AFM202 Study Guide - Final Guide: Canada Pension Plan, Pension, Property Income

Domicile plays a central role in state taxation by providing the required nexus for a state to subject all of the income of an individual to its state income tax. Including an individual state gift, inheritance, and estate taxes at the place location time of the award or death. The article enhances understanding the governing principles that apply in determining an individual’s place of residence and the state to subject income tax.

The governing principles state that an individual can only have one resident at a time and not two, and physically moving from one doesn't terminate it as a legal domicile. To end one's place of residence, an individual must acquire a new site and intend to abandon the old one. The individual must have a real fixed permanent home and a principal establishment to the place such that whenever absent, he has the intentions of returning to the residence.

Impact arise in three cases, one where the taxpayer works at a different state and visits the family regularly at final state, the Tax Commission ruled that where he was employed was not a permanent place. Hence the taxpayer was domiciliary termed an Idaho since he owned Idaho driving license and had no indication that he intended to abandon Idaho residence. Second is the Georgia case where the taxpayer moved with her spouse and children and purchased a house in Georgia. Later moved to work in the United Kingdom Embassy but they stayed at the Embassy apartment in 2011, hence they were subjected to Georgia state income taxation. Similar to the third case where the taxpayer worked in Texas and stayed in Georgia but continuously referred Rhode Island home. Hence he became a domiciled at Rhode since it was back.

The author thou questioned Fowler’s case since the court drew analysis based on their unsuccessful attempt to obtain Florida driver’s license, register the car, register as Florida voter and their intention of being Florida residence as from January 20, 2006. It failed to attribute the sale of stock on February 3, 2006, where Mrs. Fowler served as Assistant Secretary for three years in North Carolina. The charitable contributions after the sale of the business in 2006 and during that year, the taxpayers spent most of 2006 - 2007 days in North Carolina before finalizing the proposal.

The court and IRS'S brings out the contradiction in the governing principles of determining an individual's domicile. Since thou, the Fowlers changed their address to Florida they continued using certain correspondence and billing and bank statements from North Carolina. The insurance policy that they purchased on their North Carolina home for a period of July 31, 2006 to July 31, 2007 had a stipulated location that dwelling is not seasonal or secondary. The court failed to consider Fowlers' behavior prior to January 20,2006 and emphasized on a single observed event, hence ignoring taxpayers’ subsequent conduct.

QUESTION: INTERPRETATE THE ABOVE ARTICLE IN YOUR OWN WORDS.

Fill form 1040 for income tax; show your work and calculation.(round off to the nearest dollar). Ignore any exemption phase out orestimated penalty; also ignore max tax rate for capital gain andqualified dividend. All property is considered held over one yearunless otherwise indicated. Determine the tax owed/refund due.

The tax year is 2015

Taxpayer is divorced, age 30 . She has custodyof her 10 years old son who resides with her.

Taxpayer is employed as an accountant with Countmein, Inc., andshe also has private accounting practice.

Receipts:

Wages $70,000

Private accounting income $30,000

Interest from Bank On Me bank $1,000

Medical insurance premiums paid by employer $2,400

Group term life insurance paid by employer (face amount is twiceher salary)

Rent from duplex $20,000

Proceeds from sale of Coke stock $12,000 (basis $14,000)

Proceeds from sale of personal car $14,000 (cost $10,000)

Proceeds from sale of land (gift from father whose basis was$5,000; fmv $18,000 at date of gift, no gift tax paid)

Expenses:

Accounting business: part-time staff $10,000; supplies $1,000;purchase computer $5,000; rent $6,000. (Take min depreciation)

Apartment: purchased building for $100,000 (9/1/2004), taxes$3,000, mortgage interest $7,000

Personal taxes paid: federal withholding $15,000; federalestimated $2,000; state and local withholding $2,500; taxes onresidence $2,000; property taxes on personal auto $500

Interest: mortgage on residence $5,000

Contribution to university: $2,000

Child care expense while working $1,000

Son’s doctor bills $1,500

Seminar fee of $1,000 for updating accounting skills

MISC:

Car accident totaled (fare market value $15,000. Basis $20,000;insurance reimburse $10,000)

Friend filed bankruptcy so $1,000 loan will not be repaid

4. _____ In Commissioner v. Tufts, 461 U.S. 300, 103 S.Ct 1826,the Supreme Court concluded that when the amount of thenon-recourse note assumed by the buyer exceeds the property’s fairmarket value, the seller excludes the excess from the amountrealized on the sale. 5. _____ Prior to their marriage Jack soldDiane 50% interest in his rental property. Jack is not required torecognize gain/loss on the sale since the sale was in contemplationof marriage. 6. _____ Under a divorce decree the ex-spouse mustrelinquish ownership in an asset to the husband three years afterthe divorce is final. The husband will assume the basis of theproperty from the ex-spouse. 7. _____ A loss on the sale of apersonal residence is not deductible. 8. _____ When the buyerassumes the seller’s liability on a mortgage, the seller includesthe amount of the mortgage in computing the amount realized fromthe sale. 9. ____ Trade Accounts Receivable are capital assets. 10._____ A corporation may carry forward capital losses to offsetagainst capital gains indefinitely 11. _____To qualify as Section1231 property, it must be used in the trade or business and must beheld for more than one year. 12. _____ Under IRC Section 165(g) ifany security which is a capital asset becomes worthless during thetaxable year, the loss shall be treated as a loss from the sale orexchange of a capital asset on the last day of the taxable year.13. _T____ Business property held for less than or equal to oneyear always produces ordinary income or loss. 14. _____ The basisof business property is reduced by the greater of the depreciationallowed or allowable. 15. ____ Janice buys property by paying$1,000 down and borrowing $9,000. Janice’s initial basis in theproperty is $1,000.