Full file at https://testbankuniv.eu/Concepts-in-Federal-Taxation-2016-23rd-Edition-Murphy-Solutions-Manual
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Chapter 2: Income Tax Concepts
67. The Perry Development Partnership purchases 40 acres of land for $30,000. It spends $8,000 subdividing the land into 2-acre parcels and $17,000 to install a sewer line and utilities to each parcel. Perry intends to sell the 2-acre parcels for $12,000, but none of them are sold by the end of the current year. The issue is whether Perry has realized income by subdividing the parcels. A realization requires a change in the form and/or the substance of the taxpayer's property or property rights in an arm's lengthtransaction. Although there has been a change in the form of the property through the subdividing, this did not occur in an arm's-length transaction. Therefore, Perry has not realized any income from subdividing the property into 2-acre parcels. 68. Ayah signs a contract to write a book for East Publishing Company in the current year. Under its terms, she receives a $5,000 advance against future royalty payments upon signing the contract. The contract provides that if Ayah does not write a suitable book or if the book's royalties are insufficient to cover the advance, she must repay any portion not earned. The issue is whether Ayah has realized income from the receipt of the $5,000. Under the claim of right doctrine, income is realized when the taxpayer has complete dominion and control over the income. That is, she can use the money in any manner in which she chooses and is under no absolute obligation to repay the advance. The fact that the income may have to be repaid in a later period does not negate Ayah's right to control the $5,000 advance payment. If Ayah is required to make a repayment in the future, she would be allowed a deduction at that time. Ayah has realized income of $5,000 when she receives the advance royalty. 69. Aretha is an executive vice president of Franklin, Inc. On December 18, 2015, the Franklin, Inc., board of directors awards her a $20,000 bonus. Aretha asks Franklin's controller to delay processing the bonus check until January. The controller agrees to her request, and she receives the $20,000 bonus check on January 10, 2016. The issue is what year is the $20,000 bonus taxable? A cash basis taxpayer is in constructive receipt of income when it is credited to their account or otherwise made unconditionally available to them. In this case, Aretha has demonstrated an ability to control the payment by having it paid in January. Therefore, the bonus is made available to her in 2015 and she must include the $20,000 in her 2015 gross income.
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Full file at https://testbankuniv.eu/Concepts-in-Federal-Taxation-2016-23rd-Edition-Murphy-Solutions-Manual