,ACCESS Test Bank for South Western Federal Taxation 2023 Essentials ofTaxati
g g g g g g g g g g g
on Individuals and Business Entities 26th Edition Nellen
g g g g g g g
CHAPTERg1gINTROD
UCTIONgTOgTAXATION
SOLUTIONSgTOgPROBLEMgMATERIALS
PROBLEMS
1. (LOg1)gVariousganswersgaregpossible,gincludinggusinggthegKeygTermsgatgthegendgofgeachgchapter,greferri
nggtogthegGlossaryg(AppendixgC),glookinggupgthegfootnotegresourcesgtogthegInternalgRevenuegCodegingA
ppendixgD,gusinggchaptergfeaturesg(e.g.,gGlobalgTaxgIssues,gEthicsg&gEquity,gTaxgPlanning,gandgDiggin
ggDeeper),gexamininggthegtaxgformsgusedgingthegchapters,gandgcompletinggadditionalgend-gof-
chaptergassignments.gAllgofgthesegresourcesgwillghelpgstudentsgengagegmoregdeeplygwithgthegmaterialsga
ndghelpgtheirgunderstanding.
2. (LOg3,g5,g6)gSomegtaxgandgnontaxgconsiderationsgJamesgshouldginvestigategincludegthegfollowing:
Stategandglocalgincomegtaxes.
Stategandglocalgsalesgtaxes.
Stategandglocalgpropertygtaxes.
Employeeg implicationsg ofg theg moveg (Willg Jamesg loseg currentg employees?g Isg theg laborg marketg
bettergingthegnewglocation?gIsgcostgofglivingglowergorghighergingnewglocation?).
Logistics/transportationgofgproductsgtogcustomersg(specificallygdocumentglowergcosts).
Stateginfrastructureg(bettergingnewglocation?).
3. (LOg1,g2,g3)gAgtaxgisgregressivegifgitgrepresentsgaglargergpercentagegofgthegincomegofgaglow-
incomegtaxpayergrelativegtogthegincomegofgaghigh-
incomegtaxpayer.gExamplesgofgregressivegtaxesgincludegsalesgandgexcisegtaxes.gAgtaxgisgprogressivegifgit
grepresentsgaglargergpercentagegofgthegincomegofgaghigh-
gincomegtaxpayergrelativegtogthegincomegofgaglow-
incomegtaxpayer.gThegFederalgincomegtaxgisgangexamplegofgagprogressivegtax.
4. (LOg3)
a. Thegparsonagegprobablygwasgnotglistedgongthegpropertygtaxgrollsgbecausegitgwasgownedgbygagtax-
exemptgchurch.gApparently,gthegtaxinggauthoritiesgaregnotgawaregthatgownershipghasgchanged.
g
b. Ethangshouldgnotifygtheg authoritiesgofghisg purchase.gThisg willg forceg himg tog payg backg taxesg butg
maygeliminategfutureginterestgandgpenalties.
5. (LOg1,g6)g(SeegDigginggDeeperg1.)gAsgtogAdamgSmith’sgcanongongeconomy,gthegFederalgincomegtaxgyiel
dsgagmixedgresult.gFromgthegstandpointgofgthegIRS,geconomygexistsgasgcollectiongcostsgaregnominalg(whe
ngcomparedgwithgrevenueggenerated).gTheggovernment'sgcostgofgcollectinggFederalgtaxesgamountsgtogles
sgthangone-
halfgofg1gpercentgofgthegrevenuegcollected.gEconomygisgnotgpresent,ghowever,gifgoneglooksgtogthegcompli
ancegeffortgandgcostsgexpendedgbygtaxpayers.gAccordinggtogrecentgestimates,gaboutg56%gofgindividualgta
xpayersgwhogfilegagreturngpaygagpreparer,gandgone-thirdgpurchasegtaxgsoftware.
©g2023gCengage®.gMaygnotgbegscanned,gcopiedgorgduplicated,gorgpostedgtogagpubliclygaccessiblegwebsite,gingwholegorgingp
art.
mynursytest.store
, 1-1
©g2023gCengage®.gMaygnotgbegscanned,gcopiedgorgduplicated,gorgpostedgtogagpubliclygaccessiblegwebsite,gingwholegorgingp
art.
mynursytest.store
, ACCESS Test Bank for South Western Federal Taxation 2023 Essentials ofTaxati
g g g g g g g g g g g
on Individuals and Business Entities 26th Edition Nellen
g g g g g g g
1-2 2023gEssentialsgofgTaxation/SolutionsgManual
6. (LOg3)gJanggprobablygwillgbegrequiredgtogpaygthegWashingtongusegtaxgif,gandgwhen,ghegappliesgforgWash
ingtonglicensegplates.gIngthisgcase,gthegusegtaxgprobablygisgthegsamegamountgasgthegWashingtongsalesgtax.
gSeegthegdiscussiongingconnectiongwithgExampleg14gingthegtextbook.
7. (LOg3)gAlthoughgthegBakergMotorsgbidgisgtheglowest,gfromgaglong-
termgfinancialgstandpoint,gitgisgthegbest.gThegproposedgusegofgthegpropertygbygthegstategandgthegchurchgpr
obablygwillgmakegitgexemptgfromgthegschoolgdistrict’sgadgvaloremgtax.gThisgwouldghardlygbegthegcasegwi
thgagcargdealership.gIngfact,gcommercialgpropertiesg(e.g.,gcargdealerships)goftengaregsubjectgtoghighergtaxg
rates.
8. ((LOg3,g4)gAgpossiblegexplanationgisgthatgSophiagmadegcapitalgimprovementsg(e.g.,gaddedgagswimmingg
pool)gtoghergresidencegandghergparentsgbecamegretireesg(e.g.,greachedgageg65).
9. (LOg5,g6) SWFT,gLLP
5191gNatorpgBoulevard
Mason,gOHg45040
Februaryg25,g2022g
CynthiagClay
1206gSeventhgAvenueg
FortgWorth,gTXg76101
DeargCynthia:
Igamgwritinggthisglettergtoghelpgyougdecidegongwhatgformgofgentitygtogchoosegforgyourgnewgfoodgdeliverygb
usiness.gIngourgphonegconversation,gyougindicatedgthatgyougexpectgtoghaveglossesgforgthegfirstgtwogyearsgi
ngthisgbusinessgandgthengmakegsubstantialgprofitsgingsubsequentgyears.gYougandgMarcogalsogindicatedgth
atgyougaregconcernedgaboutgpotentialgpersonalgliability.
WhilegIgcan’tgmakegagconclusivegrecommendationgbasedgongtheginformationgyoughaveggivengme,gIgcangp
rovidegyougwithgsomeggeneralgguidelinesgthatgshouldgsimplifygyourgdecision.gFirst,ggivengyourgconcerng
aboutgpersonalgliability,gagpartnershipgdoesgnotgappeargtogbegagdesirablegoptiong(yougwouldgbothgbegpers
onallygliablegforganyginjuriesgtogcustomers).gSimilarly,ggivengyourgexpectationgofglossesgingthegfirstgtwog
years,gitgdoesgnotgappeargthatgagCgcorporationgwouldgbegagdesirablegchoice,gatgleastginitially.gThisgisgbeca
useganyglossesgingthegcorporationgcouldgonlygbegusedgtogoffsetgfuturegcorporategprofits—
yougcouldgnotgusegtheglossesgtogimmediatelygoffsetgyourgpersonalgtaxgliability.
Thus,gtwogchoicesgexistgwhichgprovideglimitedgliabilitygandgdeductibilitygofglossesgongyourgpersonalginc
omeg taxg return.g Theseg areg theg Sg corporationg andg theg limitedg liabilityg company.g Ifg youg chooseg angSgco
rporation,gwegwouldgprobablygconvertgthegentitygtogagCgcorporationgwhengthegbusinessgbecomesgprofita
ble.gAtgthatgpoint,gprofitsgwouldgbegtaxedgatgthegCgcorporationgrate.gAgsecondgtaxgwouldgbegleviedgongyourg
personalgincomegtaxgreturngforganygdividendsgpaidgbygthegcorporationgoncegitgachievesgCgstatus.gIngcontra
st,glimitedgliabilitygcompaniesgaregtaxedglikegpartnerships—
allgincomegwouldgbegtaxedgongyourgpersonalgincomegtaxgreturngingprofitablegyears.gThegrelativegdesirabili
tygofgeachgofgthesegtwogformsgdependsgongagnumbergofgfactors.gOnegofgthegmostgimportantgfactorsgingyou
rgsituationgisgthegrelationshipgbetweengyourgpersonalgtaxgrategandgthegtaxgrategofgagCgcorporation.gIfgyougar
egingaghighgtaxgbracketgandgifgthegincomegingthegbusinessgisgsufficientlyglow,gyougmightgbegbestgoffgchoosi
nggthegSgcorporation.gAlternatively,gifgyougexpectgthegbusinessgtoggenerategagsufficientlyglargegprofitgeachg
year,gitgmightgbegbestgtogchoosegtheglimitedgliabilitygcompany.gThegqualifiedgbusinessgincomegdeductiongfo
rgincomegfromgflow-
gthroughgentitiesgalonggwithgthegflatgtaxgrategofg21%gthatgappliesgtogcorporationsgalsogmustgbegtakengintogc
onsideration.
©g2023gCengage®.gMaygnotgbegscanned,gcopiedgorgduplicated,gorgpostedgtogagpubliclygaccessiblegwebsite,gingwholegorgingp
art.
mynursytest.store
g g g g g g g g g g g
on Individuals and Business Entities 26th Edition Nellen
g g g g g g g
CHAPTERg1gINTROD
UCTIONgTOgTAXATION
SOLUTIONSgTOgPROBLEMgMATERIALS
PROBLEMS
1. (LOg1)gVariousganswersgaregpossible,gincludinggusinggthegKeygTermsgatgthegendgofgeachgchapter,greferri
nggtogthegGlossaryg(AppendixgC),glookinggupgthegfootnotegresourcesgtogthegInternalgRevenuegCodegingA
ppendixgD,gusinggchaptergfeaturesg(e.g.,gGlobalgTaxgIssues,gEthicsg&gEquity,gTaxgPlanning,gandgDiggin
ggDeeper),gexamininggthegtaxgformsgusedgingthegchapters,gandgcompletinggadditionalgend-gof-
chaptergassignments.gAllgofgthesegresourcesgwillghelpgstudentsgengagegmoregdeeplygwithgthegmaterialsga
ndghelpgtheirgunderstanding.
2. (LOg3,g5,g6)gSomegtaxgandgnontaxgconsiderationsgJamesgshouldginvestigategincludegthegfollowing:
Stategandglocalgincomegtaxes.
Stategandglocalgsalesgtaxes.
Stategandglocalgpropertygtaxes.
Employeeg implicationsg ofg theg moveg (Willg Jamesg loseg currentg employees?g Isg theg laborg marketg
bettergingthegnewglocation?gIsgcostgofglivingglowergorghighergingnewglocation?).
Logistics/transportationgofgproductsgtogcustomersg(specificallygdocumentglowergcosts).
Stateginfrastructureg(bettergingnewglocation?).
3. (LOg1,g2,g3)gAgtaxgisgregressivegifgitgrepresentsgaglargergpercentagegofgthegincomegofgaglow-
incomegtaxpayergrelativegtogthegincomegofgaghigh-
incomegtaxpayer.gExamplesgofgregressivegtaxesgincludegsalesgandgexcisegtaxes.gAgtaxgisgprogressivegifgit
grepresentsgaglargergpercentagegofgthegincomegofgaghigh-
gincomegtaxpayergrelativegtogthegincomegofgaglow-
incomegtaxpayer.gThegFederalgincomegtaxgisgangexamplegofgagprogressivegtax.
4. (LOg3)
a. Thegparsonagegprobablygwasgnotglistedgongthegpropertygtaxgrollsgbecausegitgwasgownedgbygagtax-
exemptgchurch.gApparently,gthegtaxinggauthoritiesgaregnotgawaregthatgownershipghasgchanged.
g
b. Ethangshouldgnotifygtheg authoritiesgofghisg purchase.gThisg willg forceg himg tog payg backg taxesg butg
maygeliminategfutureginterestgandgpenalties.
5. (LOg1,g6)g(SeegDigginggDeeperg1.)gAsgtogAdamgSmith’sgcanongongeconomy,gthegFederalgincomegtaxgyiel
dsgagmixedgresult.gFromgthegstandpointgofgthegIRS,geconomygexistsgasgcollectiongcostsgaregnominalg(whe
ngcomparedgwithgrevenueggenerated).gTheggovernment'sgcostgofgcollectinggFederalgtaxesgamountsgtogles
sgthangone-
halfgofg1gpercentgofgthegrevenuegcollected.gEconomygisgnotgpresent,ghowever,gifgoneglooksgtogthegcompli
ancegeffortgandgcostsgexpendedgbygtaxpayers.gAccordinggtogrecentgestimates,gaboutg56%gofgindividualgta
xpayersgwhogfilegagreturngpaygagpreparer,gandgone-thirdgpurchasegtaxgsoftware.
©g2023gCengage®.gMaygnotgbegscanned,gcopiedgorgduplicated,gorgpostedgtogagpubliclygaccessiblegwebsite,gingwholegorgingp
art.
mynursytest.store
, 1-1
©g2023gCengage®.gMaygnotgbegscanned,gcopiedgorgduplicated,gorgpostedgtogagpubliclygaccessiblegwebsite,gingwholegorgingp
art.
mynursytest.store
, ACCESS Test Bank for South Western Federal Taxation 2023 Essentials ofTaxati
g g g g g g g g g g g
on Individuals and Business Entities 26th Edition Nellen
g g g g g g g
1-2 2023gEssentialsgofgTaxation/SolutionsgManual
6. (LOg3)gJanggprobablygwillgbegrequiredgtogpaygthegWashingtongusegtaxgif,gandgwhen,ghegappliesgforgWash
ingtonglicensegplates.gIngthisgcase,gthegusegtaxgprobablygisgthegsamegamountgasgthegWashingtongsalesgtax.
gSeegthegdiscussiongingconnectiongwithgExampleg14gingthegtextbook.
7. (LOg3)gAlthoughgthegBakergMotorsgbidgisgtheglowest,gfromgaglong-
termgfinancialgstandpoint,gitgisgthegbest.gThegproposedgusegofgthegpropertygbygthegstategandgthegchurchgpr
obablygwillgmakegitgexemptgfromgthegschoolgdistrict’sgadgvaloremgtax.gThisgwouldghardlygbegthegcasegwi
thgagcargdealership.gIngfact,gcommercialgpropertiesg(e.g.,gcargdealerships)goftengaregsubjectgtoghighergtaxg
rates.
8. ((LOg3,g4)gAgpossiblegexplanationgisgthatgSophiagmadegcapitalgimprovementsg(e.g.,gaddedgagswimmingg
pool)gtoghergresidencegandghergparentsgbecamegretireesg(e.g.,greachedgageg65).
9. (LOg5,g6) SWFT,gLLP
5191gNatorpgBoulevard
Mason,gOHg45040
Februaryg25,g2022g
CynthiagClay
1206gSeventhgAvenueg
FortgWorth,gTXg76101
DeargCynthia:
Igamgwritinggthisglettergtoghelpgyougdecidegongwhatgformgofgentitygtogchoosegforgyourgnewgfoodgdeliverygb
usiness.gIngourgphonegconversation,gyougindicatedgthatgyougexpectgtoghaveglossesgforgthegfirstgtwogyearsgi
ngthisgbusinessgandgthengmakegsubstantialgprofitsgingsubsequentgyears.gYougandgMarcogalsogindicatedgth
atgyougaregconcernedgaboutgpotentialgpersonalgliability.
WhilegIgcan’tgmakegagconclusivegrecommendationgbasedgongtheginformationgyoughaveggivengme,gIgcangp
rovidegyougwithgsomeggeneralgguidelinesgthatgshouldgsimplifygyourgdecision.gFirst,ggivengyourgconcerng
aboutgpersonalgliability,gagpartnershipgdoesgnotgappeargtogbegagdesirablegoptiong(yougwouldgbothgbegpers
onallygliablegforganyginjuriesgtogcustomers).gSimilarly,ggivengyourgexpectationgofglossesgingthegfirstgtwog
years,gitgdoesgnotgappeargthatgagCgcorporationgwouldgbegagdesirablegchoice,gatgleastginitially.gThisgisgbeca
useganyglossesgingthegcorporationgcouldgonlygbegusedgtogoffsetgfuturegcorporategprofits—
yougcouldgnotgusegtheglossesgtogimmediatelygoffsetgyourgpersonalgtaxgliability.
Thus,gtwogchoicesgexistgwhichgprovideglimitedgliabilitygandgdeductibilitygofglossesgongyourgpersonalginc
omeg taxg return.g Theseg areg theg Sg corporationg andg theg limitedg liabilityg company.g Ifg youg chooseg angSgco
rporation,gwegwouldgprobablygconvertgthegentitygtogagCgcorporationgwhengthegbusinessgbecomesgprofita
ble.gAtgthatgpoint,gprofitsgwouldgbegtaxedgatgthegCgcorporationgrate.gAgsecondgtaxgwouldgbegleviedgongyourg
personalgincomegtaxgreturngforganygdividendsgpaidgbygthegcorporationgoncegitgachievesgCgstatus.gIngcontra
st,glimitedgliabilitygcompaniesgaregtaxedglikegpartnerships—
allgincomegwouldgbegtaxedgongyourgpersonalgincomegtaxgreturngingprofitablegyears.gThegrelativegdesirabili
tygofgeachgofgthesegtwogformsgdependsgongagnumbergofgfactors.gOnegofgthegmostgimportantgfactorsgingyou
rgsituationgisgthegrelationshipgbetweengyourgpersonalgtaxgrategandgthegtaxgrategofgagCgcorporation.gIfgyougar
egingaghighgtaxgbracketgandgifgthegincomegingthegbusinessgisgsufficientlyglow,gyougmightgbegbestgoffgchoosi
nggthegSgcorporation.gAlternatively,gifgyougexpectgthegbusinessgtoggenerategagsufficientlyglargegprofitgeachg
year,gitgmightgbegbestgtogchoosegtheglimitedgliabilitygcompany.gThegqualifiedgbusinessgincomegdeductiongfo
rgincomegfromgflow-
gthroughgentitiesgalonggwithgthegflatgtaxgrategofg21%gthatgappliesgtogcorporationsgalsogmustgbegtakengintogc
onsideration.
©g2023gCengage®.gMaygnotgbegscanned,gcopiedgorgduplicated,gorgpostedgtogagpubliclygaccessiblegwebsite,gingwholegorgingp
art.
mynursytest.store
