Tax Problem 1 - David R. and Betty N. Lee (ages 45 and 46)...

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David R. and Betty N. Lee (ages 45 and 46) are married and live at 641 Cody Way, Casper, WY 82609. David is a consulting engineer, while Betty is a paralegal. They file a joint return and use the cash basis for tax purposes. 1. Trained as a mining engineer, David has developed a considerable expertise in the treatment and disposition of waste material. He also is well versed in the various Federal and state requirements for land reclamation projects. David maintains a consulting practice through which he renders advice on these matters. Most of his clients are small and medium-size mine owners and operators located in Wyoming and contiguous states (e.g., Montana, Idaho, Utah). Characteristically, David is retained by a client on a contract fee basis and is reimbursed for all out-of-pocket expenses. In performing his services, David usually visits the job location and later submits his recommendations along with a statement for his services and expenses. David was paid the following amounts relating to the consulting practice in 2008 : Fees for services rendered $92,800 Expense reimbursement— Airfare 8,200 Lodging 5,200 Meals 6,100 Transportation (taxis, airport limos, car rentals) 920 20,420 Total received $113,220 2. Not included in the business transactions listed under item 1 above are the following: Payment from Ibis Mining received in January 2008 $4,400 for work performed in December 2007 Payment from Anhinga Mining received in 5,100 January 2009 for work performed in December 2008 Nonpayment by Cormorant Mining for work 3,700 performed in March 2008 David did not incur travel expenses in any of these engagements (i.e., the work was done in his office). As Cormorant Mining is in bankruptcy, David does not expect to collect any of this fee. 3. Other expenses paid by David in 2008 relating to his practice are summarized below: Advertising in trade journals $2,400 Office supplies (including drafting materials) 1,200 Contribution to H.R. 10 (Keogh) plan 9,000 State occupation license 300 Subscriptions to trade journals 240 Membership dues to trade associations 180 Landscape models (amount paid to a topographer for several land reclamation projects) 3,200 Business phone and Internet service 860 Premiums on medical insurance (covering self, Spouse, and dependents) 3,800
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4. To save on rent and as a matter of convenience, David maintains an office in the home. Twenty percent of the 3,000-square-foot living area is devoted to the office. David inherited the home on Cody Way from his father, who died on June 6, 2001, when it had a fair market value of $400,000, of which $40,000 was allocated to the land. Its current fair market value is $500,000 ($50,000 allocated to the land). County land records reflect that David’s father bought the land in 1967 for $6,000 and built the house in 1971 at a cost of $60,000. Relevant information regarding the property for 2008 is summarized below: Casualty insurance $2,300 Repairs and maintenance 2,900 Utilities 4,800
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Tax Problem 1 - David R. and Betty N. Lee (ages 45 and 46)...

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