Tax Project comprehensive federal tax problem of moderate difficulty.

Objective
The objective is to complete, in four successive parts, a comprehensive federal tax problem of
moderate difficulty.
Guidelines
The Tax Project requires you to complete Appendix E, Problem 1, in four parts. Each part will
have you complete selected paragraphs from the problem. You must select the appropriate tax
forms in doc sharing to complete project.
• Part I is worth a possible 25 points.
• Part II is worth a possible 25 points.
• Part III is worth a possible 25 points.
• Part IV is worth a possible 75 points.
The entire Tax Project is worth a total of 150 points.
• Part I is due at the end of Week 3.
• Part II, which includes work you did during Part I, is due at the end of Week 5 and
includes additional items of Appendix E, Problem 1.
• Part III, which includes the work you did during Parts I and II, is due at the end of Week 6
and includes additional items of Appendix E, Problem 1.
• Part IV includes all previously completed items and completes the problem in its entirety.
Part IV is due at the end of Week 7.
After you have downloaded the Tax Forms from Doc Sharing during Week 2 of the course, you
are encouraged to immediately begin completing the Part I (Week 3) assignment.
Please read the entirety of Appendix E, Problem 1 before beginning to complete the assignment.
It has several paragraphs of instructions.
All DeVry University policies are in effect, including the plagiarism policy.
Any questions about this paper may be discussed in the weekly Q & A threaded discussion topic.
Please see the Syllabus for the late assignment policies.
Part I DUE 9/23
For the Part I (Week 3) assignment, you are asked to use the introductory sentence about the tax
payer and complete paragraph items: 1, 12, 16, and 17. Do not do additional work from any other
paragraph.
Determine the forms to be completed. Once completed, save your form(s) as Your Last Name formname (e.g., Smith-f2106.pdf). Submit your assignment to the Week 3 Assignments Dropbox.
Note: Optional Tax Software: Please note that DeVry does not provide Tax software to complete
the project. Using software to complete the project is optional and note required. The forms are
provided in doc sharing for your use. However, students that desire to use the software to
complete the project have the following options:
H & R Block At Home: The software is included with the purchase of the hard copy of the
textbook. You may use the software disk provided and follow the installation instructions. You
may review the student companion website or contact the publisher's customer service to obtain
information regarding the purchase of the H&R Block At Home software online. If purchased and
used to complete your project assignment, you will need to submit the file created by the
software.
• Save your work as an H&R Block At Home file.
• Do NOT save the problem as a PDF file.
TurboTax: If you purchased TurboTax and completed your assignment as a TurboTax file, you will
need to submit your assignment as a PDF file before submitting it to your instructor.
Part II DUE10/7
For the Part II (Week 5) assignment, you are asked to do the following:
• Use the Part I assignment you completed previously.
• Correct your Part I assignment mistakes, if any, based on the solution you were provided
by your instructor at the end of Week 4.

• Complete the following additional paragraph items: 2, 3, 13, and 14. .
Save your file as Your Last Name - formname (e.g., Smith-f2106.pdf), and submit it to your
instructor via the Week 5 Assignments Dropbox.
Part III DUE 10/14
For the Part III (Week 6) assignment, you are asked to do the following:
• Use the Parts I and II assignments you completed previously.
• Correct your Part II assignment mistakes, if any, based on the solution you were provided
by your instructor at the end of Week 5.
• Complete the following additional paragraph items: 4, 5, 6, and 7.
Save your file as Your Last Name – formname (e.g., Smith-f2106.pdf), and submit it to your
instructor via the Week 6 Assignments Dropbox.
Part IV DUE 10/21
For the Part IV (Week 7) assignment, you are asked to do the following:
• Use the Parts I, II, and III assignments you completed previously.
• Correct your Part III assignment mistakes, if any, based on the solution you were
provided by your instructor at the end of Week 6.
• Complete the following additional paragraph items: 8, 9, 10, 11, and 15 .
Save your file as Your Last Name - formname.pdf (e.g., Smith-f2106.pdf), and submit it to your
instructor via the Week 7 Assignments Dropbox.
Grading Rubrics
The following displays the grading rubric for all four parts of your course project.
Category
Points % Description
Documentation &
15
10 A quality paper will include all of the required tax forms.
Formatting
Organization &
The content will be properly entered into the
15
10
Cohesiveness
appropriate section and tax form.
A quality paper will be free of any spelling, punctuation,
Editing
15
10 or grammatical errors. Sentences and paragraphs will
be clear, concise, and factually correct.
A quality tax return will have the correct dollar values
Content
105 70
entered into the correct line items of the tax return.
A quality paper will meet or exceed all of the above
Total
150 100
requirements.
Best Practices
The following are the best practices in preparing this course project:
• Indicate that you prepared the return at the bottom of page 2 of the Form 1040. Disregard
the fact that the instructions say taxpayer prepared Their own tax return.
• Using the supplied correct tax returns at the end of Week 4, correct your tax return as
necessary and submit your Part II tax return by the end of Week 5.
• Using the supplied correct tax returns at the end of Week 5, correct your tax return as
necessary and submit your Part III tax return by the end of Week 6.
• Using the supplied correct tax returns at the end of Week 6, correct your tax return as
necessary and submit your Part IV tax return by the end of Week 7.
Additional hints on preparing the best possible project:
1. Apply a three step process of writing: plan, write, and complete.

2. Prepare an outline of your research paper before you go forward.
3. Complete a first draft, and then go back to edit, evaluate, and make any changes
required.

Question from Appenix E:
Appendix E: Comprehensive Tax Return Problems
PROBLEM 1
Karl F. and Jeanne S. Wheat are married and live at 13071 Forestview Drive, Columbia,
MO 65201. Karl is a self-employed insurance claims adjuster (business activity code
524290), and Jeanne is a dietitian for the local school district.
1. Karl represents several national casualty insurance companies on a contract
basis. He is paid a retainer and receives additional compensation if the claims for the
year exceed a specified number. As an independent contractor, he is responsible for
whatever expenses he incurs. Karl works out of an office near his home. The office is
located at 1202 Brentwood Avenue. He shares Suite 326 with a financial consultant,
and operating expenses are divided equally between them. The suite has a common
waiting room with a receptionist furnished and paid by the landlord. Karl’s one-half
share of the 2011 expenses he paid is listed below.
Office rent
$11,600
Utilities (includes telephone and fax)
4,300
Replacement of waiting room furniture on April 22
3,600
Renters’ insurance (covers personal liability, casualty, and theft) 1,400
Office expense (supplies and postage meter)
740
New Toshiba copier (less trade-in on old machine) on February 7 300
Waiting room coffee service (catered)
280
Waiting room magazine subscriptions
90
•

For his own business use, Karl purchased a laptop computer for $2,100 on June
17 and a Nikon camera for $1,200 on February 5. Except for his vehicle (see item 2),
Karl uses the § 179 write-offoption whenever possible.
•
2. On January 2, 2011, Karl paid $31,000 (including sales tax) to purchase a
gently used Dodge Durango SUV that he uses 92% of the time for business. No tradein was involved, and he did not claim any § 179 expensing. Karl uses the actual
operating cost method to compute his tax deduction, using the 200% decliningbalance MACRS depreciation method with a half-year convention. His expenses
relating to the Durango for 2011 are as follows:
Gasoline
$3,100
Auto insurance
1,500
Interest on car loan
820
Auto club dues
225
Oil changes and lubrication
140
License and registration
90
•

In connection with his business use of the Durango, Karl paid $510 for parking and
$350 in fines for traffic violations. In 2011, Karl drove the Durango 14,352 miles for
business [8,612 miles between January 1 and June 30 and 5,740 miles between July 1
and December 31] and 1,248 miles for personal use (which includes his daily roundtrip commute to work).
•
3. Karl handles most claim applications locally, but on occasion, he must travel
out of town. Expenses in connection with these business trips during 2011 were $930
for lodging and $1,140 for meals. He also paid $610 for business dinners with several
visiting executives of insurance companies with whom he does business. Karl’s other
business-related expenses for 2011 are listed below.
•

Contribution to H.R. 10 (Keogh) retirement plan
Premiums on medical insurance covering family (spouse and
children)
Premiums on disability insurance policy
(pays for loss of income in the event Karl is disabled and cannot
work)
State and local occupation fee
Birthday gift for receptionist
($25 box of Godiva chocolates plus $3 for gift wrap)

$8,000
4,600
2,400
450
28

4. Jeanne earns $32,000 as a registered dietician for the Columbia School District.
The job she holds, manager of the school lunch program, is not classified as full time.
Consequently, she is not eligible to participate in the teacher retirement or health
insurance programs. Jeanne’s expenses for 2011 are summarized as follows:
•

•

Contribution to traditional IRA
Job hunting expense
Continuing education program
Membership dues to the National Association of Dietitians
Subscription to Nutrition Today

$4,000
720
350
120
90

To work full-time and earn a larger salary, Jeanne applied for a position as chief
dietitian for a chain of nursing homes. According to the director of the recruiting
service Jeanne hired, the position has not yet been filled and Jeanne is one of the
leading candidates. The continuing education program was sponsored by the National
Association of Dietitians and consisted of a one-day seminar on special diets for
seniors. Out of a total of 8,670 miles driven for the year, Jeanne drove the family
Chevrolet Malibu 930 miles on job-related use. She drove 410 miles between January
1 and June 30 and the remaining 520 miles between July 1 and December 31. The

Wheats purchased the car on July 11, 2009, for $23,400. Jeanne uses the automatic
mileage method for computing any available deduction for business use of the car.
•
5. The Wheats have supported Gene Isaacson, Jeanne’s widowed father, for
several years, appropriately claiming him as a dependent for tax purposes. On
December 27, 2010, Gene suffered a massive stroke. The doctors did everything they
could for Gene, but he died in the intensive care unit of St. Mary’s Memorial Hospital
on January 8, 2011. The Wheats paid the following expenses on behalf of Gene:
$11,800 medical ($6,000 incurred in 2010 and $5,800 in 2011) and $5,300 funeral.
[The Wheats’ medical insurance (see item 3) does not cover parents.] These expenses
were paid in January and February 2011. Gene’s will named Jeanne as executor and
sole heir of the estate.
•
6. Upon the advice of the financial consultant who shares office space with Karl,
the Wheats decided to convert Gene’s home into a furnished rental house. After
several minor repairs (e.g., touching up the paint on the interior walls, replacing
various window screens, and pressure-washing the brick exterior), the property was
advertised for rent in the classified section of the local newspaper on March 1, 2011.
The repairs cost $720, and the newspaper ad was $360. Based on reconstructed
records and appraisal estimates, information about the property is as follows:

House
Land
Furniture and appliances

Original Cost
$40,000
10,000
21,000

FMV 1/8/11
$220,000
50,000
14,000

7. Gene’s former residence was rented almost immediately, with occupancy
commencing April 1, 2011, under the following terms: one-year lease; $2,400 per
month; first and last month’s rent in advance; $2,000 damage deposit; and lawn care,
but not utilities, included. The tenant complied with all terms except that the
December rent payment was not made until January 1, 2012—the tenant took an
extended Christmas holiday trip. Expenses in connection with the property were as
follows: property taxes, $2,600; repairs, $320; lawn maintenance, $540; insurance,
$1,800; and street paving assessment, $2,100. The property is located at 12120
Barrington Avenue, Columbia, MO 65201. (Note: If you are using H&R Block At
Home, input 365in the “days owned” box and in the “days rented” box. Otherwise, the
program will apportion the expenses inappropriately).
•
8. In early December 2010, a friend advised Karl to buy stock in Pioneer Aviation
Inc. (PAI). At that time, PAI was in serious financial straits and was headed toward
•

bankruptcy. Nevertheless, according to Karl’s friend, the value of the corporation’s
underlying assets was such that the shareholders were bound to recover considerably
more than the current market price of $0.50 per share. Excited at the chance for a
“sure” profit, on December 15, 2010, Karl purchased 20,000 shares for $10,000. In
September 2011, the trustee in bankruptcy announced that the stock was worthless and
that even some of PAI’s preferred creditors would not be paid.
•
9. On June 14, 2011, the Wheats sold 500 shares of Garnet Corporation for
$17,500 ($35 per share). They owned 1,000 shares acquired as follows: 500 shares on
November 5, 2007, for $25 a share and 500 shares on August 5, 2009, for $30 a share.
The Wheats did not instruct their broker as to which 500 shares to sell.
•
10. One month before she died on April 14, 2002, Violet Isaacson (Jeanne’s
mother) gave Jeanne a coin collection. Based on careful records that Violet kept, the
collection had a cost basis of $9,000 and a fair market value of $18,000 at the time
Violet passed away. On February 12, 2011, the Wheat residence was burglarized, and
the coin collection was stolen. The Wheats filed a claim for $24,000 (the current value
of the collection) with the carrier of their homeowner’s insurance policy. All they were
able to collect, however, was $10,000, which was the maximum amount allowed for
valuables (e.g., jewelry and antiques) without a special rider.
•
11. In her will, Violet Isaacson (see item 10) left Jeanne a vacant lot on Joplin
Road. Violet had paid $15,000 for the property, and it had a value of $19,000 when
she died. Violet had purchased the lot because it was adjacent to a school that she
expected would expand. By 2011, it has become clear that the Joplin Road area of
Columbia is not growing and that no school expansion will take place. Consequently,
on July 1, 2011, Jeanne sold the lot for $19,000. Not included in this price are back
property taxes (and interest on the underpaid taxes) of $700 on the lot, which the
purchaser assumed and later paid.
•
12. Every year around Christmas, Karl receives cards from various car repair
facilities (including dealerships), expressing thanks for the business referrals and
enclosing cash. Karl has no arrangement, contractual or otherwise, that requires any
compensation for the referrals he makes. Concerned about the legality of such “gifts,”
Karl had previously consulted an attorney about the matter. Without passing judgment
on the status of the payors, the attorney found that Karl’s acceptance of the payments
does not violate state or local law. Karl sincerely believes that the payments he
receives have no effect on the referrals he makes. During December 2011, Karl
received cards containing $7,200. One card containing $900, however, was delayed in
the mail and was not received by Karl until January 4, 2012.

13. In addition to those previously noted, the Wheats’ receipts during 2011 are
summarized below.
•
•

Payments to Karl for services rendered (as reported on Forms
1099 issued by several payor insurance companies) pursuant to
contractual arrangement
Income tax refunds for tax year 2010
Federal
State
Interest income
State of Missouri general-purpose bonds
GE corporate bonds
Certificate of deposit at Columbia National Bank
Qualified dividends (Duke Energy)
Proceeds from garage sale (see item 14)
Cash gifts from Karl’s parents
Karl’s net state lottery gains (winnings, $1,000; losses, $900)

$82,000
210
90
1,400
1,100
900
$ 600
9,200
24,000
100

14. On June 2 and 3, 2011, the Wheats held a garage sale to dispose of unwanted
furniture, appliances, books, bicycles, clothes, and a boat (including trailer). The
estimated basis of the items sold is $25,500. All were personal use property.
•
15. Expenditures during 2011, not mentioned elsewhere, are as follows:
Medical—
Copayment portion of medical expenses
$1,300
Dental (orthodontist)
1,200
Taxes—
State income tax (see item 17)
3,456
State sales taxes
1,120
Property taxes on personal residence
3,800
Interest on home mortgage reported on Form 1098
4,200
Charitable contributions
3,600
•

The Wheats’ medical insurance does not cover dental services. The Wheats pledge
contributions of $1,200 per year to their church. In 2011, they paid the pledges for
2010–2012. During 2011, the Wheats drove the Malibu 270 miles for medical
purposes—150 miles in the first half of the year and 120 miles in the second half (e.g.,
trips to the hospital and doctor and dentist offices)—and 320 miles for charitable
purposes—140 miles in the first half of the year and 180 miles in the second half
(delivering meals to the poor under a church-sponsored program).
•
16. The Wheats have two sons who live with them: Trace and Trevor. Both are
full-time students. Trace is an accomplished singer and made $4,200 during the year
performing at special events (e.g., weddings, anniversaries, and civic functions). Trace
•

deposits his earnings in a savings account intended to help cover future college
expenses.
•
17. The Form W–2 Jeanne receives from her employer reflects wages of $32,000.
Appropriate amounts for Social Security and Medicare taxes were deducted. Income
tax with-holdings were $1,320 for Federal and $1,056 for state. The Wheats made
quarterly tax payments of $2,200 for Federal and $600 for state on each of the
following dates: April 15, 2011; June 15, 2011; September 15, 2011; and January 15,
2012. Relevant Social Security numbers are provided below.
Name
Social Security Number
Birth Date
Karl F. Wheat
111–11–1111
06/06/1969
Jeanne S. Wheat
123–45–6781
08/14/1970
Gene Isaacson
123–45–6784
03/12/1934
Trace Wheat
123–45–6788
09/13/1993
Trevor Wheat
123–45–6789
07/20/1991