UV ST
Edrftgyihu jiuh
Principles of Taxation for
IA UV
Business and Investment
Planning 2023, 26th Edition
_M I
SOLUTIONS
ED_
A
MANUAL
CAOP
Sally Jones, Shelley Rhoades-Catanach, Sandra Callaghan
PNRN
Comprehensive Solutions Manual for Instructors and
OOV IS
Students
||| ||| || ||| || | || ||| | || ||| |
ED EU
9781264229741
© Sally Jones, Shelley Rhoades-Catanach & Sandra Callaghan. All
S
rights reserved. Reproduction or distribution without permission is
? R
prohibited.
© MEDGEEK
?
,TU S
VIATU
TABLE OF CONTENTS
Solutions Manual – Principles of Taxation for Business and Investment Planning 2023 (26th Edition)
Authors: Sally Jones, Shelley Rhoades-Catanach, and Sandra Callaghan
ISBN: 9781264229741
PART 1: EXPLORING THE TAX ENVIRONMENT
_MVI
Chapter 1: Taxes and Taxing Jurisdictions
Chapter 2: Policy Standards for a Good Tax
PART 2: FUNDAMENTALS OF TAX PLANNING
Chapter 3: Taxes as Transaction Costs
Chapter 4: Maxims of Income Tax Planning
ED_
Chapter 5: Tax Research
A
PART 3: MEASUREMENT OF TAXABLE INCOME
Chapter 6: Taxable Income from Business Operations
Chapter 7: Property Acquisitions and Cost Recovery Deductions
CAOP
Chapter 8: Property Dispositions
Chapter 9: Nontaxable Exchanges
PART 4: THE TAXATION OF BUSINESS ENTITIES
Chapter 10: Sole Proprietorships, Partnerships, LLCs, and S Corporations
PNRN
Chapter 11: The Corporate Taxpayer
Chapter 12: The Choice of Business Entity
Chapter 13: Jurisdictional Issues in Business Taxation
PART 5: THE INDIVIDUAL TAXPAYER
OOV IS
Chapter 14: The Individual Tax Formula
Chapter 15: Compensation and Retirement Planning
Chapter 16: Investment and Personal Financial Planning
Chapter 17: Tax Consequences of Personal Activities
EDSEU
PART 6: TAX COMPLIANCE
Chapter 18: The Tax Compliance Process
? R
,TU S
VIATU
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.
_MVI
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
ED_
between private parties engaging in a market transaction. The payment also entitles the payer to
a specific benefit (the right to marry under law).
A
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.
CAOP
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.
PNRN
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
OOV IS
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
EDSEU
state universities or private colleges. If University K is entitled to such an exemption, every
commercial building or residence acquired by the University reduces the local jurisdiction‘s
property tax base.
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
? R
service subject to excise tax.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
1-1
,TU S
VIATU 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
_MVI
excise tax.
13. The federal income tax has the broader base. The federal payroll tax is imposed on wages,
salaries, and other forms of compensation earned by employees. The federal income tax is
imposed on all types of 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-
ED_
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.
A
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
CAOP
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 by Congress and signed by the
President. 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
PNRN
official interpretation of statutory law. Practically, the regulations carry considerable authoritative
weight.
Application Problems
OOV IS
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
EDSEU
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
? R
generated by the Manhattan real estate.
c. The United States does not have jurisdiction to tax Mrs. May.
d. The United States has jurisdiction to tax Mrs. May because she is a U.S. citizen.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
1-2
Edrftgyihu jiuh
Principles of Taxation for
IA UV
Business and Investment
Planning 2023, 26th Edition
_M I
SOLUTIONS
ED_
A
MANUAL
CAOP
Sally Jones, Shelley Rhoades-Catanach, Sandra Callaghan
PNRN
Comprehensive Solutions Manual for Instructors and
OOV IS
Students
||| ||| || ||| || | || ||| | || ||| |
ED EU
9781264229741
© Sally Jones, Shelley Rhoades-Catanach & Sandra Callaghan. All
S
rights reserved. Reproduction or distribution without permission is
? R
prohibited.
© MEDGEEK
?
,TU S
VIATU
TABLE OF CONTENTS
Solutions Manual – Principles of Taxation for Business and Investment Planning 2023 (26th Edition)
Authors: Sally Jones, Shelley Rhoades-Catanach, and Sandra Callaghan
ISBN: 9781264229741
PART 1: EXPLORING THE TAX ENVIRONMENT
_MVI
Chapter 1: Taxes and Taxing Jurisdictions
Chapter 2: Policy Standards for a Good Tax
PART 2: FUNDAMENTALS OF TAX PLANNING
Chapter 3: Taxes as Transaction Costs
Chapter 4: Maxims of Income Tax Planning
ED_
Chapter 5: Tax Research
A
PART 3: MEASUREMENT OF TAXABLE INCOME
Chapter 6: Taxable Income from Business Operations
Chapter 7: Property Acquisitions and Cost Recovery Deductions
CAOP
Chapter 8: Property Dispositions
Chapter 9: Nontaxable Exchanges
PART 4: THE TAXATION OF BUSINESS ENTITIES
Chapter 10: Sole Proprietorships, Partnerships, LLCs, and S Corporations
PNRN
Chapter 11: The Corporate Taxpayer
Chapter 12: The Choice of Business Entity
Chapter 13: Jurisdictional Issues in Business Taxation
PART 5: THE INDIVIDUAL TAXPAYER
OOV IS
Chapter 14: The Individual Tax Formula
Chapter 15: Compensation and Retirement Planning
Chapter 16: Investment and Personal Financial Planning
Chapter 17: Tax Consequences of Personal Activities
EDSEU
PART 6: TAX COMPLIANCE
Chapter 18: The Tax Compliance Process
? R
,TU S
VIATU
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.
_MVI
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
ED_
between private parties engaging in a market transaction. The payment also entitles the payer to
a specific benefit (the right to marry under law).
A
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.
CAOP
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.
PNRN
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
OOV IS
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
EDSEU
state universities or private colleges. If University K is entitled to such an exemption, every
commercial building or residence acquired by the University reduces the local jurisdiction‘s
property tax base.
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
? R
service subject to excise tax.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
1-1
,TU S
VIATU 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
_MVI
excise tax.
13. The federal income tax has the broader base. The federal payroll tax is imposed on wages,
salaries, and other forms of compensation earned by employees. The federal income tax is
imposed on all types of 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-
ED_
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.
A
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
CAOP
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 by Congress and signed by the
President. 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
PNRN
official interpretation of statutory law. Practically, the regulations carry considerable authoritative
weight.
Application Problems
OOV IS
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
EDSEU
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
? R
generated by the Manhattan real estate.
c. The United States does not have jurisdiction to tax Mrs. May.
d. The United States has jurisdiction to tax Mrs. May because she is a U.S. citizen.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
1-2
