Taxation

December 10, 2012

Individual Assignments

Problem 72 (Ch. 2)

Latrell recently used his Delta Skymiles to purchase a free roundtrip ticket to Milan, Italy (value $1,200). The frequent flyer miles used to purchase the ticket were generated from Latrell’s business travel as a CPA. Latrell’s employer paid for his business trips, and he was not taxed on the travel reimbursement. Use an available tax research service to determine how much income, if any, does Latrell have to recognize as a result of purchasing an airline ticket with Skymiles earned from business travel.

Answer: First step is to identify the facts, which is the airline tickets were purchased by Latrell’s employer for business purposes; however, did Latrell’s employer give Latrell permission to use the frequent flyer miles for personal use? Second, if Latrell was not taxed on the travel reimbursement, then who was responsible for the taxes? Can the frequent flyer miles be deducted from the company’s expenses since the miles are incurred on the company’s expense? Third, are there any tax codes regarding this situation that may prevent Latrell from using the frequent flyer miles for his personal use? If so, what codes are used and what all is entailed? Fourth, analyze the tax authorities involved in the situation. Fifth, communicate the results to Latrell with directions as to how report the income that include the frequent flyer miles that he has used in the amount of $1,200 for a trip to Milan, Italy.

Problem 49 (Ch. 3)

Bendetta, a high-tax-rate taxpayer, owns several rental properties and would like to shift some income to her daughter, Jenine. Bendetta instructs her tenants to send their rent checks to Jenine so Jenine can report the rental income. Will this shift the income from Bendetta to Jenine? Why, or why not?

Answer: The problem does not state whether Jenine is part owner in the rental property; however, if Jenine is a part owner in the rental properties with her mother,...