Acc 460e-v3 – Tax Exam (5 questions) ALLOCATE 24 MINUTES PER QUESTION.
Each answer is limited to two paragraphs. Use Checkpoint at library.manoa.hawaii.edu.
1. ALLOCATE YOUR TIME. ANSWER EACH PART OF EACH QUESTION.
2. FOLLOW INSTRUCTIONS, SUCH AS WRITING TWO PARAGRAPHS
3. PAY ATTENTION TO THE WORDS, SUCH AS “REGULATION,” not code.
4. WRITE PROPER CITATIONS. REGULARLY SAVE YOUR ANSWERS.
5. PLACE YOUR NAME ON THE EXAM AND IN THE FILENAME.
1. RESEARCH AND APPLICATION:
In the first paragraph apply the relevant authorities to determine Sven’s gross income.
In the second paragraph apply the relevant authorities to determine Myrtle’s gross income.
Use proper citations for your precise authorities.
Sven loaned Mardell $140,000 for his gardening supplies company. A drought occurred
during the year. Because Mardell was unable to repay the loan, Sven accepted the
following plan to extinguish Mardell’s debt. Mardell is to pay cash of $3,000 and transfer
ownership of the gardening property having a value of $80,000 and a basis of $60,000.
Mardell must also transfer stock with a value of $30,000 and a basis of $45,000.
2. ISSUE IDENTIFICATION and DISCUSSION OF LAW:
In the first paragraph, write two major sophisticated issues.
In the second paragraph discuss the relevant internal revenue code sections and
regulations, as precisely as possible, as if writing a Discussion of Law.
Assume that your client is Marijuana Growers LLC. The client had $2 million in
revenue from legally selling marijuana under Hawaii law. Its expenses were $700,000
for the cost of goods sold and $80,000 for other business expenses. Assume the
federal government criminally prohibits both growing, using, or selling marijuana.
Realize that in the last five years, Hawaii and most states have legalized marijuana to
permit medical use of marijuana. States on the west coast and in New England now
generally also permit recreational use; while a similar number of states in the south
and the great plains generally outlaw growing, using, or selling marijuana.
3. WRITING AND PROFESSIONALISM:
In your first paragraph, explain to Millie, a new tax intern, how to conduct
tax research on any negligence penalty. Provide a comprehensive, well organized
explanation of the most important precise sources.
In your second paragraph, explain to Millie any controversy regarding access to all
politicians’ tax returns for the last six years. Controversy requires that you explain briefly
the arguments both for and against access. Finish your paragraph by taking a position on
the controversy with a well-reasoned explanation for your position. Cite any source used.
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WRITING / ADVANCED RESEARCH
4. In the first paragraph use the citator to update the decision in United
States v. Textron Inc., 507 F. Supp. 138 (D.R.I. 2007). Provide a proper
citation. Determine whether any case has cited this decision.
If so, provide the citations to the highest-level court(s). In the second
paragraph, explain how the topic in this case impacts accountants.
RESEARCH / APPLICATION
5. Mindy and her mother Jane live in Hawaii. Mindy’s mother Jane caught the Corona virus and was
hospitalized with no insurance. After one-week Jane had over $50,000 of medical bills. Jane requested a
$50,000 loan from Big Bank. Mindy signed the promissory note for her mother so she wouldn’t get
kicked out early from the hospital, assuming secondary liability to repay the note. Jane never fully
recovered from the corona virus and died four days later. Mindy paid the $50,000 back to Big Bank and
then deducted the cost as a bad debt. Upon audit, the IRS disallowed Mindy’s deduction. Examine Donald
M. Clayton v. Commissioner, TC Memo 1995-416, 70 TCM 534 (1995).
In your first paragraph, apply the relevant code and regs to Mindy’s situation
(as if writing the application of the law). In the second paragraph, apply the Clayton
case to Mindy’s case (NOT a discussion of Clayton). Include a proper citation for Clayton.
In the last sentence or two provide as much insight as possible about the validity of the Clayton decision
and its impact for Mindy who resides in Hawaii.
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Your exam will have five questions.
(probably three new and tweak two questions from a prior exam or assignment).
1-2 CODE/ REG. RESEARCH, ISSUE SPOTTING, &/or APPLICATION
FACTS: Caz is a self-employed author who uses a home office to write. Caz spends 25 to 30 hours of
Caz’s work time per week in the home office writing. Caz also spends another 15 to 20 hours of C’s work
time per week at other locations conducting research, meeting with Caz’s publishers, and attending
promotional events.
1. Using the above information and any relevant authority, write the LEGAL ISSUE.
2. Find the most relevant case to Caz’s situation. Discuss at least one case.
FACTS: Myrtle is a real estate developer who lives in Hawaii. This year she leased an airplane for
$900,000 and spent another $100,000 on fuel and insurance costs. The plane was used 20% of the
time for personal vacations. She used the airplane for five one-week trips to Vietnam while she was
building an office tower there. Assume a first-class travel ticket to Vietnam cost $5,000, while a
coach ticket costs $2,000. Myrtle wants to know how much of her $1,000,000 expenses are
deductible. Chartering an airplane to Vietnam would have cost $200,000 per trip.
1. RESEARCH SKILLS: Discuss the relevant Code and Regs in the first paragraph.
In the second paragraph, discuss one or two relevant cases for this problem.
2. WRITING SKILLS: Write a client letter to Myrtle.
FACTS: Tiger contracts to have Contractor build a new luxury house. Tiger paid $1 million on a
$1.4 million contract but finds out the Contractor never bought the windows, marble, and supplies
that he billed Tiger for and conned Tiger into thinking he had bought them. The missing materials
add up to $500,000. Tiger comes to you for professional tax advice. The Contractor is now declaring
bankruptcy.
1. IDENTIFY TWO RELEVANT TAX ISSUE(s)
2. APPLICATION SKILLS, USING ADVANCED RESEARCH SKILLS: Apply the relevant
Code and Regs in the first paragraph. In the second paragraph, apply one relevant case.
4. ADVANCED RESEARCH SKILLS:
Bemont Investments 679 F.3d 339 United States Court of Appeals, Fifth Circuit, April 26, 2012
In the first paragraph, summarize the court’s holding in the case in one or two sentences.
Give the proper citation for the case. In the second paragraph, explain whether one can rely on the
decision in this case. Provide as much insight as possible about the validity of the decision and its
impact for taxpayers in Hawaii.
In the first paragraph use the citator to update the decision in United States v. Textron Inc., 507 F.
Supp. 138 (D.R.I. 2007). Determine whether any case has cited this decision. In the second paragraph,
explain how the topic in this case impacts accountants.
Given tax form XXX (which you pull from the IRS’ website), how would you complete ___?
What specific advice would you offer to complete that part of the form? Get as precise as possible.
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5. WRITiNG AND PROFESSIONALISM
In your first paragraph, explain to Millie, a new tax intern how:
(a) to conduct tax research on a 902 corporation.
(b) Circular 230’s significance and implications for a tax professional,
(c) the Paradise Papers, explain what they are, what they reveal, or
In your second paragraph, explain to Millie
(a) the firm’s professional responsibilities in serving their clients,
using the information referenced.
(b) the difference between primary and secondary tax authorities.
Identify leading examples of both.
(c) Answers to specific questions by looking at a tax-exempt entity tax return…
(d) Identify each of the following three sentences as FACTS, LAW, or APPLICATION.
Rewrite the following sentences in logical order. Correct any error or improve the clarity.
a. Ann’s purchase of motrin, a controlled substance, helps her recover from cancer.
b. Amounts paid to obtain motrin are not deductible under section 1.213.
c. Rev. Rul. 78-325 is obsoleted.
Identify the primary writing and other problems in the following two paragraph of facts:
U.S. citizens are subject to tax on all income they receive, regardless of the source. Thus, taxes are
levied on worldwide income. To provide relief from double taxation for U.S. citizens working in
foreign countries, the tax law allows individuals two options. First, taxpayers may include the
foreign-earned income in their taxable income, calculate the U.S. tax on the income and take a tax
credit for any foreign taxes paid. Second, individuals may exclude up to $80,000 in foreign earned
income for 2015 as they work in a foreign country.
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Acc 460e-v3 – Tax Exam (5 questions) ALLOCATE 24 MINUTES PER QUESTION.
Each answer is limited to two paragraphs. Use Checkpoint at library.manoa.hawaii.edu.
1. ALLOCATE YOUR TIME. ANSWER EACH PART OF EACH QUESTION.
2. FOLLOW INSTRUCTIONS, SUCH AS WRITING TWO PARAGRAPHS
3. PAY ATTENTION TO THE WORDS, SUCH AS “REGULATION,” not code.
4. WRITE PROPER CITATIONS. REGULARLY SAVE YOUR ANSWERS.
5. PLACE YOUR NAME ON THE EXAM AND IN THE FILENAME.
1. RESEARCH AND APPLICATION:
In the first paragraph apply the relevant authorities to determine Sven’s gross income.
In the second paragraph apply the relevant authorities to determine Mardell’s gross income.
Use proper citations for your precise authorities.
Sven loaned Mardell $140,000 for his gardening supplies company. A drought occurred
during the year. Because Mardell was unable to repay the loan, Sven accepted the
following plan to extinguish Mardell’s debt. Mardell is to pay cash of $3,000 and transfer
ownership of the gardening property having a value of $80,000 and a basis of $60,000.
Mardell must also transfer stock with a value of $30,000 and a basis of $45,000.
2. ISSUE IDENTIFICATION and DISCUSSION OF LAW:
In the first paragraph, write two major sophisticated issues.
In the second paragraph discuss the relevant internal revenue code sections and
regulations, as precisely as possible, as if writing a Discussion of Law.
Assume that your client is Marijuana Growers LLC. The client had $2 million in
revenue from legally selling marijuana under Hawaii law. Its expenses were $700,000
for the cost of goods sold and $80,000 for other business expenses. Assume the
federal government criminally prohibits both growing, using, or selling marijuana.
Realize that in the last five years, Hawaii and most states have legalized marijuana to
permit medical use of marijuana. States on the west coast and in New England now
generally also permit recreational use; while a similar number of states in the south
and the great plains generally outlaw growing, using, or selling marijuana.
3. WRITING AND PROFESSIONALISM:
In your first paragraph, explain to Millie, a new tax intern, how to conduct
tax research on any negligence penalty. Provide a comprehensive, well organized
explanation of the most important precise sources.
In your second paragraph, explain to Millie any controversy regarding access to all
politicians’ tax returns for the last six years. Controversy requires that you explain briefly
the arguments both for and against access. Finish your paragraph by taking a position on
the controversy with a well-reasoned explanation for your position. Cite any source used.
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WRITING / ADVANCED RESEARCH
4. In the first paragraph use the citator to update the decision in
United States v. Textron Inc., 507 F. Supp. 138 (D.R.I. 2007). Provide
a proper citation. Determine whether any case has cited this decision.
If so, provide the citations to the highest-level court(s). In the second
paragraph, explain how the topic in this case impacts accountants.
RESEARCH / APPLICATION
5. Mindy and her mother Jane live in Hawaii. Mindy’s mother Jane caught the Corona virus and was
hospitalized with no insurance. After one-week Jane had over $50,000 of medical bills. Jane requested a
$50,000 loan from Big Bank. Mindy signed the promissory note for her mother so she wouldn’t get
kicked out early from the hospital, assuming secondary liability to repay the note. Jane never fully
recovered from the corona virus and died four days later. Mindy paid the $50,000 back to Big Bank and
then deducted the cost as a bad debt. Upon audit, the IRS disallowed Mindy’s deduction. Examine
Donald M. Clayton v. Commissioner, TC Memo 1995-416, 70 TCM 534 (1995).
In your first paragraph, apply the relevant code and regs to Mindy’s situation
(as if writing the application of the law). In the second paragraph, apply the Clayton
case to Mindy’s case (NOT a discussion of Clayton). Include a proper citation for Clayton.
In the last sentence or two provide as much insight as possible about the validity of the Clayton decision
and its impact for Mindy who resides in Hawaii.
——————————————————–
Acc 460E – Exam – example
Name _________________
Also, save your file name with your name as part of it.
ALLOCATE YOUR TIME! (6 Questions – MAXIMUM 15 MINUTES PER QUESTION )
NOTE – 6 questions for a 2 hour exam; 5 questions for 1 hour 45 minutes.
REMAINING TIME FOR REVIEW AND POLISHING YOUR ANSWER
Each answer involves writing two paragraphs. Please follow instructions.
REGULARLY SAVE YOUR ANSWERS. Use proper citations.
1. ADVANCED RESEARCH and WRITING SKILLS: For the first paragraph,
write a sentence for each of the following three parts of the problem, answering each
of the following with reasoning. Add a topic sentence explaining the paragraph.
A. Assume that the taxpayer has a tax issue in which the only authorities on point are
the following: (a) an unfavorable circuit court of appeals case from the same circuit as
the taxpayer’s residence and (b) a favorable decision from a federal district court in
another circuit. What option should one advise the taxpayer to use? Why?
B. Assume that the taxpayer has a tax issue in which the only authorities on point are
the following: (a) an article written by a famous tax lawyer that supports taxpayer’s
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position and (b) a Revenue Ruling that does not support taxpayer’s position.
What source does the researcher advise the taxpayer to follow? Why?
C. Assume that the taxpayer has a tax issue in which the only authorities on point are as
follows: (a) a private letter ruling that favors the taxpayer’s position and (b) a Tax Court
regular decision that opposes taxpayer’s position. What source does the researcher
advise the taxpayer to follow? Why?
For the second paragraph, locate Revenue Procedures 2016-11. Write one or two
sentences identify the major topic of this revenue procedure and the date it was issued.
For Rev. Proc. 2016-11, using sentences (not an outline) identify the 3-4 most relevant
Code sections and the topics of these code sections. Add another sentence explaining
what IRS tax form(s) (if any) address the same topics.
2. RESEARCH AND APPLICATION: Myrtle loaned Sven $150,000 for his gardening
supplies company. A drought occurred during the year. Because Sven was unable to
repay the loan, Myrtle accepted the following plan to extinguish Sven’s debt. Sven is to
pay cash of $3,000 and transfer ownership of the gardening property having a value of
$80,000 and a basis of $60,000. Sven must also transfer stock with a value of $30,000
and a basis of $45,000.
In the first paragraph apply the relevant authorities to determine Sven’s gross income.
In the second paragraph apply the relevant authorities to determine Myrtle’s gross
income. Use proper citations for your authorities.
3. ISSUE IDENTIFICATION, and DISCUSSION OF LAW: On December 5, 2017,
Clay became a material advisor to Client Y with respect to the same type of listed
transaction. Clay derives $100,000 in gross income from his advice to Client Y because
he expects to receive that amount from Client Y, even though he has not yet received
that amount.
At no time did Clay file a Form 8918 to disclose the listed transaction. Assume that
Clay’s failure to file a Form 8918 was unintentional. What tax consequence?
In the first paragraph, write the major sophisticated issue(s). In the second paragraph
discuss the relevant authorities, as if writing a Discussion of Law.
4. CURRENT EVENTS and CRITICAL THINKING: On April 20, 2017, Treasury
Secretary Steven Mnuchin said the administration was close to “major tax reform.”
In the first paragraph and first three sentences summarize five or six of the most
important likely concepts in Trump’s tax plan that relate to Connie’s $1M of interest
income from a bank in Taiwan and explaining how they relate to her. Then add one or
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two sentences giving your reasoning as to whether the proposed tax reform will help or
hurt Connie who is working in Hawaii:
Connie is an executive who last year made $4 million in salary, $1 million in the
stock market, and $1 million of interest income from Taiwan. Connie has a
husband who made $300,000 last year.
In the second paragraph, explain whether Connie will benefit or suffer from a “borderadjusted tax.” Explain whether the border-adjusted tax will impact Connie’s $1 M of
interest income earned from a bank in Taiwan. As part of that paragraph, advise
Hawaii’s congressional delegation as to the probable net impact of a “border adjusted
tax” on Hawaii’s economy.
5. RESEARCH AND APPLICATION:
In the first paragraph explain Revenue Procedure 2017-33 in two or three sentences. Provide a
proper citation. In your final sentence or two explain its current significance, especially for a
Hawaii client’s 2018 tax return having similar facts, but with a restaurant business.
In the second paragraph, explain the Tax Court’s 2017 decision for Jeremy Jacobs. Provide a
proper citation. In your final sentence or two explain its current significance, especially for a
Hawaii client’s 2018 tax return having similar facts, but with a restaurant business.
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