Posted: April 4th, 2023

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1) Access IRC §1091(a) and (d) in RIA Checkpoint. Use this Code Section to determine the net overall capital gain or loss Trevor should recognize from his 2022 capital asset transactions before considering the effects of a year-end donation of the eBay stock. Instructions for logging into RIA Checkpoint are on page 3 of the syllabus. To locate the Internal Revenue Code section, use the “Find Federal Code and Regs” link in the “Quick Links” section on the main search page.

2) Trevor has the following two options for structuring the donation of his eBay stock value to charity. Option 1: Sell the stock for its current market value and then donate the sales price from the stock sale to charity. Option 2: Donate the shares of stock directly to the charity. Using your answer in Requirement 1 and the income and deduction amounts provided by Trevor, calculate Trevor’s Taxable Income, Tax Liability and Tax Due under both options. Use your calculations to make a recommendation to Trevor for how to structure the donation. 3) Trevor received a bill for $45,000 due on January 31, 2023. Assume the bill will create a Deduction FOR AGI. Trevor can make the payment in December 2022 or in January 2023. Return to the calculation from Requirement 2 that produced the smaller tax liability and amend this calculation to include the payment of the $45,000 bill in 2022. Calculate Trevor’s Taxable Income, Tax Liability and Tax Due for 2022 assuming he makes the payment before December 31. (In Requirement 5 below you will consider the alternative option of making the payment in 2023.)

4) Calculate the marginal tax rate for the $45,000 payment of the business expense in 2022. The formula for calculating the marginal tax rate is on page 1-5 of your textbook. Use the change in the Tax Due in your calculation, and the comparison should be made between your calculation in Requirement 3 and the calculation from Requirement 2 that produced the smaller tax liability. Round your answer to 4 decimal places.

5) Compare the after-tax cost of making the $45,000 payment in 2022 with the after-tax cost of making the payment in 2023 and use your calculations to make a recommendation to Trevor as to when he should make the payment. The formula for calculating the after-tax cost is on page 3-5 of your textbook. For this calculation, use the change in taxable income calculated in Requirement 4 as the “tax deduction” needed for the formula. You may assume that Trevor would have the same change in taxable income in 2023 as he would experience in 2022. In addition, assume that Trevor has an after-tax rate of return of 5% on his investments and he will have a marginal tax rate of 35% in 2023. For the 2022 after-tax cost calculation, use the marginal tax rate calculated in Requirement 4.

6) Trevor’s consulting firm has an outstanding bid for work for an international client. If the bid is accepted, Trevor will work in a foreign location for several months in 2023. His estimated compensation for this job will be $80,000 and he will incur $8,000 in foreign taxes on the compensation. Trevor would like advice on how to report the foreign earned income and foreign taxes paid on his tax return. Return to the calculation from Requirement 4 that includes the $45,000 deduction for AGI. Estimate Trevor’s tax consequences for 2023 using this calculation from 2022. Calculate Trevor’s Taxable Income, Tax Liability and Tax Due under the three options for reporting foreign income and foreign taxes paid and make a recommendation for Trevor for 2023.

Your research case will have multiple issues. Therefore, use the supplement that I have provided on Blackboard to adjust your case solution to conform to the assigned research case format.

• To help you organize the calculations required for the case, I have included some facts in the Requirements. As you put together your case solution, shorten the requirements into concise Issues by moving items that are facts into the “Facts” section of your memo.

• The calculations in Requirements 2-6 do not require citations to authoritative tax law. The only authoritative tax law that you must access in RIA Checkpoint is the Internal Revenue Code section for Requirement 1.

• If you need help interpreting the rules presented in IRC §1091 (a) and (d), I recommend the material related to these rules in Chapter 7 of your textbook. However, do not reference your textbook in your Analysis section as the textbook does not represent an authoritative source of tax law.

• If you need help interpreting the tax consequences of a direct donation of stock to a charity, as described in the second option in Requirement 2, I recommend the discussion of charitable contributions in Chapter 6 of your textbook. Trevor’s stock donation would be considered a donation of an investment and not a donation of tangible personal property. As the calculations in Requirement 2 do not require citations, it is not necessary to reference either authoritative tax law or your textbook to support your calculations.

• Ignore the effects of the Net Investment Income Tax in your calculations.

• The required calculations should be presented in an Excel worksheet and labeled as an Appendix to your case. Present your calculations using the individual income tax formula and label the amounts that are included in each section of the formula. In your calculations, you should round all dollar amounts to whole numbers. Your Appendix should include six complete income tax liability calculations: two for Requirement 2 and one for Requirement 3 and three for Requirement 6.

The Facts, Issues, Authorities, Conclusions and Analysis sections of your case should address Requirements 1-6 above and should be presented in a Word Document. Even though your research case is a memo to the client, you should write your case using third person voice and avoid using references to “you,” “I,” or “one” in your case. Where appropriate, you may reference your calculations in the Analysis section of your case with a simple reference such as: “See Appendix for Calculations.” However, do not reference the Appendix in the Conclusions section. The conclusions provided in the case should stand on their own and not require the reader to locate the conclusion in another part of the memo. Therefore, “See Appendix for Calculations” should not be used as a conclusion.

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