On January 1, 2009, Mr. Q bought a traditional Korean home just outside of Seoul, which he uses as his primary residence. (All relevant figures have been converted to Dollars.)
The property cost $500,000.
Mr. Q’s expenses associated with the home in 2009 were:
Mortgage principal: $4,000
Mortgage interest: $30,000
Real estate taxes: $0 (would have been $9,000, but Mr. Q is exempt under relevant SOFA statutes)
Utility costs: $2,500
Mr. Q plans to file a Schedule A with his tax return and deduct the $39,000 in mortgage interest and taxes.
How would you advise Mr. Q on the question of the filing of his schedule A?
4) Coincidentally, Mr. Q's close friend Reverend R, bought an identical property on January 1, 2009. The facts regarding Reverend R's property are identical to those for Mr. Q's. Reverend R is a U. S. citizen living in Korea, but is not a U. S. government employee, and his church is not associated with the U. S. Forces.
How would you advise Reverend R on the question of the filing of his schedule A?
5) Mr. Z is also a U.S. Government Employee assigned to support the US Army in Korea. Mr. Z attends Reverend R's church. He donated $25,000 (again, converted to Dollars) directly to the church during 2009. Mr. Z plans to file a Schedule A with his tax return and deduct the $25,000 in charitable contributions.
How would you advise Mr. Z on the question of the filing of his schedule A?
6) Ms. A, an avid New York Yankees fan, was discussing the situation in the American League with her friend Mr. B, who supports the Cleveland Indians.
Ms. A said -- "As well as having a terrible team again this year, I heard that the U. S. Supreme Court had ruled against the Cleveland Indians sometime in the last five to 10 years. I heard that the Court ruled that they could not use accrual accounting, and that they had to do all their accounting on a cash basis."
Mr. B, who had taken ACCT 220 with UMUC, did not think that this could be correct. He replied -- "GAAP requires the use of accrual accounting. I don't see how or why the Supreme Court would require otherwise."
Please help Ms. A and Mr. B understand this case better. Identify the correct case and show the proper citation. Explain, in your own words, the facts of the case, the ruling of the court, and the reasoning of the court in making its decision. What is the relationship of the case to the broader issue of cash versus accrual accounting? Did the Court order the Indians to change to a cash accounting system?
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