Starts like this
1. Paige Turner is single and has two children from her previous marriage. Ali
lives with Paige, and Paige provides more than half of her support. Leif lives
with his father, Will (Lief lived with Will for all of 2010). Will provides more
than half of Leif’s support. Paige pays “alimony” of $400 per month to Will.
The payments are to continue until Leif reaches age 18, when they will be re-
duced to $150. Paige provides you with the following additional information:
• She uses the cash method of accounting and a calendar year for reporting.
• She wishes to contribute to the presidential election campaign.
• Paige lives at 523 Essex Street, Bangor, ME 04401.
• Paige’s birthday is May 31, 1972.
• Ali’s birthday is October 5, 2001.
• Leif’s birthday is December 1, 1999.
• Paige’s Social Security number is 007-16-4727.
• Ali’s Social Security number is 005-61-7232.
• Leif’s Social Security number is 004-23-3419.
• Will’s Social Security number is 006-45-6333.
• She does not have any foreign bank accounts or trusts.
2. Paige is employed as a nuclear engineer with Atom Systems Consultants, Inc.
(ASCI). Her annual salary is $70,000. ASCI has an extensive fringe benefits
program for its employees. Paige’s pay stubs indicate that she had $7,230 with-
held in federal taxes, $4,987 in state taxes, $4,495 in Social Security taxes, and
$1,051 in Medicare taxes. Her compensation includes the following:
Salary (before subtracting her 401(k) and flexible
spending plan contributions)
Personal contribution to 401(k) account
Flexible spending plan contributions
Whole life insurance
Payment of educational costs
Health club dues
Disability pay (see #7 below)
Paige furnishes you with the following description of the fringe benefits she re-
ceived from ASCI in 2010.
a. Taking advantage of ASCI’s educational assistance program, during the fall
Paige enrolled in two graduate engineering classes at a local college. ASCI
paid her tuition, fees, and other course-related costs of $2,300.
See a below
See b below
b. Paige also received free parking in the company’s security garage that would
normally cost $200 per month.
3. Paige manages the safety program for ASCI. In recognition of her superior
handling of three potential crises during the year 2010, Paige was awarded
the Employee Safety Award on December 15, 2010. The cash award
4. On January 15, 2010, Paige’s father died. From her father’s estate, she received
stock valued at $30,000 (his basis was $12,000) and her father’s house valued at
$90,000 (his basis in the house was $55,000).
5. Paige owns several other investments and in February 2011 received a statement
from her brokerage firm reporting the interest and dividends earned on the
investments for 2010. (See Exhibit A.)
This is important tax information and is being furnished to the Internal Revenue Service.
Forms 1099 and 1098
1099-Div Dividends & Distributions
Gross qualified dividends
New Jersey Economic Development bonds
State of Nebraska bonds
1098-Mortgage Interest Statement
Sunbelt Credit Union
Grubstake Mining & Development: preliminary report (preliminary K-1) to Paige for the 2010 tax year
Distribution to shareholder
Ordinary income (1% of $200,000)
6. In addition to the investments discussed above, Paige owns 1,000 shares of
Grubstake Mining & Development common stock. Grubstake is organized as
an S corporation and has 100,000 shares outstanding (S corp. ID number 45-
4567890). Grubstake reported taxable income of $200,000 and paid a distribu-
tion of $1.00 per share during the current year. Paige tells you that Grubstake
typically does not send out its K-1 reports until late April. However, its prelimi-
nary report has been consistent with the K-1 for many years. (See Exhibit A.)
Paige does not materially participate in Grubstake’s activities.
7. Paige slipped on a wet spot in front of a computer store last July. She broke her
ankle and was unable to work for two weeks. She incurred $1,300 in medical
costs, all of which were paid by the owner of the store. The store also gave her
$1,000 for pain and suffering resulting from the injury. ASCI continued to pay
her salary during the two weeks she missed because of the accident. ASCI’s
plan also paid her $1,200 in disability pay for the time she was unable to work.
Under this plan ASCI pays the premiums for the disability insurance. (See #2.)
Home-equity loan interest
8. Paige received a Form 1099-B from her broker for the sale of the following se-
curities during 2010.
Cassill Corp (500 shares)
9. In addition to the taxes withheld from her salary, she also made timely esti-
mated federal tax payments of $175 per quarter and timely estimated state in-
come tax payments of $150 for the first three quarters. The $150 fourth-quarter
state payment was made on December 28, 2010. Paige would like to receive a
refund for any overpayment.
10. Because of her busy work schedule, Paige was unable to provide her accountant
with the tax documents necessary for filing her 2009 state and federal income
tax returns by the due date (April 15, 2010). In filing her extension on April 15,
2010, she made a federal tax payment of $750. Her return was eventually filed
on June 25, 2010. In August 2010, she received a federal refund of $180 and a
state tax refund of $60. Her itemized deductions for 2009 were $12,430.
11. Paige found a renter for her father’s house on August 1. The monthly rent is
$400, and the lease agreement is for one year. The lease requires the tenant to
pay the first and last months’ rent and a $400 security deposit. The security
deposit is to be returned at the end of the lease if the property is in good
condition. On August 1, Paige received $1,200 from the tenant per the terms
of the lease agreement. In November, the plumbing froze and several pipes
burst. The tenant had the repairs made and paid the $300 bill. In December,
he reduced his rental payment to $100 to compensate for the plumbing
repairs. Paige provides you with the following additional information for the
rental in 2010.
Other maintenance expenses
Depreciation (to be computed)
The rental property is located at 35 Harvest Street, Orono, ME 04473. Local
practice is to allocate 12 percent of the fair market value of the property to the
land. (See #4.) Paige makes all decisions with respect to the property.
12. Paige paid $2,050 in real estate taxes on her principal residence. The real estate
tax is used to pay for town schools and other municipal services.
13. Paige drives a 2009 Acura TL. Her car registration fee (based on the car year) is
$50 and covers the period 1/1/10 through 12/31/10. In addition, she paid $280 in
property tax to the town based on the book value of the car.
14. In addition to the medical costs presented in #7, Paige incurred the following
unreimbursed medical costs:
Emergency room charges
LASIK eye surgery
Paid on Sale
15. On March 1, Paige took advantage of low interest rates and refinanced her
$75,000 home mortgage with her original lender. The new home loan is for
15 years. She paid $215 in closing costs and $1,500 in discount points (prepaid
interest) to obtain the loan. The house is worth $155,000 and Paige’s basis in
the house is $90,000. As part of the refinancing arrangement, she also obtained
a $10,000 home-equity loan. She used the proceeds from the home-equity loan
to reduce the balance due on her credit cards. Paige received several Form 1098
statements from her bank for interest paid by her in 2010. Details appear below.
(See also Exhibit A on page C-4.)
Primary home mortgage
16. On May 14, 2010, Paige contributed clothing to the Salvation Army. The origi-
nal cost of the clothing was $740. She has substantiation valuing the donation
at $360. The Salvation Army is located at 350 Stone Ridge Road, Bangor,
ME 04401. In addition, she made the following cash contributions and
received a statement from each of the following organizations acknowledging
First Methodist Church
Amos House (homeless shelter)
Local Chamber of Commerce
17. On April 1, 2010, Paige’s house was robbed. She apparently interrupted the bur-
glar because all that’s missing is an antique brooch she inherited from her
grandmother (June 12, 2003) and $300 in cash. Unfortunately, she didn’t have a
separate rider on her insurance policy covering the jewelry. Therefore, the insur-
ance company reimbursed her only $500 for the brooch. Her basis in the brooch
was $6,000 and its fair market value was $7,500. Her insurance policy also lim-
its to $100 the amount of cash that can be claimed in a theft.
18. Paige sells real estate in the evening and on weekends. She runs her business from
a rental office she shares with several other realtors (692 River Road Bangor,
ME 04401). The name of her business is Turner Real Estate and the Federal
identification number is 05-8799561. Her business code is 531210. Paige has been
operating in a business-like way since 2000 and has always shown a profit. She
had the following income and expenses from her business:
Real estate license
She has used her Acura TL in her business since June 1, 2009. During 2010,
she properly documented 6,000 business miles (500 miles each month). The total
mileage on her car (i.e., business- and personal-use miles) during the year was
15,000 miles (including 200 miles commuting to and from the real estate office). In
2010, Paige elects to use the standard mileage method to calculate her car expenses.
She spent $45 on tolls and $135 on parking related to the real estate business.
19. Paige’s company has an accountable expense reimbursement plan for employees
from which Paige receives $12,000 for the following expenses:
20. During 2010, Paige also paid $295 for business publications other than those paid
for by her employer and $325 for a local CPA to prepare her 2009 tax return.
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