Chapter 1
Dr. Ivan I. Incisor and his wife Irene are married and file a joint
return for 2015. Ivan’s Social Security number is 477-34-4321
and he is 48 years old. Irene I. Incisor’s Social Security number
is 637-34-4927 and she is 45 years old. They live at 468 Mule
Deer Lane, Spokane, WA 99206.
Dr. Incisor is a dentist and he took 6 months off work to attend
a cosmetic dentistry training program in 2015. His 2015 Form
W-2 from his job at Bitewing Dental Clinic, Inc., showed the
following:
Wages
Withholding (federal income tax)
$65,00
0
6,000
The Incisors have a 17-year-old son, Ira, who is enrolled in the
eleventh grade at the Perpetual Perpetuity School. Ira’s Social
Security number is 690-99-9999. The Incisors also have an 18year-old daughter, Iris, who is a part-time freshman student at
Snow Mass Community College (SMCC). Iris’ Social Security
number is 899-99-9999. Iris is married to Sean Slacker (Social
Security number 896-33-0954), who is 19 years old and a parttime student at SMCC. Sean and Iris have a 1-year-old child,
Seth Slacker (Social Security number 648-99-4306). Sean, Iris,
and Seth all live in an apartment up the street from Ivan and
Irene during the entire current calendar year. Sean and Iris both
work for Sean’s wealthy grandfather as apprentices in his
business. Their wages for the year were a combined $50,000,
which allowed them to pay all the personal expenses for
themselves and their son.
Ivan and Irene have savings account interest income of $380
from the Pacific Northwest Bank.
Required: Use a computer software package to complete Form
1040 for Ivan and Irene Incisor for 2015. Be sure to save your
data input files since this case will be expanded with more tax
information in later chapters. Make assumptions regarding any
information not given.
Chapter 2
The following additional information is available for the Dr. Ivan
and Irene Incisor family.
Ivan and Irene have the following investment income, in
addition to that reported in Chapter 1:
Dividends (qualified) on Big Bank stock
Dividends (qualified) on Big Gas
Company stock
Dividends (nonqualified) from Mango
Mutual Fund
Interest on Washington State Municipal
Bonds
Interest on Big Electric Company Bonds
$900
490
145 Ivan went
to a local
700 casino and
won
675
$5,900
playing Keno. Ivan had no other gambling income or loss for the
year.
In February, Irene received $50,000 in life insurance proceeds
from the death of her friend Sharon.
In July, Ivan’s uncle Igor died and left him real estate
(undeveloped land) worth $72,000.
Five years ago, Ivan and Irene were divorced. Ivan married
Mary Molar, but that marriage did not work out and they were
divorced a year later. Under their divorce decree, Ivan pays
Mary $12,600 per year alimony. All payments were made on
time during 2015. Mary’s Social Security number is 667-349224. Three years ago, Ivan and Irene were remarried.
Bitewing Dental Clinic, Inc. pays Ivan’s dental license fees and
membership dues to dental organizations. During 2015,
Bitewing paid $1,240 for such dues and fees for Ivan.
Irene was laid off from her job on January 2, 2015. For 2015,
she received $3,850 in unemployment benefits.
Ivan and his family are covered by an employer-sponsored
health insurance plan at work. Bitewing pays $700 per month
premiums for Ivan and his family. During the year, Irene was in
the hospital for a few days to have her appendix removed. The
bill for the surgery was $5,100 of which the health insurance
plan reimbursed Ivan the full $5,100.
Required: Combine this new information about the Incisor
family with the information from Chapter 1 and complete a
revised 2015 tax return for Ivan and Irene. Be sure to save your
data input files since this case will be expanded with more tax
information in later chapters.
Chapter 3
The following additional information is available for the Dr. Ivan
and Irene Incisor family from Chapters 1 and 2.
On September 1, Irene opened a retail store that specializes in
sports car accessories. The name of the store is “Plus Two
Cones.” The store is located at 617 Main Street, Spokane, WA
99206. The store uses the cash method of accounting.
Her income and expenses for the year are as follows:
Sales of merchandise
Inventory, September 1 (purchased in
August)
Inventory, December 31
Purchases during the year
Sales returns and allowances
Store rental
Office expense
Insurance
Advertising
Employee wages
Payroll and other business taxes
Interest on bank loan to open store
Accounting fees
Utilities
Telephone
Maintenance
Miscellaneous
$63,400
40,100
38,100
37,800
600
7,550
1,380
800
3,100
3,350
505
2,760
310
992
800
427
65
In addition to the above items, Irene incurred travel expenses
to attend a seminar on sports car accessories. She spent $300
on airfare, $400 on lodging, $90 on a rental car, and $150 on
meals. Irene has proper receipts for these amounts.
Irene drove her 2006 Ford Explorer 1,631 miles for business
related to Plus Two Cones. The Explorer was driven a total of
17,172 miles for the year. Included in the total 17,172 miles is
5,000 miles spent commuting to the store. Irene has the
required substantiation for this business mileage. She uses the
standard mileage method.
In July, Ivan loaned a friend $7,000 so he could buy a car. Ivan’s
friend lost his job in 2015 and stopped making payments on the
loan. He plans to start making payments again, however, with
additional interest as soon as he has new employment.
Required: Combine this new information about the Incisor
family with the information from Chapters 1 and 2 and
complete a revised 2015 tax return for Ivan and Irene. Be sure
to save your data input files since this case will be expanded
with more tax information in later chapters.
Chapter 4
The Incisors own a rental beach house in Hawaii. The beach
house was rented for the full year during 2015 and was not
used by the Incisors during the year. The Incisors were active
participants in the management of the rental. Pertinent
information about the rental house is as follows:
Address: 1237 Pineapple St., Lihue, HI 96766
Net rental income
Mortgage interest
Real estate taxes
Utilities
Maintenance
$20,650
7,900
2,300
2,125
2,900
The house is fully depreciated so there is no depreciation
expense.
For the 2015 tax year, on March 15, 2016, Ivan contributes
$5,500 to a traditional IRA for himself and $5,500 to a
traditional IRA for his wife. He is not covered by a qualified
retirement plan at work.
Irene had a retirement plan at the job from which she was laid
off on January 2, 2015. The plan had a balance of $24,000. On
May 10, 2015, Irene had the entire retirement plan balance
rolled directly into an IRA at Timador & Embaucar Brokerage,
Inc.
Required: Combine this new information about the Incisor
family with the information from Chapters 1, 2 and 3 and
complete a revised 2015 tax return for Ivan and Irene. Be sure
to save your data input files since this case will be expanded
with more tax information in later chapters. Note that the
“Saver’s Credit” discussed in LO 4.8, may apply.
Chapter 5
The following additional information is available for the Dr.
Ivan and Irene Incisor family from Chapters 1, 2, 3 and 4.
Ivan and Irene paid the following in 2015 (all by check or
can otherwise be substantiated):
In June, Ivan purchased a new professional digital SLR
camera for $6,980. While the Incisors were on vacation in
August, someone broke into their residence and stole the
camera. Ivan’s homeowners’ insurance did not reimburse
him for any part of the loss since he declined the special
premium add-on for high value items required by his
policy.
Required: Combine this new information about the Incisor
family with the information from Chapters 1, 2, 3 and 4 and
complete a revised 2015 tax return for Ivan and Irene. Be
sure to save your data input files since this case will be
expanded with more tax information in later chapters.
Chapter 6
Ivan’s grandfather died and left a portfolio of municipal bonds.
In 2015, they pay Ivan $80,000 in tax-free interest. Since the
bonds are private activity bonds, the $80,000 is a tax
preference for purposes of the AMT. Assume for Chapters 6, 7,
and 8 that Ivan’s federal income tax withholding from his wages
is $12,000, not $6,000.
Required: Combine this new information about the Incisor
family with the information from Chapters 1, 2, 3, 4 and 5 and
complete a revised 2015 tax return for Ivan and Irene. Be sure
to save your data input files since this case will be expanded
with more tax information in later chapters.
Please note: This problem requires the calculation of AMT. The
home equity interest of $900 on the purchase of an automobile
is not deductible for AMT (see line 4 of Form 6251). Please also
note that Page 2 of Form 6251 must be filled in to calculate the
lower AMT amount on qualified dividends and that the Saver’s
Credit still applies.
Chapter 7
On November 14, Irene purchased the building where her store
is located. She paid $230,000 for the building and $100,000 for
the land it is located on. Irene’s store is the only business in the
building.
Ivan owned 1,000 shares of Behemoth Airline stock with a basis
of $30 per share. The stock was purchased 6 years ago on June
10. Ivan sells 500 shares of Behemoth stock to his uncle Seth
and 500 of the shares to his sister Sara for $5 per share on
December 31, 2015.
Assume for purposes of the continuation of this problem and
the problem in Chapter 8 that the Incisors do not have $80,000
in private activity bond interest income. As a result, no AMT will
be due.
Required: Combine this new information about the Incisor
family with the information from Chapters 1, 2, 3, 4, 5 and 6
and complete a revised 2015 tax return for Ivan and Irene. Be
sure to save your data input files since this case will be
expanded with more tax information in the next chapter.
Chapter 8
from Chapters 1, 2, 3, 4, 5, 6 and 7.
Ivan sold the following securities during the year and received a
Form 1099-B that showed the following information:
Security
Description
Orange, Inc.
100 Shares
Common
100 Shares
Common
100 Shares
Preferred
5 Bonds due
4/2015
5,010.150 Shares
Banana, Inc.
Grape, Corp.
Plum, Inc.
Peach Mutual
Fund
Date
Date
Acquired
Sold
02/11/97 04/16/15
Selling Adjusted
Price
Basis
$ 3,080
$ 2,150
07/17/01 07/31/15
2,000
4,210
12/08/14 09/25/15
8,975
10,510
12/30/05 01/02/15
5,155
5,320
05/30/06 10/22/15
60,120
56,480
The selling price given is net of sales commissions. In addition
to the above amounts, the Mango mutual fund distributed a
long-term capital gain of $450 on December 30, 2015.
Ivan purchased 5 acres of raw land in Reno, NV, 10 years ago.
His basis in the land was $90,000. On August 1, 2015, he sold
the land for $150,000 on the installment method. Ivan received
$52,500 in the year of sale, and the balance was payable at
$9,750 per year for the next 10 years, plus a market rate of
interest.
On May 15, 2015, Ivan and Irene sold their personal residence
for $585,150 and purchased a new house for $725,000. They
had owned the old house for 20 years and it had an adjusted
basis of $35,075. The house had been their personal residence
for all the years they were married. They moved into the new
house on May 18, 2015.
Required: Combine this new information about the Incisor
family with the information from Chapters 1, 2, 3, 4, 5, 6 and 7
and complete a revised 2015 tax return for Ivan and Irene. No
AMT is payable. This completes the Group 5 multichapter case.