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In 2010, Bill and Joyce Schnappauf live in Wakefield
a district sales manager for USC Equipment Corporation, aRhode Island
and distributes gaming equipment. Joyce is a self-employed author of children’s
books. The Schnappaufs have three children, Will, 21, Dan, 19, and Tom, 16. In February
2011, the Schnappaufs provide the following basic information for preparing their 2010
federal income tax return:
1. The Schnappaufs use the cash method of accounting and file their return on a
calendar-year basis.
2. Unless otherwise stated, assume that the Schnappaufs want to minimize the current
year’s tax liability. That is, they would like to defer income when possible and take
the largest deductions possible, a practice they have followed in the past.
3. Joyce’s Social Security number is XXX-XX-XXXX.
4. Bill’s Social Security number is XXX-XX-XXXX.
5. Will’s Social Security number is XXX-XX-XXXX.
6. Dan’s Social Security number is XXX-XX-XXXX.
7. Tom’s Social Security number is XXX-XX-XXXX.
8. The Schnappaufs do not have any foreign bank accounts or foreign trusts.
9. Their address is27 Northup
Street , Wakefield , R.I.
10. The Schnappaufs do not wish to contribute to the presidential election campaign.
The first phase of the tax return problem is designed to introduce you to some of the
tax forms and the supporting documentation (Forms W-2, 1099-INT, etc.) needed to
complete a basic tax return. The first four chapters focus on the income aspects of individual
taxation. Accordingly, this phase of the tax return focuses on the basic income concepts.
1. Bill’s W-2 is provided (Exhibit A–1). The 2010 W-2 includes his salary ($81,000),
bonus ($32,000), and income from group-term life insurance coverage in excess of
$50,000 ($85.56), and is reduced by his contribution ($4,000) to USC’s qualified
pension plan. The company contributes 7 percent of Bill’s salary ($5,670) to the plan.
2. The Schnappaufs receive two 1099-INTs for interest (Exhibits A–2 and A–3), two
1099-DIVs for dividends (Exhibits A–4 and A–5), and a combined interest and dividend
statement (Exhibit A–6).
3. Joyce and her brother, Bob, are co-owners of, and active participants in, a furniturerestoration
business. Joyce owns 30 percent, and Bob owns 70 percent of the
business. The business was formed as an S corporation in 2001. During 2010, the
company pays $3,500 in dividends. The basis of Joyce’s stock is $20,000.
4. The Schnappaufs receive a 2009 federal income tax refund of $380 on May 12,
2010. On May 15, 2010, they receive their income tax refund from the state of Rhode
Island. In January 2011, the state mails the Schnappaufs a Form 1099-G (Exhibit
A–7). Their total itemized deductions in 2009 were $16,471.
5. During 2010, Joyce is the lucky ninety-third caller to a local radio station and wins
$500 in cash and a stereo system. Despite repeated calls to the radio station, she
has not received a Form 1099—MISC. In announcing the prize, the radio station
host said that the manufacturer’s suggested retail price for the stereo system is
$750. However, Joyce has a catalog from Supersonic Electronics that advertises the
system for $650.
6. The Schnappaufs receive a Form W-2G (Exhibit A–8) for their winnings at the Yardley
Casino in Connecticut.
7. On June 26, 2010, Bill receives a check for $16,100 from the United Insurance Corporation.
Though he was unaware of it, he was the designated beneficiary of an insurance
policy on the life of his uncle. The policy had a maturity value of $15,500, and
the letter from the company stated that his uncle had paid premiums on the policy of
$2,900 (Exhibit A–9).
8. Joyce is active in the school PTO. During the year, she receives an award for outstanding
service to the organization. She receives a plaque and two $125 gift certificates
that were donated to the PTO by local merchants.
9. To complete phase I, you will need Form 1040, Schedule B, and Schedule D.
a district sales manager for USC Equipment Corporation, a
and distributes gaming equipment. Joyce is a self-employed author of children’s
books. The Schnappaufs have three children, Will, 21, Dan, 19, and Tom, 16. In February
2011, the Schnappaufs provide the following basic information for preparing their 2010
federal income tax return:
1. The Schnappaufs use the cash method of accounting and file their return on a
calendar-year basis.
2. Unless otherwise stated, assume that the Schnappaufs want to minimize the current
year’s tax liability. That is, they would like to defer income when possible and take
the largest deductions possible, a practice they have followed in the past.
3. Joyce’s Social Security number is XXX-XX-XXXX.
4. Bill’s Social Security number is XXX-XX-XXXX.
5. Will’s Social Security number is XXX-XX-XXXX.
6. Dan’s Social Security number is XXX-XX-XXXX.
7. Tom’s Social Security number is XXX-XX-XXXX.
8. The Schnappaufs do not have any foreign bank accounts or foreign trusts.
9. Their address is
10. The Schnappaufs do not wish to contribute to the presidential election campaign.
The first phase of the tax return problem is designed to introduce you to some of the
tax forms and the supporting documentation (Forms W-2, 1099-INT, etc.) needed to
complete a basic tax return. The first four chapters focus on the income aspects of individual
taxation. Accordingly, this phase of the tax return focuses on the basic income concepts.
1. Bill’s W-2 is provided (Exhibit A–1). The 2010 W-2 includes his salary ($81,000),
bonus ($32,000), and income from group-term life insurance coverage in excess of
$50,000 ($85.56), and is reduced by his contribution ($4,000) to USC’s qualified
pension plan. The company contributes 7 percent of Bill’s salary ($5,670) to the plan.
2. The Schnappaufs receive two 1099-INTs for interest (Exhibits A–2 and A–3), two
1099-DIVs for dividends (Exhibits A–4 and A–5), and a combined interest and dividend
statement (Exhibit A–6).
3. Joyce and her brother, Bob, are co-owners of, and active participants in, a furniturerestoration
business. Joyce owns 30 percent, and Bob owns 70 percent of the
business. The business was formed as an S corporation in 2001. During 2010, the
company pays $3,500 in dividends. The basis of Joyce’s stock is $20,000.
4. The Schnappaufs receive a 2009 federal income tax refund of $380 on May 12,
2010. On May 15, 2010, they receive their income tax refund from the state of Rhode
Island. In January 2011, the state mails the Schnappaufs a Form 1099-G (Exhibit
A–7). Their total itemized deductions in 2009 were $16,471.
5. During 2010, Joyce is the lucky ninety-third caller to a local radio station and wins
$500 in cash and a stereo system. Despite repeated calls to the radio station, she
has not received a Form 1099—MISC. In announcing the prize, the radio station
host said that the manufacturer’s suggested retail price for the stereo system is
$750. However, Joyce has a catalog from Supersonic Electronics that advertises the
system for $650.
6. The Schnappaufs receive a Form W-2G (Exhibit A–8) for their winnings at the Yardley
Casino in Connecticut.
7. On June 26, 2010, Bill receives a check for $16,100 from the United Insurance Corporation.
Though he was unaware of it, he was the designated beneficiary of an insurance
policy on the life of his uncle. The policy had a maturity value of $15,500, and
the letter from the company stated that his uncle had paid premiums on the policy of
$2,900 (Exhibit A–9).
8. Joyce is active in the school PTO. During the year, she receives an award for outstanding
service to the organization. She receives a plaque and two $125 gift certificates
that were donated to the PTO by local merchants.
9. To complete phase I, you will need Form 1040, Schedule B, and Schedule D.
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