South-Western Federal Taxation 2022: Individual Income Taxes 45th edition by James C. Young Solution

An Introduction to Taxation and Understanding the Federal Tax Law  1-7
© 2022 Cengage ® . May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
44.  (LO 5, 6)
a.  No. Because no return was filed, the statute of limitations never runs. But even if a return had
been filed, the three-year period for the 2017 tax return would not expire until April 15, 2021,
three years after the normal due date for filing.
b.  Although you can only recommend that the return be filed, you cannot force him to do so.
However, you should not undertake the engagement for 2018 through 2020 if you cannot
correctly reflect the tax liability due to the omission for 2017.
45.  (LO 5, 6) The practice of outsourcing the preparation of tax returns is ethical if three steps are taken.
•  Maintain client confidentiality.
•  Verify the accuracy of the work done.
•  Notify the client, preferably in writing, of the outsourcing.
46.  (LO 7)
a.  This is the ideal approach to handling a tax cut—for every dollar lost, a new dollar is gained.
b.  All the sunset provision does is reinstate the law as it existed prior to the tax cut. Here, the
possibility exists that Congress will rescind (or postpone) the sunset provision before it takes
effect.
c.  Indexation is a procedure whereby the IRS makes annual adjustments to certain key tax
components to take into account inflation, as required by law. Some of the more important
components that are adjusted include tax brackets and the standard deduction amounts.
47.  (LO 7)
a.  To encourage pension plans is to stimulate saving (economic consideration). Also, it provides
security from the private sector for retirement to supplement rather meager public programs
(social considerations).
b.  To make education more widely available is to promote a socially desirable objective. A
better educated workforce also serves to improve the country’s economic capabilities. As a
result, education tax incentives can be justified on both social and economic grounds.
c.  The encouragement of home ownership can be justified on both social and economic
grounds.
48.  (LO 7, 8)
a.  Social considerations explain the credit. It is socially desirable to encourage parents to
provide care for their children while they work.
b.  These deductions raise the issue of preferential tax treatment for homeowners—taxpayers
who rent their personal residences do not receive comparable treatment. Even so, the
encouragement of home ownership can be justified on economic and social grounds.
c.  The joint return procedure came about to equalize the position of married persons living in
common law states with those residing in community property jurisdictions. Political and
equity considerations caused this result.
d.  Activities deemed contrary to public policy should not result in tax savings.
e.  The NOL carryforward provision is an equity consideration designed to mitigate the effect of
the annual accounting period concept.
1-8  2022 Individual Income Taxes/Solutions Manual
© 2022 Cengage ® . May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
f.  The installment method of reporting gain is consistent with the wherewithal to pay concept—
the seller is taxed when the payments are made by the purchaser.
g.  The exclusion from Federal income taxation of interest from state and local bonds can be
justified largely on political considerations. Political goodwill is generated by allowing state
and local jurisdictions to secure financing at a lower cost (i.e., interest rate) due to favorable
Federal income tax treatment.
h.  The treatment of prepaid income is justified under the wherewithal to pay concept. It also
eases the task of the IRS as to administration of the tax law.
49.  (LO 7)
a.  Mia’s realized gain from the condemnation is $320,000 [$400,000 (amount of award) −
$80,000 (cost basis of the warehouse)]. However, her recognized gain is limited to
$120,000—the amount received that was not reinvested.
b.  None of the gain is recognized because Mia reinvested the full amount of the condemnation
award.
c.  In this case, all of Mia’s $320,000 realized gain is recognized. Mia reinvested only $80,000
of the $400,000 award, so the $320,000 difference between these two amounts means any
realized gain will be recognized to the extent of this difference.
d.  The involuntary conversion provision can be justified under the wherewithal to pay concept