,ACCESS Test Bank for South Western Federal Taxation 2023 Essentials of Taxati
b b b b b b b b b b b
on Individuals and Business Entities 26th Edition Nellen
b b b b b b b
CHAPTERb1bINTRODUCTIO
NbTObTAXATION
SOLUTIONSbTObPROBLEMbMATERIALS
PROBLEMS
1. (LOb1)bVariousbanswersbarebpossible,bincludingbusingbthebKeybTermsbatbthebendbofbeachbchapter,breferri
ngbtobthebGlossaryb(AppendixbC),blookingbupbthebfootnotebresourcesbtobthebInternalbRevenuebCodebinbA
ppendixbD,busingbchapterbfeaturesb(e.g.,bGlobalbTaxbIssues,bEthicsb&bEquity,bTaxbPlanning,bandbDiggin
gbDeeper),bexaminingbthebtaxbformsbusedbinbthebchapters,bandbcompletingbadditionalbend-bof-
chapterbassignments.bAllbofbthesebresourcesbwillbhelpbstudentsbengagebmorebdeeplybwithbthebmaterialsba
ndbhelpbtheirbunderstanding.
2. (LOb3,b5,b6)bSomebtaxbandbnontaxbconsiderationsbJamesbshouldbinvestigatebincludebthebfollowing:
• Statebandblocalbincomebtaxes.
• Statebandblocalbsalesbtaxes.
• Statebandblocalbpropertybtaxes.
• Employeeb implicationsb ofb theb moveb (Willb Jamesb loseb currentb employees?b Isb theb laborb marketb
betterbinbthebnewblocation?bIsbcostbofblivingblowerborbhigherbinbnewblocation?).
• Logistics/transportationbofbproductsbtobcustomersb(specificallybdocumentblowerbcosts).
• Statebinfrastructureb(betterbinbnewblocation?).
3. (LOb1,b2,b3)bAbtaxbisbregressivebifbitbrepresentsbablargerbpercentagebofbthebincomebofbablow-
incomebtaxpayerbrelativebtobthebincomebofbabhigh-
incomebtaxpayer.bExamplesbofbregressivebtaxesbincludebsalesbandbexcisebtaxes.bAbtaxbisbprogressivebifbit
brepresentsbablargerbpercentagebof bthebincomebofbabhigh-
bincomebtaxpayerbrelativebtobthebincomebof bablow-
incomebtaxpayer.bThebFederalbincomebtaxbisbanbexamplebofbabprogressivebtax.
4. (LOb3)
a. Thebparsonagebprobablybwasbnotblistedbonbthebpropertybtaxbrollsbbecausebitbwasbownedbbybabtax-
bexempt bchurch.bApparently,bthebtaxingbauthoritiesbarebnotbawarebthatbownershipbhasbchanged.
b. Ethanbshouldbnotifybthebauthoritiesbofbhisbpurchase.bThisbwillbforcebhimbtobpaybbackbtaxesbbutb
maybeliminatebfuturebinterestbandbpenalties.
5. (LOb1,b6)b(SeebDiggingbDeeperb1.)bAsbtobAdambSmith’sbcanonbonbeconomy,bthebFederalbincomebtaxbyiel
dsbabmixedbresult.bFrombthebstandpointbofbthebIRS,beconomybexistsbasbcollectionbcostsbarebnominalb(whe
nbcomparedbwithbrevenuebgenerated).bThebgovernment'sbcostbofbcollectingbFederalbtaxesbamountsbtobles
sbthanbone-
halfbofb1bpercentbofbthebrevenuebcollected.bEconomybisbnotbpresent,bhowever,bifboneblooksbtobthebcompli
ancebeffortbandbcostsbexpendedbbybtaxpayers.bAccordingbtobrecentbestimates,baboutb56%bofbindividualbta
xpayersbwhobfilebabreturnbpaybabpreparer,bandbone-thirdbpurchasebtaxbsoftware.
©b2023bCengage®.bMaybnotbbebscanned,bcopiedborbduplicated,borbpostedbtobabpubliclybaccessiblebwebsite,binbwholeborbinbpa
rt.
mynursytest.store
, 1-1
©b2023bCengage®.bMaybnotbbebscanned,bcopiedborbduplicated,borbpostedbtobabpubliclybaccessiblebwebsite,binbwholeborbinbpa
rt.
mynursytest.store
, ACCESS Test Bank for South Western Federal Taxation 2023 Essentials of Taxati
b b b b b b b b b b b
on Individuals and Business Entities 26th Edition Nellen
b b b b b b b
1-2 2023bEssentialsbofbTaxation/SolutionsbManual
6. (LOb3)bJangbprobablybwillbbebrequiredbtobpaybthebWashingtonbusebtaxbif,bandbwhen,bhebappliesbforbWash
ingtonblicensebplates.bInbthisbcase,bthebusebtaxbprobablybisbthebsamebamountbasbthebWashingtonbsalesbtax.
bSeebthebdiscussionbinbconnectionbwithbExampleb14binbthebtextbook.
7. (LOb3)bAlthoughbthebBakerbMotorsbbidbisbtheblowest,bfrombablong-
termbfinancialbstandpoint,bitbisbthebbest.bThebproposedbusebofbthebpropertybbybthebstatebandbthebchurchbpr
obablybwillbmakebitbexemptbfrombthebschoolbdistrict’sbadbvalorembtax.bThisbwouldbhardlybbebthebcasebwi
thbabcarbdealership.bInbfact,bcommercialbpropertiesb(e.g.,bcarbdealerships)boftenbarebsubjectbtobhigherbtaxb
rates.
8. ((LOb3,b4)bAbpossiblebexplanationbisbthatbSophiabmadebcapitalbimprovementsb(e.g.,baddedbabswimmingb
pool)btobherbresidencebandbherbparentsbbecamebretireesb(e.g.,breachedbageb65).
9. (LOb5,b6) SWFT,bLLP
5191bNatorpbBoulevard
Mason,bOHb45040
Februaryb25,b2022
CynthiabClay
1206bSeventhbAvenuebFor
tbWorth,bTXb76101
DearbCynthia:
Ibambwritingbthisbletterbtobhelpbyoubdecidebonbwhatbformbofbentitybtobchoosebforbyourbnewbfoodbdeliveryb
business.bInbourbphonebconversation,byoubindicatedbthatbyoubexpectbtobhaveblossesbforbthebfirstbtwobyears
binbthisbbusinessbandbthenbmakebsubstantialbprofitsbinbsubsequentbyears.bYoubandbMarcobalsobindicatedbt
hatbyoubarebconcernedbaboutbpotentialbpersonalbliability.
WhilebIbcan’tbmakebabconclusivebrecommendationbbasedbonbthebinformationbyoubhavebgivenbme,bIbcanbp
rovidebyoubwithbsomebgeneralbguidelinesbthatbshouldbsimplifybyourbdecision.bFirst,bgivenbyourbconcernb
aboutbpersonalbliability,babpartnershipbdoesbnotbappearbtobbebabdesirableboptionb(youbwouldbbothbbebpers
onallybliablebforbanybinjuriesbtobcustomers).bSimilarly,bgivenbyourbexpectationbofblossesbinbthebfirstbtwob
years,bitbdoesbnotbappearbthatbabCbcorporationbwouldbbebabdesirablebchoice,batbleastbinitially.bThisbisbbeca
usebanyblossesbinbthebcorporationbcouldbonlybbebusedbtoboffsetbfuturebcorporatebprofits—
youbcouldbnotbusebtheblossesbtobimmediatelyboffsetbyourbpersonalbtaxbliability.
Thus,btwobchoicesbexistbwhichbprovideblimitedbliabilitybandbdeductibilitybofblossesbonbyourbpersonalbinc
omeb taxb return.b Theseb areb theb Sb corporationb andb theb limitedb liabilityb company.b Ifb youb chooseb anbSbc
orporation,bwebwouldbprobablybconvertbthebentitybtobabCbcorporationbwhenbthebbusinessbbecomesbprofit
able.bAtbthatbpoint,bprofitsbwouldbbebtaxedbatbthebCbcorporationbrate.bAbsecondbtaxbwouldbbebleviedbonbyo
urbpersonalbincomebtaxbreturnbforbanybdividendsbpaidbbybthebcorporationboncebitbachievesbCbstatus.bInbcon
trast,blimitedbliabilitybcompaniesbarebtaxedblikebpartnerships—
allbincomebwouldbbebtaxedbonbyourbpersonalbincomebtaxbreturnbinbprofitablebyears.bThebrelativebdesirabil
itybofbeachbofbthesebtwobformsbdependsbonbabnumberbofbfactors.bOnebofbthebmostbimportantbfactorsbinbyo
urbsituationbisbthebrelationshipbbetweenbyourbpersonalbtaxbratebandbthebtaxbratebofbabCbcorporation.bIfbyouba
rebinbabhighbtaxbbracketbandbifbthebincomebinbthebbusinessbisbsufficientlyblow,byoubmightbbebbestboffbchoos
ingbthebSbcorporation.bAlternatively,bifbyoubexpectbthebbusinessbtobgeneratebabsufficientlyblargebprofitbeach
byear,bitbmightbbebbestbtobchoosebtheblimitedbliabilitybcompany.bThebqualifiedbbusinessbincome bdeductionbf
orbincomebfrombflow-
bthroughbentitiesbalongbwithbthebflatbtaxbratebofb21%bthatbappliesbtobcorporationsbalsobmustbbebtakenbintob
consideration.
©b2023bCengage®.bMaybnotbbebscanned,bcopiedborbduplicated,borbpostedbtobabpubliclybaccessiblebwebsite,binbwholeborbinbpa
rt.
mynursytest.store
b b b b b b b b b b b
on Individuals and Business Entities 26th Edition Nellen
b b b b b b b
CHAPTERb1bINTRODUCTIO
NbTObTAXATION
SOLUTIONSbTObPROBLEMbMATERIALS
PROBLEMS
1. (LOb1)bVariousbanswersbarebpossible,bincludingbusingbthebKeybTermsbatbthebendbofbeachbchapter,breferri
ngbtobthebGlossaryb(AppendixbC),blookingbupbthebfootnotebresourcesbtobthebInternalbRevenuebCodebinbA
ppendixbD,busingbchapterbfeaturesb(e.g.,bGlobalbTaxbIssues,bEthicsb&bEquity,bTaxbPlanning,bandbDiggin
gbDeeper),bexaminingbthebtaxbformsbusedbinbthebchapters,bandbcompletingbadditionalbend-bof-
chapterbassignments.bAllbofbthesebresourcesbwillbhelpbstudentsbengagebmorebdeeplybwithbthebmaterialsba
ndbhelpbtheirbunderstanding.
2. (LOb3,b5,b6)bSomebtaxbandbnontaxbconsiderationsbJamesbshouldbinvestigatebincludebthebfollowing:
• Statebandblocalbincomebtaxes.
• Statebandblocalbsalesbtaxes.
• Statebandblocalbpropertybtaxes.
• Employeeb implicationsb ofb theb moveb (Willb Jamesb loseb currentb employees?b Isb theb laborb marketb
betterbinbthebnewblocation?bIsbcostbofblivingblowerborbhigherbinbnewblocation?).
• Logistics/transportationbofbproductsbtobcustomersb(specificallybdocumentblowerbcosts).
• Statebinfrastructureb(betterbinbnewblocation?).
3. (LOb1,b2,b3)bAbtaxbisbregressivebifbitbrepresentsbablargerbpercentagebofbthebincomebofbablow-
incomebtaxpayerbrelativebtobthebincomebofbabhigh-
incomebtaxpayer.bExamplesbofbregressivebtaxesbincludebsalesbandbexcisebtaxes.bAbtaxbisbprogressivebifbit
brepresentsbablargerbpercentagebof bthebincomebofbabhigh-
bincomebtaxpayerbrelativebtobthebincomebof bablow-
incomebtaxpayer.bThebFederalbincomebtaxbisbanbexamplebofbabprogressivebtax.
4. (LOb3)
a. Thebparsonagebprobablybwasbnotblistedbonbthebpropertybtaxbrollsbbecausebitbwasbownedbbybabtax-
bexempt bchurch.bApparently,bthebtaxingbauthoritiesbarebnotbawarebthatbownershipbhasbchanged.
b. Ethanbshouldbnotifybthebauthoritiesbofbhisbpurchase.bThisbwillbforcebhimbtobpaybbackbtaxesbbutb
maybeliminatebfuturebinterestbandbpenalties.
5. (LOb1,b6)b(SeebDiggingbDeeperb1.)bAsbtobAdambSmith’sbcanonbonbeconomy,bthebFederalbincomebtaxbyiel
dsbabmixedbresult.bFrombthebstandpointbofbthebIRS,beconomybexistsbasbcollectionbcostsbarebnominalb(whe
nbcomparedbwithbrevenuebgenerated).bThebgovernment'sbcostbofbcollectingbFederalbtaxesbamountsbtobles
sbthanbone-
halfbofb1bpercentbofbthebrevenuebcollected.bEconomybisbnotbpresent,bhowever,bifboneblooksbtobthebcompli
ancebeffortbandbcostsbexpendedbbybtaxpayers.bAccordingbtobrecentbestimates,baboutb56%bofbindividualbta
xpayersbwhobfilebabreturnbpaybabpreparer,bandbone-thirdbpurchasebtaxbsoftware.
©b2023bCengage®.bMaybnotbbebscanned,bcopiedborbduplicated,borbpostedbtobabpubliclybaccessiblebwebsite,binbwholeborbinbpa
rt.
mynursytest.store
, 1-1
©b2023bCengage®.bMaybnotbbebscanned,bcopiedborbduplicated,borbpostedbtobabpubliclybaccessiblebwebsite,binbwholeborbinbpa
rt.
mynursytest.store
, ACCESS Test Bank for South Western Federal Taxation 2023 Essentials of Taxati
b b b b b b b b b b b
on Individuals and Business Entities 26th Edition Nellen
b b b b b b b
1-2 2023bEssentialsbofbTaxation/SolutionsbManual
6. (LOb3)bJangbprobablybwillbbebrequiredbtobpaybthebWashingtonbusebtaxbif,bandbwhen,bhebappliesbforbWash
ingtonblicensebplates.bInbthisbcase,bthebusebtaxbprobablybisbthebsamebamountbasbthebWashingtonbsalesbtax.
bSeebthebdiscussionbinbconnectionbwithbExampleb14binbthebtextbook.
7. (LOb3)bAlthoughbthebBakerbMotorsbbidbisbtheblowest,bfrombablong-
termbfinancialbstandpoint,bitbisbthebbest.bThebproposedbusebofbthebpropertybbybthebstatebandbthebchurchbpr
obablybwillbmakebitbexemptbfrombthebschoolbdistrict’sbadbvalorembtax.bThisbwouldbhardlybbebthebcasebwi
thbabcarbdealership.bInbfact,bcommercialbpropertiesb(e.g.,bcarbdealerships)boftenbarebsubjectbtobhigherbtaxb
rates.
8. ((LOb3,b4)bAbpossiblebexplanationbisbthatbSophiabmadebcapitalbimprovementsb(e.g.,baddedbabswimmingb
pool)btobherbresidencebandbherbparentsbbecamebretireesb(e.g.,breachedbageb65).
9. (LOb5,b6) SWFT,bLLP
5191bNatorpbBoulevard
Mason,bOHb45040
Februaryb25,b2022
CynthiabClay
1206bSeventhbAvenuebFor
tbWorth,bTXb76101
DearbCynthia:
Ibambwritingbthisbletterbtobhelpbyoubdecidebonbwhatbformbofbentitybtobchoosebforbyourbnewbfoodbdeliveryb
business.bInbourbphonebconversation,byoubindicatedbthatbyoubexpectbtobhaveblossesbforbthebfirstbtwobyears
binbthisbbusinessbandbthenbmakebsubstantialbprofitsbinbsubsequentbyears.bYoubandbMarcobalsobindicatedbt
hatbyoubarebconcernedbaboutbpotentialbpersonalbliability.
WhilebIbcan’tbmakebabconclusivebrecommendationbbasedbonbthebinformationbyoubhavebgivenbme,bIbcanbp
rovidebyoubwithbsomebgeneralbguidelinesbthatbshouldbsimplifybyourbdecision.bFirst,bgivenbyourbconcernb
aboutbpersonalbliability,babpartnershipbdoesbnotbappearbtobbebabdesirableboptionb(youbwouldbbothbbebpers
onallybliablebforbanybinjuriesbtobcustomers).bSimilarly,bgivenbyourbexpectationbofblossesbinbthebfirstbtwob
years,bitbdoesbnotbappearbthatbabCbcorporationbwouldbbebabdesirablebchoice,batbleastbinitially.bThisbisbbeca
usebanyblossesbinbthebcorporationbcouldbonlybbebusedbtoboffsetbfuturebcorporatebprofits—
youbcouldbnotbusebtheblossesbtobimmediatelyboffsetbyourbpersonalbtaxbliability.
Thus,btwobchoicesbexistbwhichbprovideblimitedbliabilitybandbdeductibilitybofblossesbonbyourbpersonalbinc
omeb taxb return.b Theseb areb theb Sb corporationb andb theb limitedb liabilityb company.b Ifb youb chooseb anbSbc
orporation,bwebwouldbprobablybconvertbthebentitybtobabCbcorporationbwhenbthebbusinessbbecomesbprofit
able.bAtbthatbpoint,bprofitsbwouldbbebtaxedbatbthebCbcorporationbrate.bAbsecondbtaxbwouldbbebleviedbonbyo
urbpersonalbincomebtaxbreturnbforbanybdividendsbpaidbbybthebcorporationboncebitbachievesbCbstatus.bInbcon
trast,blimitedbliabilitybcompaniesbarebtaxedblikebpartnerships—
allbincomebwouldbbebtaxedbonbyourbpersonalbincomebtaxbreturnbinbprofitablebyears.bThebrelativebdesirabil
itybofbeachbofbthesebtwobformsbdependsbonbabnumberbofbfactors.bOnebofbthebmostbimportantbfactorsbinbyo
urbsituationbisbthebrelationshipbbetweenbyourbpersonalbtaxbratebandbthebtaxbratebofbabCbcorporation.bIfbyouba
rebinbabhighbtaxbbracketbandbifbthebincomebinbthebbusinessbisbsufficientlyblow,byoubmightbbebbestboffbchoos
ingbthebSbcorporation.bAlternatively,bifbyoubexpectbthebbusinessbtobgeneratebabsufficientlyblargebprofitbeach
byear,bitbmightbbebbestbtobchoosebtheblimitedbliabilitybcompany.bThebqualifiedbbusinessbincome bdeductionbf
orbincomebfrombflow-
bthroughbentitiesbalongbwithbthebflatbtaxbratebofb21%bthatbappliesbtobcorporationsbalsobmustbbebtakenbintob
consideration.
©b2023bCengage®.bMaybnotbbebscanned,bcopiedborbduplicated,borbpostedbtobabpubliclybaccessiblebwebsite,binbwholeborbinbpa
rt.
mynursytest.store
