David R. Betty N. Lee [ages 45(1964) and 46(1963)] are married and live atXXXXX Casper, WY 82609. David is consulting engineer, while Betty is a paralegal. They file a joint return and use the cash basis for tax purposes.

David R. Betty N. Lee [ages 45(1964) and 46(1963)] are married and live atXXXXX Casper, WY 82609. David is 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 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 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 service, David usually visits the job location and later submits his recommendations in written report along with statement for his services and expenses.

 

David was paid the following amounts relating to the consulting practice in 2009:

 

Fees for services rendered

$92,800

Expenses reimbursement

Airfare $8,200

Lodging $5,200

Meals $6,100

Transportation(taxi,limo,rentals airports) $920

$20,420

Total received

$113,220

 

2. Not included in the business transaction listed under item 1 above are the following:

 

Payments from Ibis Mining received in January 2009

for work performed in December 2008 $4,400

 

Payment from Anhinga Mining received in January 2010

for work performed in December 2009 $5,100

 

Nonpayment by Cormorant Mining for work

performed in March 2009 $3,700

 

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 2009 relating to his practice are summarized below:

 

Advertising in trade journals $2,400

Office supplies(including publishing 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 dependants) $3,800

 

 

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, 2002, when it had fair market value of $400,000 of which $40,000 was allocated to the land. It is 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 1968 for $6,000 and built the house in 1972 at cost of $60,000. Relevant information regarding the property for 2009 is summarized below:

 

Casualty insurance $2,300

Repairs and maintenance $2,900

Utilities $4,800

 

The property taxes and mortgage interest on the property are listed in item 15 below.

In addition to the repairs and maintenance noted above David had office repainted at cost of $1,200. The furniture in the office, including business equipment( e.g computer, fax, machine, copier), was properly expensed in the year bought and has zero basis. However, on March 5, 2009, David purchased a heavy-duty, fire-resistant file cabinet with security-vault features for $ 4,800. He made the acquisition to safeguard and maintain the privacy of client data. If possible, David prefers to avoid capitalizing and depreciating the cabinet.

As to the business use of the residence, depreciation has been based on MACRS(using the mid-month convention) applicable to 39-year nonresidential realty.

 

5. On February4, 2008, David purchased for $41,000 (including sales tax) an Infiniti crossover SUV (gross weight under 6,000 pounds), which he uses 90% of the time for business. No trade-in was involved, and he did not claim any section 179 expensing of the cost. Under the actual operating cost method, he uses 200% declining balance with a half-year convention. {hint; see table 3 in the instruction to form 4562} His expenses pertaining to the operation of the Infiniti for 2009 are as follows:

 

Gasoline $3,300

Oil changes and lubrication $120

Auto insurance $ 1,600

Repairs $240

Auto club dues $180

License and registration $60

 

During business use, David received three moving traffic violations (total fines of $680) and incurred tolls and parking charges of $440. The Infiniti was driven a total of 14,500 miles during 2009( mileage was incurred evenly during the year).

 

6. Betty is a licensed paralegal and is employed on part-time basis by several local attorneys. She commuted to work ( using the family Suburban) for a total of 813 miles and paid parking fees of $310. Her earnings and job-related expenses are summarized below:

 

Salary(from four employers) $38,000

Subscriptions and dues to professional organizations $180

Laptop computer $1,200

Occupational license fee $80

Continuing education correspondence course $120

 

She purchased the laptop computer on March 12 and uses it about 80% of the time for business. The correspondence course is required for retention of her license. Betty is considering going to law school, so she attend a series of LSAT preparation sessions at cost of $350. Because Betty is a part-time employee, she is not covered by any of her employers medical or retirement plans. During 2009 however, she contributed $5,000 to a traditional IRA that she establish several years ago. As to the family Suburban, the Lees use the automatic mileage method for tax purposes.

 

7. With funds received from the settlement of his father's estate, David purchased rental property at 4620 Cottonwood Land. Of the $250,000 purchases price, $30,000was allocated to the land. After a substantial renovation to the house ( e.g new flooring, roof, heating unit) costing $80,000, the property was rented beginning February 1, 2003. In 2007, the Lees decides that their investment would be more marketable if the house was rented as furnished. Consequently, in May of that year they spent $38,000 on new furniture( including grapes, carpeting, and appliances). Under the current lease agreement, the property rents for $2,200 a month( payable at the beginning of each month) with utilities not included. Information regarding the property for 2009 appears below:

 

Rent received $28,600

Property taxes $2,400

Insurance $3,100

Yard maintenance $1,200

Repairs $800

 

The amount of rent received included $2,200 for January 2010. Because the tenants were going on vacation during the Christmas/New Year holidays, in mid December they pre-paid the rent for next month. The property taxes listed above do not include a special assessment of $2,400 by the city of Casper for repaving the street in front of the property. Regarding depreciation, the Lees use MACRS straight-line for the reality, assuming the mid-month convention, and MACRS accelerated depreciation for the personality, assuming the half-year convention.

 

8. As another investment, the Lees own 1,000 share stock in Cormorant Mining acquired on March 7,2008. David had performed services for the company and submitted a bill for $3,900. Because Cormorant was experiencing a cash-flow problem, David accepted the stock as payment for such a services. Cormorant currently is in bankruptcy(see item 2 below) and expectations are that the shareholders will not recover anything on their stock investment. The stock ic not publicly traded.

 

9. On March 10, 1991, David's father gave the Lees a tract of the land located in Tenton County as an anniversary present. It had a value of $150,000 and no gift tax was due on the transfer. The land had been purchased by David's father on June 1, 1981, for $50,000. In December 2008 the Lees contracted by a real estate developer and offered $800,000 for the property. After considerable negotiation, the following transactions took place on March 4,2009: the Lees transferred the Teton tract in return for $8,000 in cash and four city in Laramie WY worth $792,000. The Lees considered the city lots to be a good investment as they are locate near the state university. All closing cost and legal fees were absorbed by the real estate developer.

 

10. One of the items David inherited from his father was an antique gun collection-mainly large caliber rifles used for buffalo hunting. Although David has no idea what his father's cost basis was, the collection had a date of death value of $22,000. David sold it to a dealer for $29,000.

 

11. On July 12, 1999, using $50,000 of fund she had received from an aunt's life insurance policy, Betty purchased grazing land in Converse Country WY. On August 2, 2008, she sold the land to a local rancher for $75,000. Under the terms of the sale, Betty received a down payment of $15,000 and 10 annual notes of $6,000 each. Simple interest of 8% is provided for. On August 4, 2009, Betty collected $10,800 (including interest of $4,800) on the maturity of the first note.

 

12. Although the Lees had several Schedule D transaction during 2008, they end up with a net short-term capital loss of $7,000. Of this loss $3,000 was deducted in 2008 and $4000 carried over to 2009.

 

13. For several years, Betty's widowed mother, Vivian Newman, has lived with the Lees and has been claimed by them as a dependent. On December 30,2008 Vivian suffered a heart attack. After three days in the ICU of local hospital, Vivian died. In early February 2009, the Lees paid the following expenses regarding Vivian:

 

Medical expenses incurred in 2008 $4,200

Medical expenses incurred in 2009 $3,100

Burial expenses $4,400

Remainder of church pledge for 2008 $600

Fortunately, the balance of Vivian's medical expenses ($11,900) was covered by insurance. Besides personal and household effects, Vivian's major asset was life insurance. As the designated beneficiary of the policy, Betty was paid the $20,000 proceeds on March 13,2009.

 

14. Besides the items already mentioned, the Lees had the following receipts during 2009:

 

Interest income

City of Cheyenne general purpose bonds $1,900

CD at Wells Fargo Bank $1,100

Money market account at Bank of America $400

 

Qualified dividend income issued on

Meadowlark Corporation common stock $700

 

Jury duty fees $420

Yard (garage)sale $950

 

In connection with her jury duty assignment in June, Betty drove Suburban 40 miles and incurred expenses of $30 for parking and $4 for meals. The yard sale involved used furniture, appliances, books, toys, and other household goods having an estimated original cost value of $1,800.

 

15. In addition to the items already noted, the Lees had the following expenditures for 2009:

 

Medical and dental dills(including prescription drugs of $400)

Other than those relating to Vivian (see item13) $1,800

Ad valorem property taxes on personal residence $3,100

Interest on home equity loan used to finance the purchase

of personal items (e.g camper) $4,400

Charitable contributions (not include Vivian's pledge) $3,200

 

In connection with her medical expenses incurred in August, the Lees drove the Suburban 420 miles. Although they do not keep track of their sale tax, in May 2009 they purchased a camper for $ 40,000. The sales tax on this purchase was $1,600.

 

16. Besides Vivian (see item13) the Lees household include two daughters, Meredith (age19-1991) and Kirby (age19-1992) and son Toby (age17-1993). Kirby and Toby are full-time students. Meredith works part-time earnings $9,000 which she deposits in a saving account.

 

17. For tax year 2008 the Lees had an overpayment of $4150 which they applied toward their 2009 income tax. Betty's income tax withholdings for the year are $5,100 and the Lees made quarterly payments of $4,000 (for a total of $16,000).

Use the business activity code of 541990 for David. Betty's social security number is XXXXX; assume all other parties have the following ssn XXX-XX-XXXX.

 

Requirements;

 

Prepare an income tax return (with appropriate schedules) for the Lees for 2009.

Make necessary assumptions for information not given in the problem but needed to complete the return.

If any refund is due, apply it toward next year's taxes

Wyoming has no state tax, but we going to use New York state tax