converts a less desirable capital loss into a more attractive ordinary loss. this tax treatment was designed
to aid small businesses in raising needed capital through the issuance of stock.
2
, Stuvia.com - The Marketplace to Buy and Sell your Study Material
b. the s corporation election (see footnote 5 and a detailed discussion in chapter 12) allows the profits (or
losses) of the corporation to flow through to its individual shareholders (avoiding the corporate income
tax). in addition, the qualified business income deduction may apply to any flow-through profits
(allowing a maximum 20% deduction to the shareholders). however, with the corporate tax rate being
21% (and individual marginal tax rates potentially being higher), individuals need to compare the
benefits of avoiding the corporate tax rate with the taxes on any s corporation flow-through profits.
6. (lo 2) reasonable persons can, and often do, disagree about what is fair or unfair. in the tax area, moreover,
equity is generally tied to a particular taxpayer’s personal situation. for example, one equity difference
relates to how a business is organized (i.e., partnership versus corporation). two businesses may be equal in
size, similarly situated, and competitors in the production of goods or services, but they may not
becomparably treated under the tax law if one is a partnership and the other is a corporation. the corporation
is subject to a separate federal income tax of 21%; the partnership is not. the tax law can and does make a
distinction between these business forms. equity, then, is not what appears fair or unfair to any one taxpayer or
group of taxpayers. equity is, instead, what the tax law recognizes.
7. (lo 2) this deduction can be explained by social considerations. the deduction shifts some of the financial and
administrative burden of socially desirable programs from the public (the government) sector to the
private (the citizens) sector.
8. (lo 2) preferential treatment of private retirement plans encourages saving. not only are contributions to
keogh (h.r. 10) plans and certain individual retirement accounts (ira) deductible, but income from these
contributions accumulates on a tax-free basis.
9. (lo 2) the availability of percentage depletion on the extraction and sale of oil and gas and specified mineral
deposits and a write-off (rather than capitalization) of certain exploration costs encourage the development
of natural resources.
10. (lo 2) favorable treatment of corporate reorganizations provides an economic benefit. by allowing
corporations to combine and split without adverse consequences, corporations are in a position to reduce
their taxes and possibly more effectively compete with other businesses (both nationally and
internationally).
11. (lo 2) although the major objective of the federal tax law is the raising of revenue, other considerations
explain many provisions. in particular, economic, social, equity, and political factors play a significant
role. added to these factors is the impact the treasury department, the internal revenue service, and the
courts have had and will continue to have on the evolution of federal tax law.
12. (lo 2) the deduction allowed for federal income tax purposes for state and local income taxes is not
designed to neutralize the effect of multiple taxation on the same income. at most, this deduction provides
only partial relief. the $10,000 overall limitation on state and local taxes also reduces the tax benefit of these
taxes. only allowing a full tax credit would achieve complete neutrality.
3
, Stuvia.com - The Marketplace to Buy and Sell your Study Material
a. with the standard deduction, a taxpayer is indirectly obtaining the benefit of a deduction for any state
or local income taxes he or she may have paid. the standard deduction is in lieu of itemized
deductions, which include any allowed deductions for state and local income taxes.
b. if the taxpayer is in the 10% tax bracket, $1 of a deduction for state or local taxes would save $0.10 of
federal income tax liability. in the 32% tax bracket, the saving becomes $0.32. the deduction approach (as
opposed to the allowance of a credit) favors high-bracket taxpayers.
13. (lo 2) under the general rule, a transfer of a partnership’s assets to a new corporation could result in a taxable
gain. however, if certain conditions are met, § 351 postpones the recognition of any gain (or loss) on the
transfer of property by heather to a controlled corporation (see example 4).
the wherewithal to pay concept recognizes the inequity of taxing a transaction when heather lacks the means
with which to pay any tax. besides, heather’s economic position would not change significantly should the
transfer occur. heather owned the assets before the transfer and still would own the assets after a transfer to a
controlled corporation. see chapter 4 for a more detailed discussion of § 351.
14. (lo 2) yes. once incorporated, the business may be subject to the federal corporate income tax. however, the 21%
corporate tax rate might be lower than heather’s individual tax rates, especially if dividends are not paid to
heather.
the corporate income tax could be avoided altogether by electing to be an s corporation. an s corporation is
generally not taxed at the corporate level; instead, the income flows through the corporate veil and is taxed at the
shareholder level. an s election allows a business to operate as a corporation but be taxed like a partnership.
with a partnership, there is no double tax.
income and expenses flow through to the partners and are taxed at the partner level.
15. (lo 2) examples include like-kind exchanges, involuntary conversions, transfers of property to a
controlled corporation, transfers of property to a partnership, and tax-free reorganization.
16. (lo 2) generally, a recognized (taxable) gain cannot exceed the realized gain.
17. (lo 2) recognition of gain ultimately occurs when the property is disposed of.
18. (lo 2) one year.
19. (lo 2) the installment method on the sale of property permits the gain to be recognized
over the payout period.
20. (lo 2) requiring ataxpayer to make acontribution to a keogh retirement plan by the end of the year would force an
accurate determination of net self-employment income long before the income tax return must be prepared
and filed.
21. (lo 2) the difference between common law and community property systems centers around the property
rights possessed by married persons. in a common law system, each spouse owns whatever he or she earns.
under a community property system, one-half of the earnings of each spouse is considered owned by the other
spouse. assume, for example, that harold
4
