The information below will allow you to prepare the 2011 federal tax return for Bill and
Joyce Schnappauf. The information is provided in three phases, which correspond to the
three major components of computing income taxgross income, deductions and
losses, and property transactions. If your instructor assigns these problems, at the end of
each major segment (i.e., Chapter 4, Chapter 8, and Chapter 12), you should complete
the appropriate portions of the forms indicated. If you are not using a tax software package,
you should not complete the second page of Form 1040 until you have completed
Completing the tax return problem will help you understand the reporting procedures
for the information in each major segment of the text. In addition, it will aid you
in reviewing the major topics discussed in the book; it serves as an overview of the
THE SCHNAPPAUF FAMILY
In 2011, Bill and Joyce Schnappauf live in Wakefield, R.I. Bill is 53, and Joyce is 51. Bill
is a district sales manager for USC Equipment Corporation, a Rhode Island firm that
manufactures and distributes gaming equipment. Joyce is a self-employed author of
childrens books. The Schnappaufs have three children, Will, 21, Dan, 19, and Tom, 16.
In February 2012, the Schnappaufs provide the following basic information for preparing
their 2011 federal income tax return:
1. The Schnappaufs use the cash method of accounting and file their return on a
2. Unless otherwise stated, assume that the Schnappaufs want to minimize the current
years 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
3. Joyces Social Security number is 371-42-5207.
4. Bills Social Security number is 150-52-0546.
5. Wills Social Security number is 372-46-2611.
6. Dans Social Security number is 377-42-3411.
7. Toms Social Security number is 375-49-6511.
8. The Schnappaufs do not have any foreign bank accounts or foreign trusts.
9. Their address is 27 Northup Street, Wakefield, R.I. (02879).
10. The Schnappaufs do not wish to contribute to the presidential election campaign.
PHASE ICHAPTERS 14
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. Bills W-2 is provided (Exhibit A-1). The 2011 W-2 includes his salary ($84,000),
bonus ($38,000), and income from group-term life insurance coverage in excess
of $50,000 ($93.84), and is reduced by his contribution ($5,000) to USCs qualified
pension plan. The company contributes 7 percent of Bills salary ($5,880) to
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 2002. During 2011, the
company pays $4,000 in dividends. The basis of Joyces stock is $25,000.
A-2 Appendix A
4. The Schnappaufs receive a 2010 federal income tax refund of $1,116 on May 12,
2011. On May 15, 2011, they receive their income tax refund from the state of
Rhode Island. In January 2012, the state mails the Schnappaufs a Form 1099-G
(Exhibit A-7). Their total itemized deductions in 2010 were $18,127.
5. During 2011, Joyce is the lucky ninety-third caller to a local radio station and wins
$525 in cash and a stereo system. Despite repeated calls to the radio station, she
has not received a Form 1099MISC. In announcing the prize, the radio station
host said that the manufacturers suggested retail price for the stereo system is
$850. However, Joyce has a catalog from Supersonic Electronics that advertises
the system for $625.
6. The Schnappaufs receive a Form W-2G (Exhibit A-8) for their winnings at the
Yardley Casino in Connecticut.
7. On June 26, 2011, Bill receives a check for $15,800 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 $3,200 (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 $150 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.
INSTRUCTIONS: If you are using tax software to prepare the tax return or are not completing
phases II and III of the problem, ignore the instructions that follow. If you are preparing
the return manually, you cannot complete some of the forms used in phase I until
you receive additional information provided in phase II or phase III. Therefore, as a general
rule, you should only post the information to the appropriate form and not compute
totals for that form. The following specific instructions will assist you in preparing Part I
of the return.
a. The only form that can be totaled is Schedule B.
b. Only post the appropriate information to Schedule D. Do not total any columns.
More information is provided in phase III of the tax return problem.
c. Do not calculate total income or adjusted gross income on page 1 of Form 1040.
d. Post the appropriate information on page 2 of Form 1040, but do not total this
page, compute the federal tax liability, or determine the refund or balance due.
PREPARATION AID: Tax forms and instructions can be downloaded from the IRSs home
page (http://www.irs.treas.gov). You can also download IRS Publication 17, which is a
useful guide in preparing the tax return.
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