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Exam No.__________ UNIVERSITY OF FLORIDA COLLEGE OF LAW FINAL EXAMINATION INCOME TAX SPRING SEMESTER 2003 PROFESSOR WILLIS DATE: MAY 2, 2003 TIME: 9:00 a.m. TIME LIMIT: 4-1/2 HOURS INSTRUCTIONS 1. Any written materials you believe are helpful are allowed. 2. Write your exam number on the top of this page. 3. You should attempt to answer the questions in the space provided. You may use additional space; however, you should not need to. 4. Your answers may be written in ink or pencil or typed. 5. Unless otherwise indicated, all parties are on the cash method of accounting and use the calendar year. All parties are unrelated unless otherwise indicated. 6. If you feel you need further facts, indicate what sort of facts you would want to know and what difference they would make in your answer.
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QUESTION ONE (20 points) Taxpayer received a bonus of $50,000 from his employer in 1994. He was then subject to a tax rate of 40% and he properly paid $20,000 in federal income tax on the bonus, leaving him with $30,000. In 2003, he has been told by his employer that the bonus was incorrectly paid to him: it should have been paid to another employee with a similar name. The mistake was not one Taxpayer should or could have discovered in 1994, even with reasonable diligence. Taxpayer has re-paid the $50,000 this year to employer. Because Taxpayer has since retired, his income in lower than it was in 1994. Also, marginal tax rates have fallen. You determine that without the deduction, Taxpayer would be subject to a marginal tax rate of 27% and that the re-payment, if deductible, would have consequences at that bracket. A. Is the repayment deductible by Taxpayer? Under what authority? Yes. Section 162 as an ordinary and necessary business expense. B. Assuming the amount is deductible (regardless of your answer to A), what would be
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This note was uploaded on 12/28/2011 for the course TAX 4300 taught by Professor Staff during the Fall '11 term at University of Florida.

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