Chapter 1 Solutions
Although the Baker Motors bid is the lowest, from a long-term financial
standpoint, it is the best. The proposed use of the property by the state and the church
probably will make it exempt from the School District’s ad valorem tax. This would
hardly be the case with a car dealership. In fact, commercial properties (e.g., car
dealerships) often are subject to higher tax rates. p. 1-7
Probably what has happened is that the appraised value of the residence has been
Unfortunately, there is often a time lag in the appraisal process, and the
taxing authority has not yet taken into account any recent changes in value.
Tax in the News
item on p. 1-8.
Eileen may have avoided the sales tax but she will be vulnerable to the Wyoming
This tax will be imposed when Wyoming discovers she has not paid its
sales tax—probably when she registers the car in Wyoming.
See the discussion in
connection with Example 4. p. 1-10
As to gifts, Alvin can give Holly $1,013,000 [$13,000 (annual exclusion) +
$1,000,000 (the equivalent of the $345,800 unified credit)] the first year without
incurring any transfer tax. Additional gifts of $13,000 per year also can be made
free of tax. Alternatively, by death Alvin can pass Holly $3,500,000 (the
equivalent of $1,455,800 unified credit) free of estate tax. A good approach would
be to give her the $1,013,000 now and pass her the $2,500,000 balance at death.
This approach reduces the unified tax credit available at death by $345,800—the
amount used to cover the current gift. pp. 1-12 to 1-14
This type of question has no relevance to the state income tax, but is a less
than subtle way of encouraging taxpayers to pay any use tax due on
Internet and mail order purchases. See Tax in the News on p. 1-15.
As the preparer of the state income tax return, you should not leave
questions unanswered unless there is a good reason for doing so. It
appears that Harriet has no justifiable reason. p. 1-24
The large amount involved means it received media coverage. IRS agents
are instructed to take note of such items. Consequently, it would not be
surprising if Linda’s return for the year involved is audited. Keep in mind
that this is a ‘‘big ticket item’’ in terms of possible income tax
Mel operates a cash business where the potential for omission of income is
high. Also, his erratic personal life could make him subject to retribution
(i.e., ‘‘informed on’’ to the IRS).