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# Taxation Consequences

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Problem 1

Joey parked his car on the top of a hill when he went to watch the Superbowl games in San Diego. He did not properly set his brakes or curb the wheels when he packed the car. When he returned from the games, he found his car had rolled down the hill, smashed into Nick's house, and injured Nick, who was watching TV in his den. Joey does not have car insurance. List as many tax research issues as you can to determine the tax consequences of this accident. Do not attempt to answer any of the questions you raise. Simply identify the research issues.

Problem 2

John and Marsha are married and field a joint return for the past year. During that year, Marsha was employed as an assistant cashier at a local bank and, as such, was able to embezzle \$75,000, none of which was reported on their joint return. Before the defalcation was discovered, Marsha disappeared and has not been seen or heard from since. List as many tax research issues as you can to determine the tax consequences of this crime. (CPA adaptive).

#### Solution Preview

Problem 1
Joey parked his car on the top of a hill when he went to watch the Superbowl games in San Diego. He did not properly set his brakes or curb the wheels when he packed the car. When he returned from the games, he found his car had rolled down the hill, smashed into Nick's house, and injured Nick, who was watching TV in his den. Joey does not have a car insurance. List as many tax research issues as you can to determine the tax consequences of this accident. Do not attempt to answer any of the questions you raise. Simply identify the research issues.

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#### Solution Summary

This solution explains both of the taxation scenarios presented. The tax elements and related consequences are fully discussed. The research issues are also identified in the first scenario and the tax consequences are identified in the second scenario.

\$2.19

## U.S. Taxation of International Transactions and Consequences

Beatco, an accrual basis domestic corporation, manufactures musical instruments for sale both in the United States and abroad. Beatco's functional currency is the U.S. dollar. Two years ago, Beatco established a branch sales office in Switzerland. The sales office qualifies as a qualified business unit with the Swiss franc (SF) as its functional currency. The branch's tax attributes for its first two years of operations are as follows:
Year 1 Year 2
Taxable income SF40 million None
Foreign income taxes (paid at end of year) SF15 million None
Remittance to Beatco (paid at end of year) None SF25 million

The Swiss franc had an average daily value of \$0.50 during Year 1, \$0.65 during Year 2, and was worth \$0.60 at the end of Year 1, and \$0.75 at the end of Year 2.

What are the U.S. tax consequences of the branch's activities in Year 1 and Year 2?

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