...problem 1-45, Paul did not meet his entire obligation to the IRS in 2011. Hi had a tax liability of $32,817 and he was withheld $27,198 therefore owing the IRS $5,619. But Paul did not pay the $5,619 with his tax return and rather opted to pay 8 month later without asking for an extension. Therefore Paul faces a penalty and possible interest charges for the unpaid tax liability of $5,619. The penalty could be 0.5% per month (or fraction thereof) up to a maximum of 25% for failure to pay the taxes that where due. If Paul penalty would have been 0.5% the amount owed would be $7,866.60 {$5,619 + $2247.60 (5,619*0.05*8)} or could be up to a maximum of $16,857 {$5,619 + $11,238 (5,619*0.25*8)}. Also the IRS could impose an interest charge per day of 3%, as of the last interest table (interest change every 3 month). As for problem 1-47 the IRS can audit Dan tax return but they have to meet certain criteria. The IRS has a 3 year statute of limitation but there are 3 exceptions to that limitation: * The IRS has six years from the date a return is filed to audit a tax return and to assess additional tax if the taxpayer omits income that amounts to more than 25% of income that was reported on the tax return. * The IRS also has six years to audit a tax return and assess additional tax on income related to undisclosed foreign financial assets if the omitted income is more than $5,000. * The statute of limitations on audits and assessing additional tax remains open indefinitely...
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...The chain of events leading up to the Supreme Court case U. S. v Clarke included summonses issued by the IRS to four people associated with Dynamo Holdings, L.P. for evidence and documents related to Dynamo’s tax liability for 2005-2007. Large interest expenses reported in those years were in question. Dynamo had agreed to two year-long extensions of the usual 3-year limitation period for assessing tax liability. When the four individuals failed to comply with the summonses issued in September and October 2010, the IRS pursued the issue in District Court in April 2011 to enforce the summons under United States Code Section 7602(a), which gives the Secretary the power to examine relevant or material information and to summon liable parties. Under Reisman v. Caplin, 375 U. S. 440, 449 (1964), the summons was challenged by respondents, attempting to question the responsible agents and claiming the IRS had questionable motives in issuing the summonses. The respondents held that the IRS issued the summonses to “punish Dynamo for refusing to a further extension of the applicable statute of limitations.” Additionally, the respondents claimed that the IRS decided to enforce the summonses following Dynamo filing suit in Tax Court in order to avoid the Tax Court’s limitations on discovery, thus gaining an unfair advantage. This request was deemed incorrect matter of law and was denied by the District Court because the respondents did not point to specifics that might raise interference...
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...20 Solutions Manual for Taxation for Decision Makers Solutions to Chapter 2 Problem Assignments Check Your Understanding 1. Tax Planning vs. Compliance Distinguish tax planning from tax compliance. Solution: Tax compliance involves the gathering of relevant information, evaluating and classifying that information, filing tax returns, and representing clients at Internal Revenue Service audits. Tax planning is the process of evaluating the tax consequences associated with a transaction and making recommendations to achieve the desired objective at minimal tax cost. It generally involves extensive tax research. 2. Tax vs. Nontax Factors For each of the following independent situations, identify whether the item would be primarily a tax or a nontax factor in performing tax planning. a. The taxpayer lost a quarter of her net worth when the dot-com bubble burst and does not want to own any investments with risk such as stock. b. The taxpayer hates to pay any federal income taxes and would rather pay an equal amount of money to an accountant or attorney than pay taxes to the federal government. c. The taxpayer has a large capital loss carryforward from last year. Solution: a. This is primarily a nontax factor situation. The taxpayer has specified that he or she is risk averse, a personal choice, due to having experienced prior losses. b. The taxpayer’s dislike of paying taxes is really a nontax factor; this dislike, however, leads him to seek income tax advice to reduce taxes and...
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...tax is paid by the producer, it is reflected in the selling price of the goods. Therefore, a VAT is a tax on consumption. c. The VAT it is an effective generator of revenue and has been criticized as leading to more government spending. Question 37 – IRS Audit: characteristics of a. The DIF score helps determine which returns the IRS selects for audit. b. A correspondence audit is most likely involved. These audits involve a limited number of issues, like taxpayer failed to report some dividend income, and most often are easily resolved. c. A field audit is being described. d. The revenue agent’s report accepts the taxpayer’s return as filed. e. If a special agent appears it would usually indicate that some kind of fraud has occurred. Question 40 – Statute of Limitations a. The normal three-year statute of limitations will begin to run on April 17, 2012. When the return is filed early, the regular filing date controls. b. Now the statute of limitations starts to run on the filing date. If the date of filing controlled [see part (a) above], the taxpayer could shorten the assessment period by filing late. c. If a return that is due is not filed, the statute of limitations does not start to run. It does not matter that the failure to file was due to an innocent error on the part of the taxpayer or adviser. d. Regardless of the fact that an innocent misunderstanding was involved, there is no...
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...signals. Each of these types has their proper uses as well as limitations. Radio frequencies include VHF, UHF, and shortwave radio. These are used to get a station on your car radio or to tune into a television station. Limitations of radio frequencies include distance degradation compared to bandwidth space in low frequencies. High frequencies tend to need a direct line-of-sight to get a good signal. Electrical equipment can interfere with all frequencies of radio signals. Microwave signals use electromagnetic energy to send signals at a higher frequency than radio. These signals are used in telecommunication, WIFI, and Bluetooth technology. As with radio communication, microwaves are also susceptible to interference from other electrical equipment. Satellite signals are relatable to microwave transmissions. A satellite is in orbit that sends and receives signals to receivers. The most common use for people are television, internet, and mobile telephone services. A major limitation that I run into is stability. When a storm comes through we can loose our signal due to line-of-sight issues. The final wireless transfer style is Infrared. IR systems use light to send signals. This type is used in remote controls, Palm devices, and laptops. The light is just below the visible spectrum (using a camera allows you to see the light). The drawbacks of this are IR can’t pass through objects, IR transmission is not very secure, and strong light sources...
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...Specifically, the stipulated filing timeframe in sub-section (F) of IRC 6015 – Equitable Relief. In general, there’s major discrepancies between the tax courts’ and IRS’ interpretation as to when the Equitable Relief application should be filed by the innocent spouse according to what’s referenced in sub-section F of the code. Such case brings about uncertainty when tax planners advice their clients on how to better strategize when in this situation, and better yet, avoiding it all together. Although the basic background and scope of code IRC 6015 and its sub-sections are fundamentally important, there are other components that bring about the controversy surrounding the provision. The most relevant is perhaps the fact that although sections 6015(B) and (C) requires requesting relief by filing form 8857 within two years of the initiation of an IRS collection activity with respect to the innocent spouse, section (F) contains no mention of a time limit for filing. Nevertheless, the IRS applies the same two-year limit to the equitable relief under section 6015 (F). Taking these points of controversy in consideration, one can further explore the effect of the Lantz case, where the innocent spouse failed to file for section (F) within two years of the IRS notice of intention to levy. Consequently, the IRS denied Lantz’s claim for equitable relief based on the expired filing deadline, and Lantz’s argued that the time limit regulation on section (F) was invalid. In the first...
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...Midterm 10.20.12 Anti-Stuffing and Net Operating Loss Anti-Stuffing is actually something that I have been whiteness to on a few occasions with an old business partner that I had a acquired. Unfortunately the partnership did not succeed, so I am going to share my love for business and what I had found out about Anti-Stuffing, but not limited to Net Operating Loss companies and how this affects them. Before 1986, the history of capital gain tax came back to one court ruling. This case was General Utilities and Operating Company v. Helvering, 296 U.S. 200 (1935), which resulted in the General Utilities doctrine. Under this doctrine companies could distribute their corporate properties or stock to shareholders without having to pay a capital gains tax at the corporate level. Before this doctrine was repealed courts did not take into account the built in tax liability when determining the value of a company. As a result of this companies were finding ways around these taxes and saving themselves a fair amount of money. In 1986 the Tax Reform Act was passed making it much harder on companies trying to liquidate. It stated that if a company tries to liquidate it must identify its gains or losses at the time of sale, as if it were being sold on the open market. Under this act any such sale will be taxable. This gave us a double-edged sword, as a result of this act. Their two options both would result in losses for the company buying the stock. The first is called...
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...Essay # 1 Dear Mr. Smythe, We have received your request to review your current tax situation involving action by the IRS and are happy to provide you advice based on our opinion of your particular situation. Based on the information you have provided us, it is our understanding that during the tax year 2009, you received dividend and interest earnings totaling $10,000 from a margin account you mantained at Investit Investment Company and which was comprised of both stocks and bonds. It is also our understanding that shortly after the earnings were paid to your margin account they were redistributed and used for reinvestment purposes with no funds being withdrawn from the account. The account remained in this position through the balance of 2009 and was subsequently liquidated and closed in 2010. It is also our understanding that you had received an IRS form 1099-DIV in 2009, listing the $10,000 received in the margin account as dividend and interest income earned and recieved in 2009, however you declared the amount in your 2010 income when you choose to close the margin account and take physical possession of the money. Further, it was decided by the IRS that that income was incorrectly declared by you in 2010 and should have been reported under your 2009 income and applicable tax paid at that time. This has resulted in an action taken by the IRS in which additional penalties and interest have been assessed on you. To assist you in understanding your current situation...
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...out. • The house was in need of significant repairs so the couple decided to make the repairs themselves rather than hiring a contractor. Rex had taken advanced courses in woodwork at a local community college and he applied those skills in his maintenance work. • The log maintained by the Harrell’s showed that the couple occupied the house for 38 days and rented it out for 49 days. On 24 of the 38 days occupied, one or both of them were actively working on the beach house. • On the days they were working on the beach house they sometimes still had time for fun with their two teenage children. Some days they would only work 4 to 5 hours and be able to have fun while other days they would work 8 hours and not have time for fun. • The IRS has limited the deductions to rental income on the grounds that the 14-day personal use provision was exceeded. Issues: The main issues of this case are whether the Harrell’s exceeded the 14-day personal use provision, whether they can deduct rental expenses exceeding rental income, and whether or not the activities are engaged in for profit....
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...Chapter 1 27. If they get married in 2010 and file jointly they will pay $38,643.50 [(10% x $16,750) + (15% x $51,250) + (25% x $69,300) + (28% x $42,700)]. If they wait until 2011 to get married and Conrad files as a single individual he will pay $44,516.75 [(10% x $8,375) + (15% x $25,625) + (25% x $48,400) + (28% x $89,450) + (33% x $8,150)]. It would be to their advantage to marry before the end of 2010 because they would save $5,873.25 in income taxes. If they each made $90,000 and both filed individually, they would pay in a combined total of $37,818.50 = 2 x $18,909.25 [(10% x $8,375) + (15% x $25,625) + (25% x $48,400) + (28% x $7,600)]. In this case, it would make more sense to wait until 2011 to get married and each file individually in 2010 because it will save them an additional $825. It would make no difference if they got married in 2010 and filed jointly or separately $38,643.50 = 2 x $19,321.75 [(10% x $8,375) + (15% x $25,625) + (25% x $34,650) + (28% x $21,350)]. 28. John: $4,081.25 [(10% x $8,375) + (15% x $21,625)] William: $11,181.25 [(10% x 8,375) + (15% x $25,625) + (25% x $26,000)] William’s taxable income is twice that of John’s, but William’s taxes are 2.74 times that of John’s. This illustrates vertical equity as well as a progressive tax system where each tax bracket pays a different percentage of their income in taxes – the more money you earn, the higher your tax rate; and, just because you earn twice as much as someone else, it...
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...All legal same-sex marriages recognized for tax purposes NOVEMBER 2013. In the wake of the Supreme Court’s Windsor decision (Sup. Ct. Dkt. No. 12-307 (6/26/13)), which invalidated a portion of the Defense of Marriage Act (DOMA), P.L. 104-199, the Treasury Department and IRS announced in late August that “same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes.” The IRS also issued a revenue ruling (Rev. Rul. 2013-17) providing guidance on the topic. The ruling will apply to all federal tax provisions where marriage is a factor, for all federal taxes, including income, estate, and gift taxes. Tax provisions in which marriage is a factor include filing status, personal and dependency exemptions, the standard deduction, employee benefits, contributions to IRAs, the earned income tax credit, and the child tax credit, among others. According to the IRS, more than 200 provisions in the Code and Treasury regulations include the terms “spouse,” “marriage,” “husband,” “wife,” or “husband and wife.” Under the revenue ruling, the IRS will treat gender-neutral terms, such as “spouse” and “marriage,” as including, respectively, an individual who is married to a person of the same sex if the couple is lawfully married under state law and such a marriage between same-sex individuals. The terms “husband,” “wife,” and “husband and wife” will be interpreted to include same-sex spouses. ...
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...Problem Assignments 38. Kevin deliberately omitted $40,000 of gross income from the restaurant that he owned from his 2012 tax return. The return indicates gross income of $ 200,000 when he files it on April 14 2013. As of what date can the IRS no longer pursue Kevin with the threat of collection of the related tax, interest, and penalties? Answer: There is no statute of limitation. The IRS can pursue Kevin with additional taxes, interest, and penalties if they are able to prove fraud was committed by deliberately omitted $40,000 of gross profit. However if the IRS is unable to prove Kevin deliberately omitted $40,000 of gross income as fraud expire date would be April 15, 2016. 42. When Keith created a new corporation as a sole shareholder, he was advised by his accountant to treat 50 percent of the amount invested as a loan and 50 percent as a purchase of stock. What are the advantages and disadvantages of this structure as compared with treating the entire investment as a purchase of stock? Answer: The advantages of treating 50 percent of the amount invested as a loan and 50 percent as a purchase of stock this structure as compared with treating the entire investment as a purchase of stock is Keith will be able to deduct interest from the company gross income as a sole shareholder and pay interest on the company debt. The disadvantage of not treating the entire investment as a purchase of stock is the dividends would be...
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...As you may know, the IRS decision regarding deduction of the newly built swimming pool facility in your house was to reduce the deduction down to $40,000 because, according to them, the “minimum adequate facility” should have cost you $70,000 instead of $200,000. They are stating that building such a luxurious facility was your personal choice and not necessary for medical expenses. Generally, the main rule regarding this subject is that medical expense deduction is available for a capital expenditure, such as swimming pool, if this expense is directly related to medical care exceeds the amount of the increase in value of the property affected. However, I believe in your specific situation there is a chance to prove that deduction taken was adequate. First of all, the installation of the swimming pool was recommended by the doctor, which clearly means that it is a medical expense. Section 213 of Internal Revenue Code states that there is no ceiling limitation on the amount of deductible medical expenses and you are not limited to choose the cheapest form of medical treatment available. Another important factor is the fact that even after a closer examination to determine minimum reasonable cost, IRS experts did not consider all of the items necessary for the medical purpose that should have been included in the deduction, such as vapor barriers and water temperature. These items should have been included in the calculation of the necessary construction costs which would increase...
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...primarily for business. The IRS also gives you a break when counting the number of days spent on business by allowing you to count travel days as business days. b. While on a business trip, if you engage inn on-business-related activities, the IRS does not require you to prorate transportation costs incurred to and from your main destination. However, this does not include any extra, non-business-related days spent at the destination. If the trip is primarily for business, travel costs such as plane fare, a cab to the airport, and lodging can generally be deducted only the cost of meals, lodging, etc., for the business days are deductible-not for the personal vacation days. c. So the difference the number of business vs. vacation day makes is very Big when determining deductions. Could Monica have spent more vacation days. In terms of overall travel expenses. yes should could have spent more days vacationing without effecting these deductions. However for any extra day she vacationed this would have affected the meals and lodging benefits...so the answer is YES and NO. Depending on what aspect of deductions you were looking at. 39. The job-search expenses relate to the same trade or business that Anthony was in and is, therefore, deductible. It does not matter that no job resulted from the expenditure. Since they relate to his employment as an employee, the $6,200 should be classified as a deduction from AGI and would be subject to the 2%-of-AGI limitation. The moving expenses...
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...Unit Two Assignments Chapter Two Answers Q.38 Answer: The IRS can assess additional taxes, interest, and penalties at any time although it must prove fraud. The deliberate omission of $40,000 of gross income will generally constitute fraud (tax evasion) and in those circumstances there is no statute of limitations. If the IRS cannot prove fraud on Kevin’s part, then the statute of limitations would expire April 15, 2016. Q.42 Answer: The corporation will be able to pay interest on the debt s well as deduct the interest from its gross income. However if the corporation pays dividends on the stock, the dividends are not deductible by the corporation. Whether the payment is interest or dividends, the shareholder recognizes income for the amount received; however, dividend income is taxed at a lower rate. If the corporation retires a shareholder’s stock, it is possible that the amount received could also be treated as a dividend unless specific redemption requirements are met. Another consideration is that the corporation can repay the debt with no tax consequences at all to the shareholders. Q.59 Answer: According to section 1.183-2(c), Income Tax Regulations it is recognized that a taxpayer can be engaged in an activity for profit even when there is only the rare possibility of profit. Q.69 Answer: The AICPA Tax Executive Committee believed that it is appropriate to issue the standards that would become part of the Professional...
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