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ANSWER KEY UNIVERSITY OF FLORIDA COLLEGE OF LAW FINAL EXAMINATION INCOME TAX SPRING SEMESTER 2001 PROFESSOR WILLIS DATE: MAY 1, 2001 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. 7. Count the pages of this booklet. There should be 7 remaining pages. 8. Assume that the Internal revenue code, as in existence on January 1,2001 was in existence at all relevant times (i.e. without considering any amendments which were enacted after that date even if there are retroactive). 9. Plan your answer before you write in the space provided. Part of the test considers whether you can present an organized, logical, coherent answer. You need not use complete sentences; however, you should write clearly. 10. Write legibly! 11. Relax.
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QUESTION ONE Taxpayer purchased a computer, which he used in the design and construction of a building to be used for his own business use in an existing unincorporated trade or business. The computer cost $350,000 and was purchased on March 1, 2000. He expects to complete the construction of the building on December 31, 2002, at which point he will likely want to sell the computer to a design corporation owned by his nephew, although he will use it, in his business, for a year or more prior to the sale. For this problem, you should assume that the computer has a class-life of seven years and a salvage value of $10,000, and is used exclusively for business purposes. a. Assuming Taxpayer deducted the maximum permissible correct amount of depreciation attributable to the computer in 2001, how much would he have actually deducted on his tax return for that year for depreciation on the computer? $ 0 On what code section(s) or case authority did you base your answer? Comm’r v. Idaho Power, section 263 Explain, if you care to: Depreciation of the computer is capitalized onto the cost of the building. As the computer basis depreciates, the basis of the building will increase. The Idaho Power case held this. General capitalization principles of section 263 also support it. b. Assuming Taxpayer used the maximum permissible depreciation method for the
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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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