Scott F. and Meegan M. Koon are married and live at 2723 Brandywine Drive,
Ann Arbor, MI 48104. They file a joint return and are calendar year, cash basis
1. Scott is a selfemployed accountant (professional activity code is 541213). He
maintains an office at 1001 Oakbrook Way, Suite 400, Ann Arbor, MI 48103. He
shares the suite with several other professionals and has no employees. A
receptionist handles all calls and is provided by the landlord as part of the
services offered to tenants. Scott’s workrelated expenses for 2015 are as
Office expenses (supplies, use of copier, etc.)
Legal services (see item 9. below)
State and local license fees
Renter’s insurance (covers personal liability, casualty, theft)
Replacement of reception room furnishings (6/5/2015)
Professional dues and subscriptions to trade publications
Contribution to H.R. 10 (Keogh) plan
Medical insurance premiums
The business meals Scott paid for were to entertain various visiting
executives from the clients he does business with. As is the case with all of
Scott’s business transactions, the lunches are properly documented and
supported by receipts. Because the reception room furnishings were looking
shabby, Scott and his suitemates had them replaced. The $2,200 Scott spent
was his share (i.e., a sofa and coffee table) of the cost. Scott follows a policy of
avoiding depreciation by utilizing the Section 179 election to expense assets. All
of Scott’s office equipment (e.g., desk, chairs, file cabinets, computer, etc.) has
previously been expensed. Of 16,000 total miles in 2015, Scott drives his car (a
Ford Explorer purchased on 6/1/2013) 8,400 miles for business (not including
commuting) and has business parking and toll charges of $310. The Koons use
the automatic mileage method of claiming automobile expenses.
2. Meegan is an occupational therapist employed on a parttime basis by
Thompson Consultants, Inc. Her employer does not provide her with an office,
and she has no separate office in her home. She does, however, maintain her
business records at home and lists it as her business address. After receiving
her assignments by phone, she drives her car a 2012 Mazda 323 (purchased on
7/1/2014 for $10,000) directly to the residence of the patient. Thompson
Consultants, Inc. requires all of its therapists to wear uniforms while on duty. As
Meegan is not a fulltime employee, she is not covered by her employer’s health
or retirement plans. Meegan’s workrelated expenses for 2015 appear below:
Mileage (total miles in 2015 = 12,000)
Professional dues and subscriptions
Continuing education programs (required to
Annual license fee
Uniforms purchased (including $240 for shoes)
Laundering of uniforms
3. At a foreclosure sale on May 8, 2015, the Koons purchased a house to be held
as a rental investment. The property cost $400,000 (of which $50,000 is
allocated to the land) and is located at 165 Little Lake Drive, Ann Arbor, MI
48103. After making minor repairs and placing the property in service on June 1,
2015, the Koons were fortunate in that they were able to rent it immediately for
$1,650 a month (payable on the first of each month). They meet the
requirements of active participation. Information regarding the rental property
expenses for 2015 are summarized below:
Refundable damage deposit
Interest on mortgage
Street paving assessment
Although the property was rented for only seven months, in late December
2015 the tenants prepaid the January 2016 rent because they were going to be
out of town on New Year’s Day. The special assessment was levied by the city
of Ann Arbor to resurface the street in front of the house. The Koons plan to use
MACRS straightline depreciation, assuming the midmonth convention.
4. On her birthday on June 27, 2005, Meegan received as a gift from her father
unimproved land located in Dumas County (TN). The land cost her father
$80,000 in 1975 and had a value of $135,000 on the date of the gift. No gift tax
was due as a result of the transfer. On July 15, 2015, Meegan sold the land to
an adjoining property owner for $175,000. She incurred $10,500 in selling costs.
5. When Meegan’s father died in 2010, he had a life insurance policy issued by
John Hancock Insurance Company with a maturity value of $1,000,000. As the
designated beneficiary of the policy, Meegan picked a settlement option of
$215,000 annually, payable over five years. In 2015, she received a check from
John Hancock for $215,000.
6. Based on a tip from a friend who is an investment adviser, on November 6, 2012,
Scott purchased 15,000 shares of common stock in Turner Corporation for
$14,000, a manufacturer of bicycle shocks, was experiencing financial difficulties
and was contemplating bankruptcy. Nevertheless, the adviser was sure that its
liquidation value would far exceed the cost of the stock. Turner went into
receivership in early 2014. On August 15, 2014 the receiver indicated that
investors could expect to receive $.20 on the dollar.
Scott also bought 200 shares of Intel stock on January 1, 2015 for $50
per share with a brokerage fee of $100. Then, Scott sold all 200 shares
for $75 per share on December 12, 2015. The brokerage fee on the
sale was $150.
7. In 2015, a hitandrun driver totaled Meegan’s Mazda while it was parked in front
of a grocery store. Meegan did not carry comprehensive insurance for repairing
her car so no insurance reimbursement was applicable. The FMV of the car
before and after the incident was $9,000 and $0, respectively. Meegan claimed
the casualty loss on her 2015 tax return.
8. In 2015 Scott was involved in an auto accident and received physical injuries due
being hit by a drunk driver. He received $60,000 in damage payments which
included $10,000 in punitive damages)
9. Scott has a 25% ownership in Gessum Company EIN 13333333, an 1120S
corporation. In 2015 Gessum Company recorded gross receipts of $300,000,
Cost of Goods sold of $90,000 and other expenses of $140,000. Scott made
cash withdrawals during the year totaling $40,000.
10. Besides those previously noted, the Koon’s had the following receipts for 2015:
Payment for services rendered as an accountant
(as supported on Forms 1099 issued by several
payor client companies)
Therapist wages (Form W2 issued by Thompson Consultant’s Inc.
A vacation package
Income tax refunds for tax year 2014
City of Ann Arbor bonds
Interest on SunTrust Bank CD
Estate sale proceeds
Loan repayment from coworker
The vacation package was a Christmas surprise from a former client as a way of
expressing thanks for previous clients that Scott had referred.
The estate sale (Note: an estate sale is like an upscale garage sale)
involved mostly items that Meegan inherited from her father (e.g., boat and
trailer, camper, hunting and fishing equipment). Meegan has no proof as to the
cost of these assets, nor does she know their value at the time of his death
(assume that all assets declined in value when comparing inherited value to
proceeds from sale of each item).
Three years ago, Scott had loaned a coworker, Michael, $15,000 to help
start a business. No note was signed, no interest was provided for, and no due
date was specified. Much to Scott’s surprise, Michael repaid the loan at $20,000
in late 2015.
10. In addition to any items previously noted, the Koons had the following expenses
Medical and dental expenses not covered by
Ad valorem property tax on personal residence
Interest on home equity loan
Tax return preparation fee (60% relates to
Of the $8,000 in medical expenses, $5,000 was used to pay for Nancy Koon’s
cosmetic surgery to smooth over her facial wrinkes. Nancy is Scott’s mother who
lives with them and would otherwise qualify as their dependent except for the
gross income test.
During 2015, Meegan borrowed $20,000 under a home equity loan
arrangement. The money was used to help pay family credit card debt and to
purchase jet skis for the family to enjoy on weekends.
11. Besides Nancy, the Koon’s’ household includes their three children: Bo, Judy,
and John . All are fulltime students and live fulltime at their home. The Koon’s
provide more than half of their living expenses as well. Bo is very proficient with
the bagpipes and during the year earned $4,400 playing at special occasions
(i.e., mainly funerals). Bo is saving his earnings for college.
12. Meegan’s Form W2 from Thompson Consultants, Inc. shows $2,000 withheld for
Federal income tax and $941 for state income tax. Scott made equal quarterly
payments of $2,600 (Federal) and $500 (state). Relevant Social Security
numbers are noted below.
Scott L. Koon
Meegan S. Koon
Prepare an income tax return by hand in blue pen (no tax software) with
appropriate schedules that can be found at the IRS website (irs.gov) for the
Koons for 2015. In doing this, use the following guidelines:
Make necessary assumptions for information not given in the problem
but needed to complete the return. Be aware of the possible application
of certain tax credits.
The taxpayers have the necessary substantiation (e.g., records,
receipts) to support the transactions involved.
If a refund results, the taxpayers want it sent to them.
The Koons do not wish to contribute to the Presidential Election
In the past several years, the Koons have itemized their deductions from
AGI (have not claimed the standard deduction option).
Note: Staple all pages including how you reached an amount if not obvious with
backup supporting calculations referenced to the Tax Schedule and information #
(i.e.112) on the assignment.
Note: Maintain a copy of the tax return project for yourself prior to