Reference no: EM131189166
The CEO of ABC Corporation is a dog lover. He and his spouse like cocker spaniels and have a purebred male cocker spaniel. Because of their love for dogs, they decide to breed and sell cocker spaniel pups. In the first year, they spend $25,000 building some kennels, $5,000 on veterinarian fees, $5,000 buying breeding females, and $1,000 on food and sundry supplies. By the end of the first year, they have successfully produced their first litters but have not yet sold any puppies. They would like to deduct their losses (which they calculate by simply summing all their expenditures, a total of $36,000), but they have heard something about hobby-activity loss rules. Under the IRC, for activities classified as hobbies, only losses up to any income generated by the activity can be deducted. If, however, the activity is classified as a trade or business, and the taxpayer is actively engaged in the business, the losses are deductible against the taxpayer’s other income.
a. Why might Congress distinguish between hobby activities and trade or business activities?
b. If you were writing the tax code, what rules (or tests) would you write to distinguish an activity as a hobby versus a trade or business? Explain the purpose of each rule (or test).
c. Would the CEO’s dog-breeding activity be classified as a hobby or business under your rules?
d. Refer to one of the sources listed in Appendix 2.1 to ascertain the IRC rules for classification. Would the CEO’s dog-breeding activity be classified as a hobby or business under IRC rules?
e. If the dog-breeding activity was classified as a business, how much would the CEO be allowed to deduct against his other income?
|
Indicate whether consideration is present
: Indicate whether consideration is present and whether Jack has an enforceable agreement:- ane is going overseas and she offers to give her Lotus Super 7 sports car to Jack.
|
|
Definition of bargain purchase option
: Access the Accounting Standards Codification and determine the specific citation for each of the following items: Definition of a bargain purchase option. The calculation of the lessor’s gross investment in a sales-type lease. The disclosures require..
|
|
Do comparativists reject universalist theories
: Do comparativists reject universalist theories? Under what conditions are category A and category B systems identical? Hint: reflect on culture, politics, and ethics.
|
|
Calculate average annual percentage increase in cost
: Use the appropriate Excel function to calculate the average annual percentage increase in the cost of a four-year college degree. Does your answer seem in line with what you thought the average annual percentage increase had been from 1990 to 2010? 2..
|
|
Dog-breeding activity was classified as business
: The CEO of ABC Corporation is a dog lover. He and his spouse like cocker spaniels and have a purebred male cocker spaniel. Because of their love for dogs, they decide to breed and sell cocker spaniel pups. Why might Congress distinguish between hobby..
|
|
Skier lands from the beginning of the ramp
: Suppose an aerial freestyle skier goes off a ramp with her path represented by the equation y=-0.022(x-25)^2+40. If the surface of the mountain is represented by the linear equation y=-0.5+25, find the distance in feet the skier lands from the beg..
|
|
Calculate how much you might expect to earn from project
: Let’s try to examine the most glaring issue with IRR via an example. Let’s suppose a friend of yours offers you an "investment." He knows that every year there is one day when some lottery numbers are fixed. calculate how much you might expect to ear..
|
|
What are the two archetypical economic systems
: suggest that autonomy and cultural regulation are more fundamental than the dichotomy between markets and plans in classifying systems?
|
|
Find the coefficient of variation for the project
: An investment costs $7,000, after tax considerations, and will generate cash flows of $1,500 a year over its life. The capital investment will last for 7, 8, or 9 years, with probabilities of 0.3, 0.4, and 0.3 respectively. Assume the required rate o..
|