ST. MARY S UNIVERSITY Spring 2008 FINAL EXAMINATION FEDERAL INCOME TAXATION PROFESSOR G. FLINT ESSAY PLEASE READ CAREFULLY

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1 ST. MARY S UNIVERSITY Spring 2008 SCHOOL OF LAW Exam No. FINAL EXAMINATION FEDERAL INCOME TAXATION PROFESSOR G. FLINT ESSAY PLEASE READ CAREFULLY ALL ANSWERS ARE TO BE WRITTEN ON THE BLUE BOOKS PROVIDED WITH THIS EXAM. BE SURE TO NUMBER EACH RESPONSE. There are three questions (time and percent indicated). The Time for completing the examination is three hours. 1. This examination is open book. You may use your casebook, statutory supplement, and class notes. Use of cell-phones, calculators and laptops and other electronic devices is not permitted. 2. Be sure to answer the specific question that is asked. No question asks for a general recitation about a topic from you notes. Information supplied relating to general material from your notes or some unasked question will not increase your score and consumes you time needed to answer the asked questions. 3. If additional facts are necessary to resolve an issue, specify what additional facts you believe to be necessary and why they are significant. You may not make an assumption that changes or contradicts the stated facts. 4. Quality, not quantity, is desired. Think through and briefly outline your answer before you begin to write. 5. Write legibly. Be sure to formulate your answers in complete sentences and paragraphs with proper grammar. Failure to do so will result in an appropriately lower score. 6. Do not seek an interpretation of language in the question from anyone. If you sense ambiguity or typographical error, correct the shortcoming by shaping the question in a reasonable way and by recording your editorial correction in your answer, Under the Honor Code, when you turn in this examination, you affirm that you have neither given, received, not obtained aid in connection with this examination, nor have you known of any one so doing. If you cannot make this affirmation, you shall note such fact on your examination and must immediately advise the Dean of the reason therefore. 1

2 FEDERAL INCOME TAXATION EXAM Spring 2007 Professor C. Flint Page 2 of 4 NOTE FOR ALL QUESTIONS For purposes of those items that are adjusted annually by the Treasury Department to reflect inflation, use the numbers on the 2007 tax return provided with the syllabus. Also use the tax rates contained in the version of the Internal Revenue Code contained in the Supplement. Assume a federal rate of 10%. For those items not on the 2007 tax return, the applicable amount for itemized deductions is $156,400 and the threshold amount for personal exemptions is $156,400. Also attached as pages 5 and 6 of this exam are the 2007 Optional State and Certain Local Sales Tax Tables and the 2007 Earned Income Credit Table. I. (25 %--3/4 hour) Davis Flint expects inflation to be relatively high for the next two decades. As a result Davis Flint wants to put some of his money into precious metals, but rather than buy gold bars, Davis Flint has decided to buy Roman and Medieval coins, both gold and silver. Davis Flint is concerned that choosing this form of investment might impact his taxes. Davis Flint has entered your associate s office at the Silk Stocking Law Firm, P.C. Davis Flint has a number of concerns. First is the expense of insurance to protect against possible theft or other casualty. Second is the cost ofjournals and excursions to coin shows to keep abreast ofwhich coins would be the better investment. Third is the conversion of gold coins into silver coins when the ratio of the gold price to the silver price goes down, and vice versa. Fourth should he ultimately sell his coins when inflation subsides, or keep them for his heirs. What is your advice? Be sure to provide support. 2

3 FEDERAL INCOME TAXATION EXAM Spring 2007 Professor 0. Flint Page 3 of4 II. (50 %--l /2 hours) Otha Gasaway is a young associate in the Blue Blood Law Firm, P.C. Otha Gasaway has entered your associate s office to inquire about what his taxes might be. What is your advice? Be sure to provide support. During the last calendar year, Otha Gasaway made $160,000 in salary, his investments in municipal bonds earned $8,000, he paid $4,000 in gifts to his church, he paid $7,000 in interest on his mortgage for his house, he paid $6,000 in property taxes on his house, he paid $400 for his legal journal subscriptions useful in his practice, and his automobile insurance and gas expenses were $10,000. Otha Gasaway used his automobile, bought in February of the last calendar year for $40,000 to ferry clients around town and to negotiate out of town contracts, so his usage for the firm amounted to 60% of the use of the automobile. Otha Gasaway has a crush on Gladys Etta Christian, but he has yet to ask her to marry him. 3

4 FEDERAL 1NCOME TAXATION EXAM Spring 2007 Professor G. Flint Page 4 of4 ill (25 %--314 hour) Nicolas Pelletier has entered your office at a VITA location. Nicolas Pelletier wants you to prepare his tax return. What is your advice? Be sure to give support. Nicolas Pelletier made $12,000 last calendar year as a file organizer for the Joseph Baker National Bank. Joseph Baker National Bank withheld $500 from Nicolas Pelletier s paycheck. Nicolas Pelletier is unmarried and has no children. 4

5 2007 Optional State and Certain Local Sales Tax Tables (Continued) Income let ~ But ,000 50,000 50,000 80,000 60,000 70,000 80,000 90, , , , , , , , , , ,000 Nevada % New Jersey % New Mexico 5,0000% New York % North Carolina % Income North Dakota % Ohio % Oklahoma % Pennsylvania % Rhode Island % 20,000 30,00q 30,000 40,000 40,000 50,000 50,000 80,000 60,600 70,000 80,900 90, , , , , , , , , , , P Income South Carolina % South Dakota % Tennessee % Texas % Utah % ,000 30,000 40,000 40, ,000 60,000 60,000 70,000 80,000 90, , , , , , , ,000 1in0,~ 150, , ~a Income Vermont 6,0000% Virginia % Washington % ~~!~fir inia % Wisconsin % 20,000 30, ,000 40,000 50,000 50,000 60,000 60,000 70,000 80,000 90, , , , , , , , , , ,000 Income ,000 30,000 40,000 49, ,000 50,900 60,090 70, ,000 90, , , , , , , , , , , loll Wyoming % Note. Alaska does not have a state sales tax. Alaska residents should tollow the instructions on the next page to determine their local sales tax amount, 1 TheC&nalabelecluesthel%nformee,taxretehadd8ostothes2s%statesalestaxrsle. 2 The Nevada table includes the 2.25% artlfons local sales tax rate in addition to the 4,25% state saleslax rate. 3meratefo Southcero8saincreaseddueing2907sofrerategieenissveragedovertheyeai 4 Realdelts & Salem County should deduct My hal of the a rsrxrnt in the state table. 8 Thestate and local general sales taxes are corlibirted in the virginia table. A-i 2

6 7 Earned income Credit (EI~Table Continued. - And your filing status is amount Cu Single, head at Married filing jointly and p loflln u 5 trom household, or qualifying you have worksre,o~is widow(er) and you have No IOneI Two No j no Ten cnitd en I r eila ch,iarer chil en 310 I nildrsn (Caution. This is nota tax table.) And your filing status Is If the amount ou are looking up~ from the worksheot Is 5l ~gle,head of household, wldow(er) and or qualifying you have Marflsd tiling Idntlv and you han- No One bildren J child Two children No OneiTwo children child cteeldrer - a. At 4fl1 Ben lecs tl er Your Credit Is- Your credit Is Al leasl But ess eian Your credit Is Your credit Is , ,553 4,410 13,500 13, ,853 4,116 I 11, , ,853 4,430 13,550 13, , ,853 4,716,lSO 112 2,853 4, ,600 13, ,853 4,716 11, ,853 4, ,470 13,650 13, , , ,853 4,490 13,100 13, ,853 4,116 11,250 11, , ,510 13,750 13, ,853 4, , , ,530 13,800 13, ,853 4,716,::o , ,853 4,716 1,400 11, , ,853 4,570 13,900 13, ,853 4,716 1,450 11, ,853 4,590 13,950 14, ,853 4,716 11, ,853 4, ,853 4,610 14,000 14, ,853 4,716 11, ,853 4, ,853 4,630 14,050 14,100 2,853 4, , ,853 4,650 14,100 14, ,853 4,116 11, ,853 4, , ,150 14, ,853 4,718 :1, , ,890 14,200 14, , ,853 4,716-11,750 11, ,853 4, , , ,853 4,716 11,800 11, c, ,716 14,300 14, , ,050 11, , , ,350 14, , ,853 4,716 11,900 11, ,853 4, ,853 4,716 14,400 14, , ,853 4, , ,653 4, ,450 14, , ,853 4, ,553 4, ,853 4, ,853 4, ,853 4, ,853 4, ,716 14,500 14,550 14,550 14,600 14,600 14, ,853 4, , ,853 4,116 2,853 4, ,853 4,116 I , ,853 4,716 14,650 14,700 * 2,853 4,118 I 12, ,853 4, ,853 4,716 14,700 14,750 12,250 12, , ,853 4,716 14,750 14, ,300 12, , ,853 4,716 14,800 14,850 12,350 12, , , , , ,853 4, ,900 14, ,863 4,716 12,460 12, , ,853 4,716 14, ,863 4,716 12,500 12, ,853 4, ,853 4,716 15,000 15,050 12,550 12,600 2, ,853 4,716 15,050 15, , ,000 12, ,100 15, ,116 12, , ,853 4,716 15,150 15,200 12,700 12, , ,853 4,716 15,200 15, , , ,850 12,850 12,900 12,900 12,950 12,950 13, ,853 4, ,853 4, ,853 2,853 4, ,853 4, ,853 4,716 15,250 15,300 15,300 15,350 15,350 :15,400 15,400 15,450 15,450 15, , S 0 2,853 4, ,853 4,716, 0 2,847 4, ,839 4,6 0 2,85~ 4, ,863 4,716 13,000 13, ,500 15, ,831 4, ,853 4,716 13,050 13, ,853 4, ,853 4,716 15,550 15, ,823 4,677 13,100 13j50 0 2, ,716 15,600 15, ,815 4, ,853 4j16 13,150 13, ,853 4,716 15,650 15, ,807 4, ,0531 4,116 13,200 12, , ,853 4,716 15,700 15, ,799 4,645 13,250 13, , ,716 15,750 15, ,791 4,635 13,300 13, , ,800 15, , ,350 13, , , , , , , , , ,853 4,116 13,450 13, , , , ,759 4,593 (onfthued on p~9e54) It the amount you are looking up from the worksheet is at loast $12,550 ($14,550 if married filing jointly) but less than $12,590 ($14,590 if married fiing jointly), your credit is $2. Otherwise, you cannot take the crediu -53- Need more information or forms? See page $2.

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