47. LO.7 In terms of tax policy, what do the following mean?
a. Revenue neutrality.
b. Pay-as-you-go, or “paygo.”
c. Sunset provision.
48. LO.7 Some tax rules can be justified on multiple grounds (e.g., economic and social). In this connection, comment on the possible justification for the rules governing the following:
a. Pension plans.
c. Home ownership.
49. LO.7 Discuss the probable justification for each of the following provisions of the tax law:
a. A tax credit allowed for electricity produced from renewable sources.
b. A tax credit allowed for the purchase of a motor vehicle that operates on an alternative fuel source (i.e., nonfossil fuels).
c. A deduction for state and local income taxes.
d. The deduction for personal casualty losses is subject to dollar and percentage limitations.
e. Favorable treatment accorded to research and development expenditures.
f. A deduction allowed for income resulting from U.S. production (manufacturing) activities.
g. The deduction allowed for contributions to qualified charitable organizations.
h. An election that allows certain corporations to avoid the corporate income tax and pass losses through to their shareholders.
50. LO.7, 8 Discuss the probable justification for each of the following aspects of the tax law:
a. A tax credit is allowed for amounts spent to furnish care for minor children while the parent works.
b. Deductions for interest on a home mortgage and property taxes on a personal residence.
c. The income splitting benefits of filing a joint return.
d. Gambling losses in excess of gambling gains.
e. Net operating losses of a current year can be carried back to profitable years.
f. A taxpayer who sells property on an installment basis can recognize gain on the sale over the period the payments are received.
g. Interest income from certain state and local bonds is not subject to Federal taxation.
h. Prepaid income is taxed to the recipient in the year received and not in the year it is earned.
51. LO.7 Mia owns a warehouse that has a cost basis to her of $80,000. The city condemns the warehouse to make room for a new fire station. It pays Mia $400,000 for the property, its agreed-to fair market value. Shortly after the condemnation, Mia purchases another warehouse as a replacement. What is her recognized gain if the new property costs:
d. What, if any, is the justification for deferring the recognition of gain on the involuntary conversion?
52. LO.8 A mother sells a valuable collection of antiques to her daughter for $1,000. What judicial concept might the IRS invoke to question this transaction?
53. LO.8 Edward leases real estate to Janet for a period of 20 years. Janet makes capital improvements to the property. When the lease expires, Edward reclaims the property, including the improvements made by Janet.
a. Under current law, at what point does Edward recognize income as a result of Janet’s improvements?
b. Has the law in part (a) always been the rule?
c. What is the justification, if any, for the current rule?