Acct 421a Chapter 16 Essay

1303 Words Sep 26th, 2012 6 Pages
ACCT 421A: CORPORATE TAX : Chapter Sixteen
DISCUSSION QUESTIONS
5. How are farmers treated differently from other producers in regard to tax accounting? Since farmers are usually allowed to use the cash method of accounting, the UNICAP rules do not apply to farmers, except in the case of plants with a reproduction period of more than two years. The farmer can elect to use the farm price method of the unit-livestock-price-method. A farmer may also elect to average the income from farming as if it was earned over the three preceding years. Farmers are also granted special treatment in regard to the year income must be reported following a natural disaster or drought.

6. In December 2011, Nell, a cash basis taxpayer, paid
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Gain-Section 1250 gain * Collections / Contract Price = Gain recognized 14,929 (82500/105,000 * 19,000) = 14,929 = Total gain, 2011
b) 1. Contract Price (modified) $107,500 2. Contract Price 107,500 3. Total Collections, 2011 (modified) 21,500

29. On December 30, 2010, Maud sold land to her son, Charles, for $50,000 cash and a 7% installment note for $350,000, payable over 10 years. Maud’s cost of the land was $150,000. In October 2012, after Charles had paid $60,000 on the principal of the note, he received an offer to sell the land for $500,000 cash.
What advice can you provide Charles that will minimize the present value of the tax liability for Maud and Charles? A sale in October of 2012 would result in Maud being required to report the balance of her installment sale gain in that year, regardless of whether Charles pays Maud the balance of the installment obligation. This is the result under the related party installment sale rules. Charles should delay the sale until January 2013, more than two tears after the related party sale. In this situation, the related party rules would not apply because the sale by Charles would be in January 2013 would be outside the two year related party window. Charles would shift his gain until 2013, and Maud could spread her remaining eight years of the installment contract. Research

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