Memo To: John & Jane Smith From: Zachary R. Munger Date: [ 5/27/2012 ] Re: Memo summarizing various tax issues 1. John Smith's tax issues: Issue a) How is the $300,000 treated for purposes of federal tax income? Refer to IRS Section 104 (Compensation for Injuries or Sickness (Also Section 105- Amounts Received Under Accident and Health Plans)). John would have to include everything he received for the services provided as gross income. This would be in addition to his wages, salaries, commissions and other fees that he normally earns as an attorney.
After thinking about the information you submitted to me about your taxes, there were several issues which I observed. Firstly, I would like to talk about John Smith's issues: 1(a) I think the $300,000 received by John Smith as fees from jury award is taxable for federal tax income purposes. Because as the IRC Sec 104(a)(2) law: any winnings in a personal injury lawsuit that cover the treatment of physical injuries are not taxable except for attorney fees which are taxable. Taxability also depends upon the place of residence of the taxpayer. (1) In Codman Vs. Commissioner, held that attorney fees paid to the attorney not to be included in the gross income of the claimant in favour of whom the personal injury lawsuit is settled.
H&R Block This case is a federal class action suit against H&R Block. H&R Block offers refund anticipation loans (RALS) a RAL is a short term loan that is funded either the day the client does their federal tax return or the next day this loan is given out at a substantial interest rate for someone that is entitled to a refund on their federal tax return. Block also offers refund anticipation checks (RACS) as part of their tax services. The RAC is when you don’t have the money to pay for your tax services. H&R Block will charge a convenience fee to take the tax preparation fee out of the person’s tax refund.
25) Investment interest expense which is disallowed because it exceeds the taxpayer’s net investment income may be carried over and treated as incurred in subsequent years. 26) Investment interest includes interest expense incurred to purchase tax-exempt securities. 27) Taxpayers may elect to include net capital gain as part of investment income. 28) Taxpayers may not deduct interest expense on personal debt including credit card debt, car loans, and other consumer debt. 29) Qualified residence interest consists of both acquisition indebtedness and home equity interest.
Overstate net income. b. Understate net income. c. No effect on net income. d. Not sufficient information to determine effect on net income.
You Decide Assignment 1. John Smith tax issues: a. How is the $300,000 treated for purposes of federal tax income? The issue is how the $300,000 will be treated for federal income tax purposes. According to the Internal Revenue Code Sec.
c. After purchasing a personal residence, Paul probably will no longer claim the standard deduction on the income tax return. Due to mortgage interest and property tax deductions he will itemize his deductions on Schedule A. 5. For wage earners, the tax system requires employers to withhold for taxes a specified portion of an employee’s wages. Persons with income form other than wages have to make quarterly payments to the IRS for estimated taxes due for the year.
14-18, Code Sec.1032 states that a corporation does not recognize a gain or loss on the receipt of money or other property in exchange for its stock. Also, it does not recognize income when it receives money or other property as a contribution to capital (i.e., the corporation does not issue stock, debt, money, or property in return for the contributed property). It also states any amounts received from voluntary pro rata payments from shareholders are not income to the corporation even though no stock is
D. The seller's price to the buyer is fixed or determinable. Original AACSB: Analytic AICPA BB: Legal AICPA FN: Research Bloom's: Knowledge Difficulty: Medium 7-27 Chapter 07 - The Revenue and Collection Cycle 3. "Bill and Hold" refers to an arrangement where A. Sales are recorded but are not shipped. B.
(US Code, Section 121 (a); http://www.law.cornell.edu/uscode/text/26/121 Conclusion: There should be a little or no difference between paying an old mortgage and assuming a new one. If the couple sells a house they could exclude up to $500,000 of recognized gain, if they have lived in this house for at least two years in the five year period. (b) Can John and Jane Smith utilize a 1031 tax exchange to buy a more expensive house using additional money from John's case? Applicable Law &