Document 1517 6758

South-Western Federal Taxation 2016
Individual Income Taxes 39th Edition

Hoffman Solutions Manual
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CHAPTER 8
DEPRECIATION, COST RECOVERY, AMORTIZATION, AND DEPLETION
SOLUTIONS TO PROBLEM MATERIALS
DISCUSSION QUESTIONS
1. (LO 1) Property that is classified as personal use property is not used in a trade or business or a
transaction entered into for profit and, hence, is not subject to cost recovery.
2. (LO 1) Personal property is any asset that is not real property. Personal use property is any property
(realty or personalty) that is held for personal use rather than for use in a trade or business or income-
producing activity.
3. (LO 1) Land improvements have a MACRS class life of 15 years.
4. (LO 2) The relevant issues for Henry:

• Can a portion of the purchase costs of a ski resort, which are allocated to the construction costs of
the resort’s mountain roads, trails, and slopes, be depreciated?
• If such costs can be depreciated, what is the correct recovery period?
• Can costs incurred subsequent to the purchase, attributable to maintenance of such mountain
roads, trails, and slopes, be depreciated?
5. (LO 2) The three factors the MACRS tables take into account are (1) recovery period, (2) method,
and (3) convention.
6. (LO 2) The asset is treated as if it were placed in service in the middle of the quarter. The factors in
the table take this into account; hence, the cost of the asset is multiplied by the factor to determine the
first year’s cost recovery.
7. (LO 2) The asset is treated as if it were sold in the middle of the quarter; hence, one-half quarter of
cost recovery is allowed in the quarter of the sale. If the sale is in the first quarter, the ratio is .5/4; in
the second quarter, 1.5/4; in the third quarter, 2.5/4; and in the fourth quarter, 3.5/4.
8. (LO 2) Even if MACRS straight-line is elected for the 7-year class assets, the cost recovery on the
5-year class assets is computed using regular MACRS with a mid-quarter convention unless a
separate election is made to use MACRS straight-line for the 5-year class assets (the mid-quarter
convention also applies to the 7-year class assets). With respect to the mid-quarter convention, the
assumption is made that Robert is a calendar year taxpayer.
9. (LO 2) The following issues are relevant for Jim.

• What is the cost of a self-produced animal for purposes of computing its cost recovery?
• What is the proper placed-in-service date relating to self-produced breeding animals?
8-1
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8-2 2016 Individual Income Taxes/Solutions Manual
10. (LO 3) Ordinary income recapture is required anytime property on which an expense has been taken
under § 179 is no longer used predominantly in a trade or business.
11. (LO 3) The basis of the property for cost recovery purposes is reduced by the § 179 amount [after it is
adjusted for property placed in service in excess of the appropriate acquisition limit ($2 million in
2015 and 2014)]. The business income limitation does not affect basis.
12. (LO 3) The § 179 amount eligible for expensing in a carryforward year is limited to the lesser of (1)
the statutory dollar amount ($500,000 in 2015 and 2014) reduced by the cost of § 179 property placed
in service in excess of the appropriate acquisition limit in the carryforward year ($2,000,000 in 2015
and 2014) or (2) the business income limitation in the carryforward year.
13. (LO 3) For § 179 purposes, taxable income is defined as the aggregate amount of taxable income of
any trade or business of the taxpayer without regard to the amount expensed under § 179. Therefore,
the taxable income computation for purposes of the § 179 limit includes the deduction for additional
first-year depreciation and MACRS.
14. (LO 2, 3) The following issues are relevant to John.
• Is John entitled to a § 179 deduction?
• How much, if any, can John deduct under § 179 on his own tax return?
15. (LO 4) The cost of listed property that does not pass the more-than-50% business usage test must be
recovered using the straight-line method. If the listed property is an automobile, the cost recovery is
further limited by the cost recovery limitations.
16. (LO 4) The property is subject to cost recovery recapture, which is included in the taxpayer’s income
tax return as ordinary income. The amount of the inclusion is the excess cost recovery, which is the
excess of the cost recovery deduction taken in prior years using the statutory percentage method over
the amount that would have been allowed if the straight-line method had been used since the property
was placed in service.
17. (LO 7) The amortization period for a § 197 intangible is 15 years regardless of the actual useful life.
18. (LO 7) The following issues are relevant for Orange Motors.
• Does the noncompete agreement come under § 197 for intangibles?
• Was the noncompete agreement in connection with the acquisition of a trade or business?
• Can the cost of the noncompete agreement be amortized over a period other than the normal
statutory period if the noncompete agreement is legally enforceable for a shorter period of time?
• What is the normal statutory period for amortizing intangibles?
19. (LO 7) The following issues are relevant for George.
• Are all of the expenditures qualifying expenditures?

• Which of the expenditures must be capitalized?
• Which of the expenditures will qualify for amortization under § 195?
• What amount may be deducted under § 195 for 2015?
20. (LO 8) The cost basis is divided by the estimated recoverable units of the asset to arrive at the
depletion per unit. The depletion per unit then is multiplied by the number of units sold during the
year to arrive at the cost depletion allowed.
Depreciation, Cost Recovery, Amortization, and Depletion 8-3
COMPUTATIONAL EXERCISES
21. (LO 2) The IRS provides tables that specify cost recovery allowances for personalty and for realty. To
determine the amount of the cost recovery allowances, simply identify the asset by class and go to the
appropriate table for the percentage (or factor).
2015: $80,000 × .1429 = $11,432. 2016: $80,000 × .2449 = $19,592.
22. (LO 2) The mid-quarter convention applies if more than 40% of the value of property other than
eligible real estate is placed in service during the last quarter of the year. Hamlet acquired 100% of
assets in the last quarter of the year. Therefore mid-quarter convention applies.
2015: $100,000 × .0357 = $3,570
2016: $100,000 × .2755 = $27,550
23. (LO 2) The IRS provides tables that specify cost recovery allowances for personalty and for realty.
Under MACRS, the cost recovery period for residential rental real estate is 27.5 years, and the straight-
line method is used for computing the cost recovery allowance. Nonresidential real estate uses a
recovery period of 39 years; it also is depreciated using the straight-line method. Cost recovery is
computed by multiplying the applicable rate by the cost recovery basis.
a. Residential rental real estate: $1,000,000 × .03636 = $36,360.
b. Nonresidential rental real estate: $1,000,000 × .02564 = $25,640.
24. (LO 2) The IRS provides tables that specify cost recovery allowances for personalty and for realty.
The taxpayer may elect to use the straight-line method for depreciable personal property. The
property is depreciated using the class life (recovery period) of the asset with a half-year convention
or a mid-quarter convention, whichever applies. The election is available on a class-by-class and
year-by-year basis (see Concept Summary 8.3). The percentages for the straight-line election with a
half-year convention appear in Exhibit 8.6.
2015: $2,800 × .10 = $280.
2016: $2,800 × .20 = $560.
25. (LO 2) Additional first-year depreciation is taken in the year in which the qualifying property is
placed in service; it may be claimed in addition to the otherwise available depreciation deduction.
After the additional first-year depreciation is calculated, the standard MACRS cost recovery
allowance is calculated by multiplying the cost recovery basis (original cost recovery basis less
additional first-year depreciation) by the percentage that reflects the applicable cost recovery method
and convention. Because the asset was purchased during the last quarter of the year and is the only
asset purchased during the year, the, mid-quarter convention applies.
Diana’s $34,125 ($32,500 + $1,625) deduction is computed as follows.

50% additional first-year depreciation: ($65,000 × 50%) = $32,500.
MACRS cost recovery: ($65,000 − $32,500) × .05 = $1,625.
26. (LO 3) Assuming that Congress extends the 2014 amounts to 2015, § 179 permits the taxpayer to
elect to write off up to $500,000 of the acquisition cost of tangible personal property used in a trade
or business.
Two additional limitations apply to the amount deductible under § 179. First, the ceiling amount on
the deduction is reduced dollar for dollar when § 179 property placed in service during the taxable
year exceeds a maximum amount ($2 million). Second, the § 179 deduction cannot exceed the
taxpayer’s trade or business taxable income, computed without regard to the § 179 amount.
§ 179 deduction before adjustment $212,000
Less: Dollar limitation reduction ($212,000 < $2,000,000) (–0–)
Remaining § 179 deduction $212,000
§ 179 deduction allowed due to business income limitation $ 5,600
§ 179 deduction carryforward ($212,000 − $5,600) $206,400
27. (LO 4) The law places special limitations on cost recovery deductions for passenger automobiles. The
luxury auto limits are imposed before any percentage reduction for personal use. The cost recovery
limitations are maximum amounts. If the regular MACRS calculation produces a lesser amount of
cost recovery, the lesser amount is used.
Year MACRS Amount Recovery Limitation Deduction Allowed

2015 $5,040 $2,212 $2,212
($36,000 × .20 × 70%) ($3,160 × 70%)
2016 $8,064 $3,570 $3,570
($36,000 × .32 × 70%) ($5,100 × 70%)
28. (LO 7) Taxpayers can claim an amortization deduction on intangible assets called “amortizable § 197
intangibles.” The amount of the deduction is determined by amortizing the adjusted basis of such
intangibles ratably over a 15-year period beginning in the month in which the intangible is acquired.
The 2015 § 197 amortization deduction of $ $7,250 ($1,000 + $6,250) is computed as follows.
Patent: $60,000/15 years = $4,000 × 3/12 = $1,000.
Goodwill: $375,000/15 years × 3/12 = $6,250.
29. (LO 8) Cost depletion is determined using the adjusted basis of the asset. The basis is divided by the
estimated recoverable units of the asset (e.g., barrels and tons) to arrive at the depletion per unit. This
amount is then multiplied by the number of units sold (not the units produced) during the year to
arrive at the cost depletion allowed.
Parscale’s depletion per ton is $16 ($8,000,000 adjusted basis/500,000 estimated recoverable tons). If
75,000 tons are sold this year, the cost depletion is $1,200,000 ($16 depletion per ton × 75,000 tons
sold).
30. (LO 8) Percentage depletion (also referred to as statutory depletion) uses a specified percentage
provided by the Code. The percentage varies according to the type of mineral interest involved. The
rate is applied to the gross income from the property, but in no event may percentage depletion
exceed 50% of the taxable income from the property before the allowance for depletion.
Gross income $340,000
Less: Other expenses (229,000)
Taxable income before depletion $111,000
Depletion allowance $ 47,6001
1
[The lesser of $47,600 (14% × $340,000) or $55,500 (50% × $111,000)].
PROBLEMS
31. (LO 1, 2)
Cost of asset $200,000
Less: Greater of allowed and allowable cost recovery:
2013 $ 910
2014 7,272 (8,182)
Basis at the end of 2014 $191,818
Less: Cost recovery for 2015 ($200,000 × .03636 × .5/12) (303)
Basis on date of sale $ 191,515
Loss on sale of asset ($180,000 − $191,515) ($ 11,515)
32. (LO 1, 2) José’s basis for cost recovery is $300,000 because the basis of the house at the date of the
conversion from personal use to rental property ($300,000) is less than the $400,000 fair market
value. The cost recovery is $8,637 [$300,000 × .02879 (Exhibit 8.9)].
33. (LO 2) The office furniture qualifies for additional first-year depreciation. So part of the $130,000
cost can be deducted as additional first-year depreciation. The property is 7-year class property. Cost
recovery would be calculated as follows.
Additional first-year depreciation:
($130,000 × .50) $65,000
MACRS cost recovery:
[($130,000 − $65,000) × .1429 (Exhibit 8.4)] 9,289
Total cost recovery $74,289
34. (LO 2)
a. The mid-quarter convention must be used. The office machine is 7-year class property.
2014
Additional first-year depreciation
($75,000 × .50) $37,500
MACRS cost recovery
[($75,000 − $37,500) × .0357 (Exhibit 8.5)] 1,339
b. 2015
MACRS cost recovery [$37,500 × (.2755 × 2.5/4)] $6,457
35. (LO 2)
a. 2015
MACRS cost recovery ($200,000 × 20%) (Exhibit 8.4) $40,000
b. 2016
MACRS cost recovery [$200,000 × 32% (Exhibit 8.4) × 1/2] $32,000
36. (LO 2) The mid-quarter convention must be used because the cost of the computers acquired in the
fourth quarter exceeds 40% of the cost of all the personal property acquired during the year
($70,000/$150,000 = 47%).
Furniture (7-year class property)

MACRS cost recovery
[$40,000 × .1785 (Exhibit 8.5)] $ 7,140
Trucks (5-year class property)
MACRS cost recovery
[$40,000 × .15 (Exhibit 8.5)] 6,000
Computers (5-year class property)

MACRS cost recovery
[$70,000 × .05 (Exhibit 8.5)] 3,500
37. (LO 2)
a. The building was placed in service in October.
2015: $3,800,000 × .00535 (Exhibit 8.9) = $20,330
b. 2019: $3,800,000 × .02564 (Exhibit 8.9) × 6.5/12 = $52,776
38. (LO 2) The building meets the 80% gross receipts from dwelling units test. Therefore, it is classified
as residential real property. The building’s depreciable basis is $1,500,000 [$2,000,000 (cost) −
$500,000 (land)].
$1,500,000 × 2.576% (Exhibit 8.9) = $38,640
39. (LO 2)
2015: $10,800,000 × .01605 (Exhibit 8.9) = $173,340
2025: $10,800,000 × .02564 (Exhibit 8.9) = $276,912
40. (LO 2) The building’s depreciable basis is $1,300,000 [$1,600,000 (cost) − $300,000 (land)].
a. 2015: $1,300,000 × .0197 (Exhibit 8.9) = $25,610
b. 2021: $1,300,000 × .03636 (Exhibit 8.9) × 10.5/12 = $41,360
41. (LO 2) The 150% declining-balance method must be used under these circumstances with a 7-year
cost recovery period.
MACRS cost recovery ($150,000 × .1071) (Exhibit 8.7) $16,065
42. (LO 2) MACRS cost recovery (straight-line method)

[$80,000 × .05 (Exhibit 8.8)] $4,000
43. (LO 2, 3, 9)
a. 5-year class property
Immediate expense deduction under § 179 $200,000
7-year class property
Immediate expense deduction under § 179 300,000
($500,000 − $200,000)
MACRS cost recovery
[($400,000 − $300,000) × .1429] 14,290
Total deduction $514,290
b. 7-year class property

Immediate expense deduction under § 179 $400,000
5-year class property
Immediate expense deduction under § 179 100,000
[($200,000 − $100,000) × .20] 20,000
c. The deduction for the year would be $5,710 ($520,000 − $514,290) larger if § 179 expense
was first allocated to the 7-year class property (i.e., the longer lived asset). Therefore, she
should elect to expense the 7-year property (the furniture) first.
44. (LO 2, 3)
Section 179 limit $500,000
Cost recovery for 7-year class assets
[($600,000 − $500,000) × .1429] $14,290
Income limitation
Income before § 179 and cost recovery $250,000
Cost recovery ($95,000 + $14,290) (109,290)
Income before § 179 amount $140,710
Section 179 amount of $500,000 (limited to $140,710) 140,710

Total deduction with respect to the 7-year assets in 2015 $155,000
Section 179 carryforward ($500,000 − $140,710) $359,290
45. (LO 2, 3, 9)
2014:
Section 179 expense $500,000
[($550,000 − $500,000) × .50] 25,000
MACRS cost recovery
[($550,000 − $500,000 − $25,000) × .1429] 3,573
2015:
MACRS cost recovery
[($550,000 − $500,000 − $25,000) × .2449] $ 6,123
Total deduction $ 6,123
46. (LO 3, 4) Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

5191 Natorp Boulevard
Mason, OH 45040
December 20, 2015
Mr. Jabari Johnson
100 Morningside
Clinton, MS 39058
Dear Mr. Johnson:
I am responding to your inquiry concerning the amount of cost recovery you may deduct in the first
year of operation of a new taxi. If the automobile is purchased at the beginning of 2015 for $35,000,
the total cost recovery deductions in the first year will be $35,000 (via an expense election under
§ 179).
Because the car will be used as a taxi, it is not subject to the cost recovery limitations imposed on
passenger automobiles. This $35,000 cost recovery assumes that your income from your taxi business
before consideration of this cost recovery will be at least $35,000 and an election is made under § 179
to expense the maximum allowable amount.
If you need additional information or need clarification of our calculations, please contact me.
Sincerely yours,
John J. Jones, CPA
Partner
TAX FILE MEMORANDUM

December 20, 2015
FROM: John J. Jones
SUBJECT: Jabari Johnson: Calculations for cost recovery in year of acquisition
Facts. Jabari Johnson is considering purchasing an automobile at the beginning of 2015 to be used
100% as a taxi. The cost of the automobile is $35,000. Jabari wants to know the total recovery for the
year of acquisition of the car.
Calculations. Because the automobile will be used as a taxi, it is not subject to the cost recovery
limitations for passenger automobiles. Therefore, Jabari can elect § 179 expensing and expense the
entire cost of the automobile (which is less than the $500,000 maximum § 179 election amount). In
deducting the full § 179 amount of $35,000, the assumption is made that John’s income from the taxi
business before consideration of the § 179 expense will equal or exceed $35,000.
47. (LO 2, 4) Because the car is a used car, it is not eligible for additional first-year depreciation, if
available.
MACRS cost recovery:

Cost $25,000
Statutory percentage (mid-quarter convention) × 5%
Cost recovery but subject to the limitation $ 1,250
Recovery limit (limited to $3,160*) $ 1,250
Less: Personal usage (20% × $1,250) (250)
Cost recovery $ 1,000
*These cost recovery limits are indexed annually. The 2014 amounts are used.
48. (LO 4)
Deduction for 2014
Additional first-year depreciation ($20,000 × 50%) $10,000
MACRS cost recovery [($20,000 − $10,000) × 20%] 2,000
Limited to $11,160* ($3,160 + $8,000) $12,000
Deduction for 2015

($10,000 × .32) = $3,200 (limited to $5,100*) $3,200
So the deduction for 2014 is $11,160; for 2015, it is $3,200.

49. (LO 2, 3, 4)
Because the Escalade has a GVW rating in excess of 6,000 pounds, it is not a passenger automobile
and hence is not subject to the cost recovery limitations. However, because the vehicle is an SUV
with a GVW between 6,000 and 14,000 pounds, the § 179 expense amount is limited to $25,000.
The total MACRS deductions would be computed, including the first-year amount, as follows.
§ 179 expense $25,000

Additional first-year depreciation [($62,000 – $25,000) × 50%] 18,500
MACRS cost recovery [($62,000 − $25,000 – 18,500) × 20%] 3,700
50. (LO 2, 4)
Deduction for 2015
MACRS cost recovery ($20,000 × 20%) = $4,000
(limited to $3,160*) × 80% $2,528
Deduction for 2016

Straight-line ($20,000 × 20%) = $4,000 (limited to $5,100*) × 70% $2,800
Cost recovery recapture in 2016

2015 deduction $2,528
Straight-line ($20,000 × 10%) = $2,000
(limited to $3,160*) × 80% (1,600)
Excess $ 928
51. (LO 2, 4, 9)
100% business use
[$4,000 × 20% (Exhibit 8.4)] × 100% $800
45% business use
[($4,000 × 10%) (Exhibit 8.8)] × 45% (180)
Reduced cost recovery if personal use occurs $620
Tax cost ($620 × 28%) $174
52. (LO 2, 4, 9) Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

Mason, OH 45040
December 20, 2014
Mr. Dennis Harding
150 Avenue I
Memphis, TN 38112
Dear Mr. Harding:
I am writing in response to your request concerning the tax consequences of purchasing versus
leasing an automobile. Our calculations are based on the data you provided in our telephone
conversation.
If the automobile is purchased, the total cost recovery deductions for the five years will be $15,060. If
the automobile is leased, lease payment deductions will total $22,500. In addition, you also must
include $421 in your gross income.
If you need additional information or clarification of our calculations, please contact us.
Sincerely yours,
John J. Jones, CPA
Partner
TAX FILE MEMORANDUM

December 20, 2014
FROM: John J. Jones
SUBJECT: Dennis Harding: Calculation of lease versus purchase
Facts. Dennis Harding is considering purchasing or leasing an automobile on January 1, 2015. The
purchase price of the automobile is $48,500. The lease payments for five years would be $375 per
month. The inclusion dollar amounts for the next five years would be $28, $62, $93, $111, and $127.
Dennis wants to know the effect on his adjusted gross income for purchasing versus leasing the
automobile for five years.
Calculations
Purchase: Cost recovery deductions
2015 ($48,500 × 20%) = $9,700 (limited to $3,160*) $ 3,160
2016 [$48,500 × 32% (limited to $5,100*)] 5,100
2017 [$48,500 × 19.2% (limited to $3,050*)] 3,050
2018 [$48,500 × 11.52% (limited to $1,875*)] 1,875
2019 [$48,500 × 11.52% (limited to $1,875*)] 1,875
Total cost recovery deductions $15,060
Lease:
Lease payments ($375 × 60) $22,500
Inclusion dollar amounts ($28 + $62 + $93 + $111 + $127) $ 421
53. (LO 2, 5)
For regular income tax liability
MACRS cost recovery ($16,000 × .20) $3,200
For AMT liability
($16,000 × .15) $2,400
54. (LO 2, 5, 9)
MACRS:
Year 1 [$100,000 × 14.29% (Exhibit 8.4)] $14,290
Year 2 ($100,000 × 24.49%) 24,490
Year 3 ($100,000 × 17.49%) 17,490
ADS:
Year 1 [$100,000 × 10.71% (Exhibit 8.7)] $10,710
Year 2 ($100,000 × 19.13%) 19,130
Year 3 ($100,000 × 15.03%) 15,030
Total cost recovery (44,870)
Cost recovery lost by electing ADS $11,400
Tax cost of election ($11,400 × 28%) $ 3,192
55. (LO 2, 7, 9) Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

Mason, OH 45040
October 15, 2015
Mr. Mike Saxon

200 Rolling Hills Drive
Shavertown, PA 18708
Dear Mr. Saxon:
This letter is in response to your request concerning the tax consequences of allocating the purchase
price of a business between the two assets purchased: a warehouse and goodwill.
If the purchase price of $2,000,000 is allocated $1,200,000 to the warehouse and $800,000 to
goodwill, the total recovery in the first year of operations will be $82,865. Cost recovery on the
warehouse will be $29,532, and amortization of the goodwill will be $53,333. If the purchase price is
allocated $1,500,000 to the warehouse and $500,000 to goodwill, the total recovery in the first year of
operations will be $70,248. Cost recovery on the warehouse will be $36,915, and amortization of the
goodwill will be $33,333.
Therefore, under the first option, your deductions in the first year will be $12,617 greater ($82,865 −
$70,248). The building is written off over 39 years, whereas the goodwill is written off over 15 years.
Thus, the higher the allocation to goodwill, the faster the write-off. Should you need more
information or clarification of calculations, please contact us.
Sincerely yours,
John J. Jones, CPA

Partner
TAX FILE MEMORANDUM
October 15, 2015
FROM: John J. Jones
SUBJECT: Mike Saxon: Calculations of amount of recovery depending on the allocation of

purchase price between a warehouse and goodwill
Facts. Mike is negotiating the purchase of a business. The final purchase price ($2 million) has been
determined, but the allocation of the purchase price between a warehouse and goodwill is still subject
to discussion. Two alternatives are being considered. The first alternative allocates $1,200,000 to the
warehouse and $800,000 to goodwill. The second alternative allocates $1,500,000 to the warehouse
and $500,000 to goodwill. Mike wants to know the total recovery during the first year of operation
from each alternative.
Calculations
Alternative 1
Warehouse [$1,200,000 × 2.461% (Exhibit 8.9)] $29,532
Goodwill ($800,000/15 years) 53,333
Total recovery $82,865
Alternative 2
Warehouse [$1,500,000 × 2.461% (Exhibit 8.9)] $36,915
Goodwill ($500,000/15 years) 33,333
Total recovery $70,248
Additional deductions in first year under alternative 1

($82,865 − $70,248) $12,617
56. (LO 7)
Deductible amount [$5,000 − ($64,000 −$50,000)] $ –0–
Amortizable amount [($64,000/180) × 10 months] 3,556
Total deduction for startup expenditures $3,556
57. (LO 7)
Deductible amount [$5,000 − ($53,000 − $50,000)] $2,000
Amortizable amount {[($53,000* − $2,000)/180] × 6 months} 1,700
Total deduction for startup expenditures $3,700
*Startup expenses do not include interest expense.
58. (LO 8)
Gross income $12,000,000
Less: Expenses (5,000,000)
Taxable income before depletion $ 7,000,000
Cost depletion ($10,000,000/250,000 × 45,000) = $1,800,000
Percentage depletion (22% × $12,000,000 = $2,640,000, limited
to 50% × $7,000,000 = $3,500,000) (2,640,000)
Taxable income $ 4,360,000
59. (LO 8, 9)
Not expensed
Less: Expenses (1,240,000)
Taxable income before depletion $2,600,000
Cost depletion ($6* × 120,000) $720,000
Percentage depletion (15% × $3,840,000) $576,000
Greater of cost or percentage depletion (720,000)
Taxable income $1,880,000
Expensed
Less: Expenses, including IDC (2,240,000)
Taxable income before depletion $1,600,000
Cost depletion ($4** × 120,000) $480,000
Percentage depletion (15% × $3,840,000) $576,000
Greater of cost or percentage depletion (576,000)
Taxable income $1,024,000
*Oil interest cost plus IDC ($2,000,000 + $1,000,000) ÷ 500,000 = $6.
**Oil interest cost of $2,000,000 ÷ 500,000 = $4.
CUMULATIVE PROBLEMS
60. Net income from Writers Anonymous (Note 1) $ 17,500

Interest income 4,000
Self-employment tax deduction (Note 4) (1,237)
Adjusted gross income $ 20,263
Less: Itemized deductions (11,700)
Personal exemption (3,950)
Taxable income $ 4,613
Tax on $4,613 from 2014 Tax Table $ 463

Self-employment tax (Note 4) 2,473
Less: Estimated tax payments (3,000)
Net tax payable (or refund due) for 2014 ($ 64)
See the tax return solution beginning on p. 8-24 of this Solutions Manual.
Notes
(1) The net income of Writers Anonymous is calculated as follows.

Income from sales $85,000
Less: Rent $16,500
Utilities 7,900
Supplies 1,800
Insurance 5,000
Travel excluding meals ($3,500 − $1,200) 2,300
Meals ($1,200 − $600) 600
Depreciation and § 179 deduction (Note 3) 33,400 (67,500)
Income from business $17,500
(2) The itemized deductions include:
State income tax $ 3,000
Home mortgage interest 6,000
Property taxes on home 1,500
Charitable contributions 1,200
Total itemized deductions $11,700
(3) Furniture and fixtures:

§ 179 limited expensing $21,000
Cost recovery ($21,000 − $21,000) × .1429 –0– $21,000
Computer equipment:
§179 limited expensing $12,400
Cost recovery ($12,400 − $12,400) × .2000 –0– 12,400
All the assets acquired by Ms. Morgan can be expensed in 2014. If all assets cannot be expensed,
the § 179 limited expensing election would be allocated to the longest-lived assets first. In this
case, it would be first associated with the furniture and fixtures ($21,000) and then with the
computer equipment ($12,400). The furniture and fixtures have a 7-year recovery period,
whereas the computer equipment uses a 5-year recovery period.
(4) The self-employment tax is calculated as follows (see Chapter 13).
1. Net earnings from self-employment. $17,500

2. Multiply line 1 by 92.35%. 16,161
3. If the amount on line 2 is $117,000 or less,
multiply the line 2 amount by 15.3%. This is
the self-employment tax. $ 2,473
One-half of the self-employment tax, or $1,237, is a deduction for AGI.
61. Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

Mason, OH 45040
December 21, 2015
Mr. John Smith

1045 Center Street
Lindon, UT 84042
Dear Mr. Smith:
I am writing in response to your request concerning the effects on your 2015 adjusted gross income of
selling IBM stock and using some of the proceeds to purchase an automobile to be used in your
business.
If the stock was not sold and the car was not purchased, your adjusted gross income would be
$198,000. If the stock was sold and the car was purchased, your adjusted gross income would be
$201,840. The supporting calculations follow.
No sale of stock and no purchase of car
Fees for services $912,000

Less: Business expenses
Building rental $ 36,000
Office furniture and equipment rental 9,000
Office supplies 2,500
Utilities 4,000
Salaries ($34,000 + $42,000) 76,000
Payroll taxes 7,000
Fuel and oil 21,000
Cost recovery (Note 3):
Front-end loaders 30,000
Dump truck 48,000
Total business expenses (233,500)
Business income before § 179 deduction $678,500
Less: § 179 deduction (Note 1) (500,000)
Business income $178,500
Dividend income 9,500
Adjusted gross income $198,000
Notes
(1) Section 179 deduction of $500,000.
(2) The inheritance of IBM stock worth $110,000 from Aunt Mildred is excludible under § 101.
(3) Cost recovery

Front-end loaders
[($550,000 − $500,000) × .50] $25,000
MACRS cost recovery
[($550,000 − $500,000 − $25,000) × .20] 5,000
Dump truck
($80,000 × .50) $40,000
MACRS cost recovery
[($80,000 − $40,000) × .20] 8,000
Sale of stock and purchase of car

Building rental $ 36,000
Utilities 4,000
Salaries ($34,000 + $42,000) 76,000
Payroll taxes 7,000
Fuel and oil 21,000
Dump truck 48,000
Car 11,160
Gain on stock sale (Note 2) 15,000
Notes
John’s recognized gain on the sale of the IBM stock is $15,000 ($125,000 amount realized −
$110,000 adjusted basis) and is automatically classified as a long-term capital gain.
(3) Cost recovery
Front-end loaders
[($550,000 − $500,000) × .50] $25,000
MACRS cost recovery
[($550,000 − $500,000 − $25,000) × .20] 5,000
Dump truck
($80,000 × .50) $40,000
MACRS cost recovery
[($80,000 − $40,000) × .20] 8,000
Total $48,000
Car
($75,000 × .50) $37,500
MACRS cost recovery
[($75,000 − $37,500) × .20] 7,500
Total potential deduction $45,000
Limited to ($3,160* + $8,000) $11,160

*The cost recovery limits are indexed annually. The 2014 amounts are used.
Should you want more information or need us to clarify our calculations, please contact us.
Sincerely,
John J. Jones, CPA
Partner
TAX FILE MEMORANDUM
December 20, 2015
FROM: John J. Jones
SUBJECT: John Smith: Calculation of adjusted gross income for (1) no sale of stock or purchase
of car versus (2) sale of stock and purchase of car
Facts. John is considering selling inherited IBM stock with an adjusted basis to him of $110,000 for
$125,000 on December 29, 2015. He would use $75,000 of the proceeds to purchase a car that would
be used 100% for business. John wants to know the effect these transactions would have on his
adjusted gross income.
No sale of stock and no purchase of car
Building rental $36,000
Utilities 4,000
Salaries ($34,000 + $42,000) 76,000
Payroll taxes 7,000
Fuel and oil 21,000
Dump truck 48,000

Notes
(3) Cost recovery
Front-end loaders
[($550,000 – $500,000) × .50] $25,000
MACRS cost recovery
[($550,000 − $500,000 − $25,000) × .20] 5,000
Dump truck
($80,000 × .50) $40,000
MACRS cost recovery
[($80,000 − $40,000) × .20] 8,000
Sale of stock and purchase of car
Building rental $36,000
Utilities 4,000
Salaries ($34,000 + $42,000) 76,000
Payroll taxes 7,000
Fuel and oil 21,000
Dump truck 48,000
Car 11,160
Gain on stock sale (Note 2) 15,000
Notes
John’s recognized gain on the sale of the IBM stock is $15,000 ($125,000 amount realized −
$110,000 adjusted basis) and is automatically classified as a long-term capital gain.
(3) Cost recovery
Front-end loaders
[($550,000 − $500,000) × .50] $25,000
MACRS cost recovery
[($550,000 − $500,000 − $25,000) × .20] 5,000
Dump truck
($80,000 × .50) $40,000
MACRS cost recovery
[($80,000 − $40,000) × .20] 8,000
Total $48,000
Car
($75,000 × .50) $37,500
MACRS cost recovery
[($75,000 − $37,500) × .20] 7,500
Total potential deduction $45,000
Limited to ($3,160* + $8,000) $11,160
*The cost recovery limits are indexed annually. The 2014 amounts are used.
RESEARCH PROBLEMS
1. CLIENT LETTER
Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

Mason, OH 45040
April 1, 2016
Ms. Cassandra Martin, CFO

Dave’s Sport Shop
867 Broadway
New York, NY 10003
Dear Ms. Martin:

This letter is in response to your request to provide Dave’s Sport Shop with tax advice regarding the
tax treatment of the inventory management software purchased in 2015.
Generally, tax law provides that the cost of off-the-shelf software is recovered over 36 months, which
would mean that the full cost of the software could not be deducted in the year of purchase. However,
software is eligible for IRC Sec. 179 expensing. In 2015, this provision allows for up to $500,000 of
the cost of property other than real estate placed in service in the year to be immediately expensed. As
long as Dave’s Sport Shop has not exceeded this limit with other property acquired in 2015 and
expensed under Sec. 179, the full cost of the software can be deducted under the provisions of
Sec. 179.
If we can be of assistance in helping you to maximize your cost recovery deductions, please let me
know.
Sincerely,
Gayle B. Anders, CPA

Partner
TAX FILE MEMORANDUM
DATE: March 30, 2015
FROM: Gayle B. Anders
SUBJECT: Amortization of software costs

Cassandra Martin, CFO of Dave’s Sport Shop, has requested that we provide tax advice regarding the
immediate deduction of the cost of inventory management software purchased in the 2015 tax year.
Per IRC Sec. 167(a), off-the-shelf software that has not been substantially modified is amortized
over 36 months. (Note that software acquired as part of the purchase of a trade or business is an
IRC Sec. 197 intangible, subject to 15 year amortization. The client has not indicated that the
software was acquired as a part of the acquisition of a business.)
However, software is eligible for IRC Sec. 179 expensing as well as additional first year depreciation.
As long as Dave’s has not exceeded the maximum Sec. 179 limit in 2015 ($500,000) with other
property acquired, the full cost of the software can be deducted in 2015. I did not mention the
additional first year depreciation provisions to the client. If acquisitions qualifying for Sec. 179
exceed $500,000 for the year, we should contact the client to make her aware of this additional
benefit.
I have notified Cassandra Martin of the amortization and Sec. 179 provisions.
2. The facts of the case are similar to Chief Counsel Advice Memorandum 201234024, May 9, 2012. In
the memorandum, it was determined that a vineyard constituted § 179 property. Hence, taxpayers
were entitled to elect to expense the costs incurred when the vineyard was planted on the current
year’s income tax return. Therefore, Jed should be able to deduct the costs incurred in planting the
vineyard in 2011 on his 2015 income tax return. This is assuming that all of the other requirements
under Section 179 have been satisfied.
3. The facts of the case are similar to Bruce Selig, 70 TCM 1125, T.C. Memo. 1995–519. In this case,
the court ruled that a deduction was allowable. The Court found that over time, the exotic
automobiles would, because of those exotic features, become obsolete in the petitioner’s business.
The fact that petitioner failed to show the useful lives of the automobiles was irrelevant to the
decision.
Research Problems 4 and 5
The Internet Activity research problems require that students utilize online resources to research and answer
the questions. As a result, solutions may vary among students and courses. You should determine the skill and
experience levels of the students before assigning these problems, coaching where necessary. Encourage
students to explore all parts of the Web in this research process, including tax research databases, as well as
the websites of the IRS, newspapers, magazines, businesses, tax professionals, other government agencies,
and political outlets. Students should also work with resources such as blogs, Twitter feeds, and other
interest-oriented technologies to research their answers.
4. Market Watch provides such a calculator: www.marketwatch.com/tools/carleaseorbuy. Edmunds.com

also provides a helpful discussion of the costs and benefits of leasing versus buying:
www.edmunds.com/car-buying/should-you-lease-or-buy-your-car.html.
5. In a November 2013, tax reform proposal released by Max Baucus (formerly a senator from Montana
and the Chair of the Senate Finance Committee), a change to the current system of depreciation was
proposed. In theory, this change would generate additional tax revenue that would allow the corporate
tax rate to be lowered. Search on www.finance.senate.gov to find this proposal.
CHECK FIGURES
21. $11,432; $19,592. 43.a. $514,290.

22. $3,570; $27,550. 43.b. $520,000.
23. $36,360; $25,640. 44. Cost recovery $155,000; § 179
24. $280; $560. carryforward $359,290.
25. $34,125. 45. 2014: $528,573; 2015: $6,123.
26. $5,600; $206,400. 46. $35,000.
27. $2,212; $3,570. 47. $1,000.
28. $7,250. 48. $11,160 in 2014; $3,200 in 2015.
29. $1,200,000. 49. $47,200.
30. $47,600. 50. Deduction in 2015 $2,528; deduction in
31. Loss $11,515. 2016 $2,800; recapture in 2016 $928.
32. $300,000 basis; $8,637 cost recovery. 51. $174.
33. $74,289. 53. Regular tax deduction $3,200; AMT
34.a. $38,839. deduction $2,400.
34.b. $6,457. 54. $3,192.
35.a. $40,000. 55. The first option produces a $12,617
35.b. $32,000. greater deduction.
36. $16,640. 56. $3,556.
37.a. $20,330. 57. $3,700.
37.b. $52,776. 58. $4,360,000 taxable income.
38. $38,640. 59. Capitalized $1,880,000; expensed
39. 2015: $173,340; 2025: $276,912. $1,024,000.
40.a. $25,610. 60. Refund for 2014 $64.
40.b. $41,360. 61. AGI without purchase $198,000; AGI
41. $16,065. with stock sale and car purchase $201,840.
42. $4,000.
SOLUTION TO ETHICS & EQUITY FEATURE
Section 179 Limitation (p. 8-13). Joe can expense $25,000 of the cost of the truck under §179. The income
limitation is the aggregate amount of taxable income derived from the conduct of any trade or business.
Although Joe reported a net operating loss from one business, the sale of his other business had a profit of
$300,000. Therefore, taxable income is not a limitation.
SOLUTIONS TO ROGER CPA REVIEW QUESTIONS
Detailed answer feedback for Roger CPA Review questions is available on the instructor companion site
(www.cengage.com/login).
1. a 4. b
2. c 5. d
3. b
60.
60. continued
60. continued
60. continued
60. continued
60. continued
60. continued
NOTES
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left. Two
depressions on the
top of the skull;
dura mater
depressed and
adherent to
convolutions. Some
pachymeningitis.
28 M. 34. Attacks of right-sided epilepsy every Sarcoma. E. C. Seguin,
four or six weeks; later, every week or Opera Minora, p.
oftener. Spasms wholly restricted to the In centrum ovale, 499, and Journ.
right arm or leg; the slightest attacks underneath the left of Nerv. and
only momentary shocks on the right side cortical motor area, Mental Dis., July,
of the body. No spasm in the face. Only and completely 1881.
very rarely lost consciousness. Never undermining it, was
frothed at the mouth, bit his tongue, or a large cavity which
micturated in the attacks. In intervals contained a large
had good use of his right hand and leg amount of coffee-
up to a late period. Paresis of right limbs red serum, and also
came on with indefinite numbness of a tumor lying on its
right leg. Diffused headache, mostly inner side near the
frontal. No facial palsy; no anæsthesia. paracentral lobule.
Knee-jerk absent on left side and strong The tumor was
on right. Later, complete paralysis of connected behind
right arm and leg, with œdema. Violent with the falx cerebri
headaches, more to the left of the in the region of the
median line at the vertex; photophobia, paracentral lobule.
nausea, and vomiting. No neuro-
retinitis. Still later, paresis, and then
paralysis of right face. Atrophy;
contractures; bed-sores; semi-coma;
profuse sweating; high temperature;
conjugate deviation of the eyes to the
right; head straight.
29 M. 22. First symptom was a fit, which was Enchondroma. T. P. Pick, St.
followed by a rigor. After this fit paresis George Hosp.
of right arm and leg, with inability to In left hemisphere,
articulate properly. Could not raise the between anterior Rep., vol. ix. p.
affected arm, but could grip objects part of corpus 663.
weakly. Paralysis of right side of face striatum and
and tongue. Was quite rational. No loss “surface of frontal
of sensation. Later, violent headache, lobe.” The cortex
followed by vomiting. Slight amelioration over tumor and the
of many symptoms, soon followed by outer and anterior
second attack of violent headache, portion of corpus
which could not be localized; complete striatum were
right hemiplegia and aphasia. Later, softened and
dysphagia. Death rather sudden. broken down.
Patient had had amputation of thigh

about six months before for
sarcomatous enchondroma of head of
the tibia. Had also had chancre four
years before.
30 F. 16. Patient was a wayward, hysterical girl of Tumor in right A. Hughes-
neurotic family, precocious, and with hemisphere, size of Bennett, Brain,
abnormal sexual instincts and hen's egg, 1878, vol. i. p.
indulgences. Had a sudden attack of translucent, and 114.
total blindness, then sudden recovery; nodulated, soft,
sudden blindness again, and deafness; highly vascular, with
then restoration of hearing; loss of small
power in lower limbs, ending with total extravasations of
blindness, deafness, and paraplegia. blood on its surface,
Had dilated pupils and some occupied medullary
hyperæsthesia; also marked hysteroidal substance of middle
attacks, becoming at last maniacal. lobe superior to
lateral ventricle
Negatively, no constant headache or causing bulging of
affection of ocular, facial, or lingual roof of ventricle.
muscles, no convulsions or vomiting; no
abnormal ophthalmoscopic
appearances (except slight choked
disc).
The case had been diagnosticated by
many doctors and one of the “first
authorities in Europe” to be hysteria.
Postero-parietal Region.
31 M. 25. Kicked on the head. Headache, nearly Fibroma. C. K. Mills, Arch.
continuous, with violent paroxysms. Med., vol. viii. No.
Vomiting at intervals, most when Adherent to 1, August, 1882.
headache was most violent. Vertigo. membranes, and
Mental confusion; sometimes maniacal. involving the left
Left convergent strabismus. Partial right postero-parietal and
hemianæsthesia. Patellar reflexes occipital region to
slightly exaggerated; slight ankle-clonus within half an inch
on the right side. Blind in both eyes; of longitudinal
sight of right eye lost first. Choked discs, fissure. The brain-
and eventually optic atrophy. Hearing tissue around
defective in right ear. Constipation. softened and
Head-temperatures taken once; right broken down, the
parietal region, 98° F.; left parietal, 97.8° parts disintegrated
F. being chiefly the
white matter of the
postero-parietal and
occipital lobes.
32 M. 49. Dropping of left hand at intervals, with Carcinoma. James Russell,
power regained in about an hour. Brief Brit. Med. Journ.,
attacks of loss of speech, and It occupied nearly 1876, ii. p. 709.
numbness in lips and tongue on both exactly the site of
sides. Numbness in tips of his fingers the right “poster-
and the left hand. Slight paroxysms of parietal lobule”
general rigidity. Severe frontal (superior parietal). It
headache. No vomiting. Loss of sight, was clear of the
gradually increasing to total blindness. ascending parietal
Involuntary micturition. Increasing convolution in front,
hebetude. Slow but probably correct and behind did not
intellection. Left upper extremity, toward quite touch the
last, paretic. Was able to stand, but external parieto-
could scarcely walk. Hearing and taste occipital fissure;
preserved. Some doubt as to smell. below it extended
Later, imbecile. After a severe fit of just short of the
general convulsions he died. Duration, intraparietal fissure,
about four months. and on inner face of
hemisphere
reached for half an
inch into
quadrilateral lobe.
Below tumor toward
ventricle brain-
substance softened.
33 F. 36. Right-sided temporal and orbital Gummata. Broadbent,
neuralgia. Anæsthesia of left arm. Lancet, Jan.,
Epileptic attacks. Slighter attacks of In right Feb., 1874,
spasm, without unconsciousness, in left supramarginal quoted by
face, left arm, and hand. Paresis of left lobule two tumors Bernhardt, p. 68.
arm. Blindness. Optic neuritis. Pupils size of pea, lying
dilated and immobile. Later, loss of superficially. Beitrage zur
smell and taste. Mental depression. Symptomatologie
und Diagnostik
der
Herngeschwülste,
von Dr. M.
Bernhardt, Berlin,
1881.
34 —— Left hemiplegia with some anæsthesia. Tumor size of an Strümpell,
Deafness developed in the left ear, with apple in middle of Neurolog.
a total inability to localize the origin of ascending parietal Centralb., Aug.
sounds. convolution and 15, 1882.
backward. Around
the tumor white
softening, which
extended forward
as far as the fissure
of Rolando, and
backward
throughout the right
parietal lobe, and
beneath almost into
the central ganglia.
35 M. 54. Middle finger of the right hand began to Gliomata. H. C. Wood. Not
jerk violently, also some of the flexor before published.
tendons. Twenty minutes after this he A small tumor
had a fit, in which he became occupies the lower
unconscious and beat himself violently end of the left
on the chest with the right arm. Had supramarginal
three of these fits. Aphasic after this for convolution, just
two weeks. Had high fever at the time of where it joins the
the seizures; was rubbed all over the foot of the
body with ice. The fingers became ascending parietal
paretic, not the forearm or arm. Arm convolution. The
became numb at times, especially after latter convolution
exertion. With dynamometer, left hand, was not involved in
75; right hand, 55. Headache, which the tumor, but was
ceased after some months. Right optic distinctly pressed
disc abnormally red, but not choked; left upon in its lower
disc normal. Had a convulsive attack in third. The
the Philadelphia Hospital, in which the ascending frontal
four fingers of the right hand rapidly convolution was
vibrated, contracting and extending entirely healthy.
without pain; no loss of consciousness
or other disturbance. The tongue was In right hemisphere
also affected, so that speech was a similar gliomatous
impossible. Later, the patient had a growth in the foot of
general convulsion, preceded by a the angular
drawing sensation in the face; convolution where it
convulsive movements began in right runs into the middle
hand. Tongue bitten. Attack preceded by temporo-sphenoidal
severe headache. Had another attack convolution,
without loss of consciousness or involving also the
convulsion, preceded by a sensation as upper part of this
of a knife cutting through the flesh, convolution, and to
which travelled up from the left hand to a slight extent the
the shoulder, and then to the head. deepest portions of
Increasing loss of sensation in the the superior
fingers of the right hand. Increasing temporo-sphenoidal
difficulty of speech, with spells of convolution.
melancholia and crying. Right side of
face markedly paralyzed. Right arm
almost entirely paralyzed and much
swollen. Speech much affected;
difficulty in swallowing. Paralysis
involves the right leg.
Occipital Region.
Occipital lobe—cortex and centrum ovale.
36 M. 57. Headache. Vertigo. Paresis of left side. Glioma. Petrina, op. cit.
Left facial paralysis, especially middle
branch. Vomiting. Right pupil dilated. In middle of right
Tongue not involved. Uvula directed to occipital lobe; lobe
left. Left velum palati relaxed. Taste, softened. Right
smell, sight, and hearing normal; lateral ventricle
sensibility of whole body normal. narrowed and left
Reaction of degeneration on left side of dilated. Right
face. Left side of body shows reaction of posterior horn and
convulsibility. Slight quantity of albumen. right thalamus
Paresis declined with exception of facial opticus
nerve. Apathetic. Œdema of lung. compressed.
37 M. 27. Dysphagia, most marked with liquids, Fibroma. Cruveilhier, Bull.
caused by paresis of pharynx, more de la Soc. Anat.,
marked on left. Left hemiparesis for On posterior face of 1855, xxx. 475-
three years. Headache (frontal and left petrous bone 479.
temporal), which is of a boring, tearing and inferior occipital
character. Failure of memory. Speech fossa, extending
guttural and monotonous. Puriform behind occipital
expectoration. Later, feeble voice, foramen and to right
hiccough, yawning, somnolence. of cerebellar falx. A
prolongation
involving the
pneumogastric and
glosso-pharyngeal,
and spinal
accessory. Also
cerebellar abscess.
38 F. 20. Headache. Dimness in right eye, then in Sarcoma? S. O. Habershon,
left; finally, blindness in both. Guy's Hosp.
Convulsions. External strabismus; right Occupied all the Rep., 3d S., xx.
pupil dilated, left contracted. Coma, posterior part of 330-334.
alternating with consciousness. Vertigo. right hemisphere of
Optic discs congested, presenting small cerebrum, pressing
hemorrhages; exophthalmus. Paresis of upon and indenting
right arm and leg; partial anæsthesiæ opposite
on same side. Earache. Vomiting, not hemisphere and
frequent. Coma and death. right half of the
cerebellum.
Duration, about three months.
39 M. 18. Periodical headaches. Pains in the neck Echinococcus. Visconti, Annal.
and vertebral column. Points of exit of Univer., Oct.,
trigeminal nerve sensitive. Staggering In right occipital 1869, quoted by
gait. Diplopia. Confused sounds in right lobe. Bernhardt, p. 98.
ear. Tetanoid contractions of neck.
40 F. 21. Right hemianopsia. Central vision good. Cystic glioma. Jany, Knapp's
Other symptoms: headache, dysarthria, Archiv f.
anæsthesia of the right half of the face. In the left occipital Augenheilk., vol.
No paralysis, no mental symptoms. lobe; had reached xi. p. 190, quoted
Choked discs. and destroyed the by Starr, Am.
cortex of the lobe at Journ. Med. Sci.,
Duration seven months. its apex, and had N. S., lxxxvii.,
extended inward, Jan., 1884, p. 72.
nearly reaching the
inferior cornu of the
lateral ventricle.
The entire inner half
of the occipital lobe
was thus destroyed.
41 M. 42. Right hemianopsia. Central vision good. In left occipital lobe, Hirschberg, Deut.
Other symptoms: aphasia, right surrounded by a Zeitsch. f. Prakt.
complete hemiplegia, with facial zone of softening, Med., 1878, No.
paralysis. reaching inward to 4, quoted by M.
and involving the Allen Starr, Am.
pulvinar of the left Journ. Med. Sci.,
optic thalamus. N. S., lxxxvii.,
Optic tracts normal. Jan., 1884, p. 69.
42 M. 42. Right hemianopsia, not quite reaching Gelatinous Jastrowitz, Arch.
the point of fixation. Central vision good sarcoma. f. Augenheilk.,
in both eyes. Ophthalmoscopic 1877, p. 254,
examination negative. Other symptoms: In the left occipital quoted by Starr,
vertigo, loss of memory, aphasia, and lobe, involving all Am. Journ. Med.
partial agraphia, with temporary right three of its Sci., N. S.,
hemiplegia. convolutions, as lxxxvii., Jan.,
well as the 1884, p. 71.
præcuncus.
Softening extended
inward through the
white substance to
the posterior cornu
of the lateral
ventricle. Thalamus
and optic tracts
normal.
43 M. 40. For seven years epileptic seizure, Cyst filled with Traube,
beginning with spasm of left leg and serum. Gesammt
going on to general convulsions; Beitrage zu
motions more violent on left side. An In white matter of Pathologie, ii.
aura consisting of a darkness, coming the right occipital 1083, quoted by
gradually over the field of vision from lobe, surrounded by Starr, Am. Journ.
the left side, always preceded the a zone of softening Med. Sci., N. S.,
attack. During the intervals left-sided which did not vol. lxxxvii., Jan.,
headache was the chief symptom. It involve either the 1884, p. 73.
seems probable that a temporary left cortex or the wall of
hemianopsia preceded the attack. the lateral ventricle.
44 M. 52. Headache. Numbness down right arm. Malignant tumor. J. C. Langmore,
Later, paroxysms of headache lasting Trans. Path. Soc.
twenty to forty minutes, generally Size of pullet's egg Lond., iii. pp. 246-
preceded by pain and numbness in right at inferior portion of 248.
hand and arm, ascending to head, and posterior lobe on
so intense as to produce profuse right side in
perspiration. Delirium (lasting two days) substance of
during these attacks. No paralysis or cerebrum,
previous fit, nor vomiting. Few hours approaching within
before death had convulsions. a few lines of
surface.
The pain and numbness were in right
arm, although tumor was in right
hemisphere.
Temporo-sphenoidal Region.
Temporo-sphenoidal lobe.
45 M. 33. History of syphilis. Blows on the head. Gumma. C. K. Mills, Arch.
Headache, continuous, usually dull, Med., vol. viii. No.
occasionally severe. Occasional One and a quarter 1, August, 1882.
vomiting. Stupidity, want of energy, inches in diameter,
drowsiness. One general convulsion a attached to
few hours before death. Partial adherent
anæsthesia on the right side. membranes, and
Hyperæsthesia of left side. Sight involved the middle
impaired. No ophthalmoscopic portions of the first
examination. Hearing defective in right and second
ear. Constipation. temporal
convolutions of left
hemisphere. A layer
of brain-substance
both anterior and
posterior to the
tumor was
softened. The tumor
grazed the
ascending parietal
and inferior parietal
convolutions. A
large foyer of
greenish-yellow pus
was found to the
inner side of the
tumor.
46 M. 42. At first an attack of vertigo which lasted Epithelioma. H. C. Wood,
over twenty-four hours: some “Trans. of Path.
unconsciousness for a time. Continued Ovoid tumor about Soc. of Philada.,”
headache; loss of memory; giddiness one and a half 1880, Med.
and vomiting, the latter occurring inches in diameter Times, vol. xi.,
without connection with the state of the in the central Jan. 29, 1881.
stomach as to food. Partial bilateral portion of the
deafness, which the patient stated was temporo-occipital
of long duration. No paralysis, but right region.
hand a little weaker than left. Distinct Hippocampal
mental failure during last two weeks of convolution grazed.
life; incoherence and faulty memory. Some surrounding
softening and
meningitis. One
corner of tumor had
produced a small
spot of softening in
the cerebellum.
47 F. 40. Suffered from a light form of epilepsy At lower part of right Allan McLane
dating from tenth year, which resulted, it temporo-sphenoidal Hamilton, New
was believed, from a fall. Rarely bit her lobe a shrinking and York Med. Journ.
tongue, but usually frothed at the mouth. induration involving and Obstet.
No history of one-sided spasms. Always the uncinate gyrus Review, vol.
had an aura of a peculiar character. She and parts of the xxxv., June, 1882,
suddenly perceived a disagreeable adjacent p. 575.
odor, sometimes of smoke, sometimes convolution. The
of a fetid character, and quite olfactory nerves
uncomplicated by other sensory were not involved.
warning. Developed phthisis, her A form of low-grade
attacks occurring from time to time until hemorrhagic
her death. pachymeningitis
present.
48 F. 39. Attacks of convulsion seven weeks Sarcoma. W. H. Draper,
before her death. In two weeks mind New York Hosp.
affected; drowsy and stupid; condition of Occupied the Histories, N. S.
dementia. Passed into a state of semi- posterior part of the vol. x. p. 445,
consciousness. No eye symptoms. No fourth and fifth quoted by M.
paralysis. Percussion on left side of temporal Allen Starr, Am.
head painful. convolutions, and Journ. Med. Sci.,
the third convolution N. S. vol. lxxxvii.,
was atrophied. Did April, 1884, p.
not involve the 383.
lateral ventricle.
Under surface
flattened and
resting partly upon
the left lobe of the
cerebellum.
Basal Ganglia and Adjoining Regions.
49 M. 59. Contractures of right arm and leg since Osteoma. A. Bidder, Arch. f.
childhood. Death from accident. The Path. Anat. und
arm was atrophied and shortened, Tumor in left corpus Physiologie, und
flexed at elbow and wrist; striatum on “surface f. Klinische Med.
disappearance of some cartilages at of anterior thick Virchow, 1882, p.
wrist and wasting of joint-surface of half,” projecting 91.
radius. Femur flexed at hip; knee-joint outward into white
flexed; ankle-joint in position of equinus. substance of brain,
Other bone-changes. Right leg and inward into
shortened. anterior portion of
optic thalamus.
50 M. 30. Right frontal and occipital headache. Myxo-sarcoma. Schüppel, Arch.
Vertigo. Paræsthesia of the toes, d. Heilk., p. 357,
particularly the right. Face drawn to the In right corpus 1867.
right. Left face paretic. Right eye smaller striatum protruding
than left. Weakness and fatigue of into right lateral
limbs. Convulsions. Vomiting. Slow ventricle and cortex.
pulse.
51 M. 34. Walked a mile to an infirmary, and in Myxomatous Dowson, Med. S.
less than one hour went into a series of glioma. and Gaz.,
severe epileptic attacks, which London, 1878, p.
continued for four hours. The spasms It exactly occupied 333.
were clonic, and chiefly in upper the place of right
extremities, with violent contortions of nucleus caudatus,
face; the latter most marked on left side extending outward
and in zygomatici. Between the fits as far as white
there was deep coma, especially three fibres, but not
hours before death, when, after another involving them.
violent fit, he died, seven hours after Brain-tissue in
first seizure. No paralysis, and report proximity normal.
says nothing about any previous fits.
52 —— Partial anæsthesia of right half of trunk. Tubercle. Fleischmann,
Hyperæmia of retina, and capillary Wien. med.
hyperæmia of left optic disc. Left pupil In left optic Wochenschrift, 6,
dilated; left ptosis; left diverging thalamus. Partial 7, 8, 9, 1871,
strabismus. Paralysis of right side and destruction of left quoted by
extremities. Paralysis of muscles around peduncle of Petrina.
right corner of mouth. Incontinence of cerebrum.
feces and urine. Redness of face.
Variations in temperature.
53 F. 44. Severe headache on left side. Sarcoma. Friedreich,
Sensibility lessened in left extremities, quoted by
at same time frequent pain. Intelligence Right optic Petrina, op. cit.
diminished. Speech retarded. thalamus. Corpora
Strabismus of left eye. Amblyopia. Left quadrigemina
pupil alternately dilated and contracted. compressed.
Left lagophthalmos. Chattering of the
teeth. Twitchings on the left paralyzed
half of the face. Tongue and uvula
tending toward the left.
54 F. 38. Headache. Creeping sensations in right Glioma. Bruzelius and
arm and leg. Right facial paresis. Blix, 1870,
Paresis of left extremities. Convulsions. Left optic thalamus. quoted by
Dimness and confusion of sight. Bernhardt, 153.
Diplopia. Hardness of hearing. Failure of
memory. Difficulty in speaking and
swallowing. Improvement under iodide
of potassium.
55 F. 14. Headache, vertigo. Epileptic attack. Sarcoma. Rusconi, Gaz.
Right hemiplegia. No anæsthesia. Slight Med. Ital., 1874,
dilatation of pupils. In left optic No. 11.
thalamus. The right
optic thalamus also
affected. Corpora
quadrigemina
enlarged and
pushed backward.
56 M. 30. Headache. Left ptosis; fixation of left Serous tumor. Troschel, Med.
eyeball. Drowsiness. Retarded speech. das ver. für Heilk.
Gait unsteady. Paresis of right hand and Large as a nut, in in Preussen, xliii.,
foot. Emaciation; incontinence of urine. posterior half of 1839, quoted by
right optic thalamus. Petrina.
57 F. 36. Imbecile. Speech inarticulate. Pupils Cancer. Brenner, quoted
contracted. Spasms in arms, but light in by Petrina, op.
limbs. Left optic thalamus cit.
and corpus striatum
without definite
boundary, extending
into brain-mass.
58 F. 33. Headache and vomiting for three weeks: Glioma. Owen, St.
for one week had been maniacal. George's Hosp.
Convulsions. Apoplectiform attack, Between left optic Rep., ix., 1877-
marked by unconsciousness, general thalamus and 78, p. 150.
muscular flaccidity, and stertorous hippocampus minor,
breathing. Paralysis of left face; extending from the
twitching of right face. ventricle to the
under surface of the
brain. Corpus
striatum and optic
thalamus
unaffected.
Hemorrhage on
under surface.
59 M. 45. Vertigo, headache, and tinnitus. Five Glio-sarcoma. F. Woodbury, Am.
years before attack had fallen and Journ. of the
struck the back of his head. Much Tumor size of Med. Sci., N. S.
exposed to the sun. One day in August walnut in third
a general feeling of numbness came ventricle, moulded lxxvi., July 1,
over him. This was followed by vertigo, to the interior. 1878.
etc., as above. Staggered and stumbled Extending to base
in walking as if intoxicated. Unable to of brain just above
maintain his balance in the dark or with corpora albicantia,
his eyes closed. Some numbness in and forward as far
legs and arms, but no actual loss of as anterior
sensibility. No neuro-retinitis; no commissure. A
paralysis. When erect had a constantly caudate
increasing tendency to stagger prolongation
backward. Divergent squint and diplopia completely blocked
appeared. Potassium, iodide blisters, up the Sylvian
and seton were used. Noises and aqueduct. Owing to
headaches disappeared. During last two this obstruction, a
or three weeks some difficulty in large quantity of
swallowing. Involuntary evacuations. serum had been
Occasional hallucinations. imprisoned,
enormously
distending the
fourth and lateral
ventricle. The
growth invaded left
optic thalamus.
Superior surface of
cerebellum
softened from
median line to
middle of right
hemisphere.
60 M. 15. Epileptic from childhood: had had no fits Sarcoma. Russell, Med.
for last three years. Had tremors and Times and Gaz.,
was dull. Short-sighted, and had a habit In third ventricle, 1873 (1), p. 522.
of absurdly frequent winking. Nothing lying between
else wrong with eyes. Suddenly, after a corpora striata and
mental disturbance, had intermitting optic thalami of
pulse. Cold surface, dulness, head and opposite sides. It
face swollen and flushed. Then tonic completely
spasms, loss of consciousness, enveloped optic
involuntary micturition. General tremors, commissure, and
dilated pupils, stupor. Next diffused partially involved
dusky-red flush of both cheeks, also track of optic nerves
over back of hands and forearms. issuing from front.
Temperature depressed to 92° in axilla. The sole organic
Automatic repetition of words. Taste and connection of tumor
smell normal. He recognized himself in was with the
looking-glass on the day he died. commissure. The
tuber cinereum was
distinct from its
tissue.
61 M. 19. Periodical headaches. Unsteady gait. Echinococcus. Yates, Med.
Left hemiparesis. Peculiar swelling of Times and
face. Delirium. Convulsions and sudden In left lateral Gazette, Aug.,
death. Bad-smelling discharge of the ventricle; the whole 1870.
nose. of the ventricle a
sac.
62 M. 14. Convulsions; vomiting; internal Glioma. David Ferrier,
strabismus of right eye; gradually Brain, vol. v. p.
increasing paresis of left leg and arm. Involved right 123.
Reeling toward left side. Occipital anterior tubercle of
headache. Pain and numbness in left corpora
arm. Lateral movements of eyes lost; quadrigemina; also
paralysis of accommodation; right optic thalamus,
nystagmus. Oscillation of left hand. Left posterior part of
leg ataxic. Patellar reflex exaggerated, internal capsule,
and ankle-clonus present on left side. and tegmentum of
Superficial reflexes increased on right crus cerebri. The
side. Partial anæsthesia on left side. enlarged optic
Sight good; double optic neuritis. Left- thalamus pressed
sided hearing impaired. Taste and smell back upon right
normal. Toward end, increasing torpor; anterior portion of
left hemiplegia, except slight power cerebellum and
retained in face, with anæsthesia and middle peduncle,
analgesia. Tonic fits. Right pupil dilated, and exerted some
and external strabismus in right eye. transmitted
Slow respiration. Ankle-clonus and pressure upon
increased knee-jerk in right. medulla oblongata.
63 F. 29. Cervico-occipital headache. Vertigo. Glioma. Annuske, Von
Convulsions. Right facial paresis. Graefe's Arch.,
Tendency to fall backward. Uncertain In corpora 1873, Bd. xix.,
gait. Optic neuritis. Double amblyopia. quadrigemina. quoted by
Difficulty in moving both eyes toward the Cerebellum not Bernhardt, 167.
left. Diminished intelligence. Vomiting. involved. Tumor lay
upward and
outward from the
left cerebellar crus
ad pontem.
64 M. 21. Right temporo-frontal headache. Lipoma. Hirtz, Bull. de
Vertigo. Pains in right leg. No Société Anat.,
anæsthesia. Right leg paretic. Tinnitus. Tumor compressed Mars and April,
Atrophy of the right optic nerve. corpora 1875, quoted by
Abnormal somnolence. Sexual quadrigemina and Bernhardt, 168.
inclination diminished. Vomiting. geniculate bodies.
Blindness, first of the right and then of
the left. Right divergent strabismus.
Pupils dilated.
65 F. 3. Right hemiparesis. Right-sided tremor. Tubercle. Pilz, Jahrbuch.
Contraction of the right elbow. Late, loss für Kinderkrankh.,
of sight in left eye. Ptosis, dilatation of At site of corpora iii., 1870, 2, 133,
the left pupil. Stupidity. Peculiar quadrigemina, quoted by
movements when seated from right springing into the Bernhardt, 168.
backward to the left. third ventricle. Left
cerebral peduncle
compressed.
66 M. 25. Cervico-cephalic pains. Vertigo. Glioma. Duffin, Lancet,
Uncertain gait. No paralysis. Tension of June 17, 1876.
muscles of neck. Optic neuritis. Double Tumor displaced
amaurosis. Tinnitus. Diminution of corpora
hearing. Intelligence clear until within quadrigemina and
fourteen days of death. Insensibility, pineal gland.
delirium, coma. Small irregular pulse. Projected into the
third ventricle
through aqueduct of
Sylvius and into
fourth ventricle.
67 M. 7. Occipital pains. Staggering gait toward Tumor took the Kohts, Virch.
right and backward. Hydrocephalic place of posterior Arch., Bd. lxvii.,
cries. Tendency of head forward. part of corpora 1876, quoted by
Alternating diverging strabismus. quadrigemina and Bernhardt, 168.
Double optic neuritis. Sudden death in velum. Cyst in the
paroxysm of pain. Paresis of bladder. midst of the
Vomiting. cerebellum,
reaching the fourth
ventricle.
Cerebellum.
68 M. 1. Frontal headache. Slight control over Glioma. H. Green, Trans.
arms and legs. Stiff neck. Dilated pupils. Path. Soc., vol.
Sopor. Vomiting. Duration, one year. Size of an orange in xx., 1870.
the middle of
cerebellum. Chronic
hydrocephalus.
69 F. 21. Fall from a swing upon the head, Tubercle. H. F. Formad, Tr.
followed by loss of consciousness for a of Philada. Path.
few minutes. Occasional headache In left and middle Soc., 1879-81,
during eleven years, always located at lobe of cerebellum, vol. x. p. 178.
the occipital region. Eight months before involving the pia
death severe paroxysmal headaches, mater. Over the
increased to one every five or six days, tumefaction
and lasting three to four days. Great leptomeningitis.
hyperæsthesia of the head. Choked
discs in both eyes. Complete blindness.
Slight paresis of left side of body;
twitching of muscles of left side of face.
Staggering gait; sometimes complained
of a momentary swinging or rotary
sensation. Intellect clear. During last few
days of life loss of power of deglutition,
and also of taste, smell, and hearing.
70 F. 27. History of syphilis. Headache, with A nodulated mass C. K. Mills, Arch.
paroxysmal exacerbations. Vomiting, involved the right Med., vol. viii. No.
frequently recurring; for four weeks middle cerebellar 1, August, 1882.
before death vomited almost peduncle and the
incessantly. Vertigo; impossible to sit or adjacent region of
stand because of vertigo late in illness. the right cerebellar
Slowness of mind and hebetude. hemisphere. The
General muscular weakness. Right right upper half of
partial hemiplegia and hemianæsthesia. the floor of the
Trigeminal neuralgia. No fourth ventricle
ophthalmoscopic examination, but sight superficially
impaired. Marked slowness of softened. A small
respiration; respirations ran down as low area of softening
as four and five per minute two weeks was also found
before death. involving the under
outer surface of the
left optic thalamus,
the breadth of the
internal capsule,
and a small
segment of the
lenticular nucleus.
71 F. 13. Tubercular history. Headache, with Tubercle. C. K. Mills, Arch.
severe paroxysms; most marked in Med., vol. viii. No.
frontal and occipital regions. Vomiting; A large nodulated 1, Aug., 1882.
vertigo; attacks of reeling and falling. mass occupied the
Mental dulness. Weakness of limbs, but lower two-thirds of
no distinct paralysis. Hyperæsthesia; the right cerebellar
severe pains in limbs. Gradually went hemisphere; one
blind, first in left eye, and then in right. small nodule
Descending neuritis determined nearly a extended across
year before death; marked optic atrophy the posterior
observed a month before death. extremity of the
Constipation. superior vermiform
process, destroying
altogether about
one-third to one-half
of a cubic inch of its
substance. Internal
hydrocephalus.
72 F. 20. Headache. Occasional vomiting, but Tubercle. L. S. Clark for A.
only upon a full stomach and at the S. Gerhardt, Tr. of
beginning of a paroxysm of headache. In right lobe of Philada. Path.
No impairment of intellect; no paralysis; cerebellum. Soc., 1878-79,
no convulsion; no inco-ordination. Tubercular disease vol. ix. p. 144.
During last few days, when in of both lungs with
paroxysms of headache, her face would pleuritic adhesion.
be drawn toward left side, accompanied Fatty liver.
by a rigid drawing backward of the
head, by pain in left shoulder and arm,
and by a marked diminution of
sensation in the same shoulder and
arm. Head-pain excruciating, at first
involving the whole cranium, afterward
only the forehead and temples, but
finally only the back of the head and
nape of the neck. Died of sheer
exhaustion. Symptoms and physical
signs of phthisis.
73 M. 45. Occipital headache. Movements weak; Tumor size of nut, Luys, Gaz. des
gait staggering. Inability to fix eyes; compressing Hôp., 1867, 105,
sight retained. Pupils unequal. Partial cerebellum and quoted by
deafness in both ears. Vomiting. Sopor. pons, situated Bernhardt, p.
Sudden death. History of fall upon head between pons, 225.
at twenty years of age, since which time middle peduncle of
much headache. cerebellum, the
cerebellum, and
brain. Corpora
quadrigemina
atrophied.
74 F. 52. Violent and continuous headache. Tumor size of hen's M. Boullet, Gaz.
Gradual loss of sight. Very irritable. egg lodged méd. de Par.,
Psychic pain and complaints. between the 1834, 2d S., vol.
Incoherence of ideas. In three to four superior surface of ii. p. 264.
years some anæsthesia of left leg; the
left hand became rebellious to the will. the cerebellum and
Paralysis progressed; symptoms cerebrum.
increased very slowly. Intense coryza,
with running from the nose,
accompanied with a feeling as if a
strange body filled up this cavity. Great
appetite. Had an attack of
unconsciousness, preceded by violent
pains and creepings in the left hand,
and presenting the following conditions:
Dorsal decubitus; flushed face; head
strongly retracted; frowning; respiration
difficult, but not stertorous; pupils large
and insensible to light; the left eye
widely opened, the right shut; very
marked contraction in the orbicular
muscle; stringy mucus in large
quantities from right nostril; the left
commissure of the lip strongly carried
downward and backward. Tongue white,
not deviated. Limbs of the right side not
anæsthetic or paralyzed; the hand
strongly shut. On the left arm painful
pricking; the elbow flexed at a right
angle, hand completely paralyzed.
Motion diminished in left leg; sensibility
not altered; intelligence obtuse, but the
patient responds to questions. Nausea;
hiccough. Finally, diaphragmatic
breathing; asphyxia by strangulation.
75 F. 64. History of a fall down stairs. Headache. Tumor size of a B. Bramwell,
Frequent vomiting. Stupor, and when greengage plum, quoted in Med.
admitted to the hospital three weeks sprang from the and Surg. Rep.,
before death could not give any account dura mater just vol. xxxiv., Mar.
of herself or of her complaint. Semi- under the tentorium 11, 1876.
comatose. No definite paralysis. She cerebelli on the left
could move both arms and legs, but side. It had caused

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South-Western Federal Taxation 2016

Individual Income Taxes 39th Edition

DEPRECIATION, COST RECOVERY, AMORTIZATION, AND DEPLETION

SOLUTIONS TO PROBLEM MATERIALS

3. (LO 1) Land improvements have a MACRS class life of 15 years.

4. (LO 2) The relevant issues for Henry:

9. (LO 2) The following issues are relevant for Jim.

19. (LO 7) The following issues are relevant for George.

• Are all of the expenditures qualifying expenditures?

2015: $2,800 × .10 = $280.

2016: $2,800 × .20 = $560.

Diana’s $34,125 ($32,500 + $1,625) deduction is computed as follows.

Year MACRS Amount Recovery Limitation Deduction Allowed

Furniture (7-year class property)

Computers (5-year class property)

2015: $3,800,000 × .00535 (Exhibit 8.9) = $20,330

b. 2019: $3,800,000 × .02564 (Exhibit 8.9) × 6.5/12 = $52,776

$1,500,000 × 2.576% (Exhibit 8.9) = $38,640

2015: $10,800,000 × .01605 (Exhibit 8.9) = $173,340

2025: $10,800,000 × .02564 (Exhibit 8.9) = $276,912

b. 2021: $1,300,000 × .03636 (Exhibit 8.9) × 10.5/12 = $41,360

42. (LO 2) MACRS cost recovery (straight-line method)

b. 7-year class property

Section 179 amount of $500,000 (limited to $140,710) 140,710

46. (LO 3, 4) Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

TAX FILE MEMORANDUM

MACRS cost recovery:

Deduction for 2015

So the deduction for 2014 is $11,160; for 2015, it is $3,200.

§ 179 expense $25,000

Deduction for 2016

Cost recovery recapture in 2016

52. (LO 2, 4, 9) Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

TAX FILE MEMORANDUM

55. (LO 2, 7, 9) Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

October 15, 2015

Mr. Mike Saxon

Dear Mr. Saxon:

John J. Jones, CPA

October 15, 2015

FROM: John J. Jones

SUBJECT: Mike Saxon: Calculations of amount of recovery depending on the allocation of

Additional deductions in first year under alternative 1

*Startup expenses do not include interest expense.

60. Net income from Writers Anonymous (Note 1) $ 17,500

Tax on $4,613 from 2014 Tax Table $ 463

(1) The net income of Writers Anonymous is calculated as follows.

(3) Furniture and fixtures:

(4) The self-employment tax is calculated as follows (see Chapter 13).

1. Net earnings from self-employment. $17,500

One-half of the self-employment tax, or $1,237, is a deduction for AGI.

61. Hoffman, Young, Raabe, Maloney, & Nellen, CPAs

Mr. John Smith

Dear Mr. Smith:

No sale of stock and no purchase of car

Fees for services $912,000

(3) Cost recovery

Sale of stock and purchase of car

Limited to ($3,160* + $8,000) $11,160

TAX FILE MEMORANDUM

December 20, 2015

FROM: John J. Jones

Less: § 179 deduction (Note 1) (500,000)