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federal tax research

Questions and Answers of Federal Tax Research

Compute Dana’s total penalties. She underpaid her tax by $50,000 due to negligence and by $150,000 due to civil fraud.
Kim underpaid her taxes by $15,000. Of this amount, $7,500 was due to negligence on her part because her record-keeping system is highly inadequate. Determine the amount of any negligence penalty.
Compute the undervaluation penalty for each of the following independent cases involving the executor’s reporting of the value of a closely held business in the decedent’s gross estate. In each
Joan filed her unextended 2010 tax return on November 15, 2011, paying the $5,000 amount due at that time. Joan has no reasonable cause for failing to file the return by October 15 or for failing to
Jim received a six month extension (to October 15, 2011) to file his 2010 tax return. Jim actually filed the return on October 20, 2011, paying the $20,000 amount due at that time. He has no
Julie filed a valid extension for her 2009 tax return giving her until October 15, 2010 to file her return. She filed her return on November 1 and paid $2,000 of tax due. For what period of time will
Construct a scenario in which the tax adviser should recommend that the client terminate the challenge of the IRS with the following:a. Lawsuitb. Offer in compromisec. Closing agreementd. Appeals
Mike accidentally omitted from his 2008 tax return $4,000 of gross receipts she collected as the owner of a restaurant. His 2008 return indicated collective gross receipts of $35,000. The IRS no
Diane accidentally omitted from her 2008 tax return $40,000 of the gross receipts that she collected as the owner of a restaurant. Her 2008 return indicated collective gross receipts of $25,000. The
Carl purposely omitted from his 2008 tax return $40,000 of the gross receipts that he collected as the owner of a restaurant. His 2008 return indicated collective gross receipts of $25,000. The IRS
Blanche filed her 2009 income tax return on April 4, 2010. On December 14, 2010, she learned that 100 shares of stock that she owned had become worthless in 2009. Since she did not deduct this loss
Ace filed her 2008 income tax return on January 25, 2009. There was no material understatement of income on her return, and the return was properly signed and filed. The statute of limitations for
Indicate whether, after both parties sign a closing agreement, the following result(s) occur. More than one answer may be correct.a. The taxpayer still may appeal to a higher level of the IRS.b. The
Indicate whether the following statements are true or false:a. The government never pays a taxpayer interest on an overpayment of tax.b. Penalties may be included as an itemized deduction on an
Define and illustrate the following terms or concepts:a. Fraudb. Negligencec. Reasonable caused. Lack of reasonable causee. Civil penalty convictionf. Criminal penalty conviction
How has Congress used tax penalties to discourage the development of certain tax shelters?
What are the statutes of limitations for the IRS and taxpayers? Why did Congress create them? When can they be shortened, extended, or suspended?
What is an injunction, and when may the IRS seek an injunction?
Discuss the penalties imposed on TRPs. Who is a preparer, and what is defined as a tax return preparation and what is not preparation?
Explain the imposition of criminal penalties. What is the relationship between criminal and civil penalties?What are the defenses against criminal penalties?
Describe the civil fraud penalties, the definition of fraud, and the all or nothing rule for civil fraud. What are the differences in individual and corporate penalties for failure to make adequate
What is the role of the statute of limitations in the Federal income tax system?
When should prevailing interest rates bear on tax decision making?a. The taxpayer is contemplating litigation in either the Tax Court or the Court of Federal Claims.b. An understatement of estimated
Prepare a graph illustrating the trends in IRS audit activity over the past decade. First decide whether you are measuring audited returns, tax dollars recovered by audit, or budget resources
Examine some tax journal articles and treatises to put together a checklist, “How to Prepare for an Appeals Conference.”
Examine some tax journal articles and treatises to put together a checklist, “How to Prepare for a Tax Audit.”
You have just rendered service for a taxpayer as an expert witness in a case heard by the U.S. Tax Court.The taxpayer is requesting reimbursement for your fees and for those amounts paid to her
Max and Annie are roommates sharing an apartment. Although they know each other well, they have respect for each other’s privacy. Thus, when Max’s Form 1040 was audited by the IRS, he made no
Your supervisor says that the U.S. Constitution forces the IRS to reveal the make-up of the DIF formula that it uses to select tax returns for audit. Prepare a file memo assessing the supervisor’s
The IRS has issued a summons for the tax file held by CPA Ann Whitman for her clients, the Harberts. The file consists of paper and electronic spreadsheets in which Whitman detailed some tax
The President of the United States has hired you to assist in a trim-the-fat program with respect to the Federal government. The President has asked you to recommend specific steps to downsize the
Distinguish between the receipt of a 30-day letter and a 90-day letter.
In early 2011, the IRS selected Amber’s 2008 return for audit with respect to Schedule C expenses and employee business expenses claimed on the return. Amber met with an IRS agent who disallowed
How should the tax professional advise a client whose charitable contributions are double that of the U.S.norm for his or her income level?
With respect to the Small Cases Division of the U.S. Tax Court, which statement is true?a. The taxpayer (but not the IRS) can appeal a contrary judgment.b. The IRS (but not the taxpayer) can appeal a
Respond to a client’s comment: “We have a better than even chance of winning in the Tax Court, according to an article I read. Let’s sue the government!”
Make a chart that distinguishes among the various types of examinations that the IRS conducts relative to individual income tax returns; namely, office, correspondence, field, and NRP audits. For
A statutory notice of deficiency gives the taxpayer 90 days to do which of the following?a. Pay the taxb. Request an administrative appealc. File a suit in the U.S. Tax Courtd. File a protest
When an agreement cannot be reached with a Revenue Agent, a letter is transmitted stating that the taxpayer has 30 days to do which of the following?a. File a suit in the U.S. Tax Courtb. Request an
A revenue agent may do which of the following in an attempt to negotiate a settlement after the completion of an audit? More than one answer may be correct.a. Attempt to settle an unresolved issue
Which type of audit is used most often to substantiate the reported items of income or deduction for individuals who have only wages?a. Fieldb. Officec. Correspondence
Which of the following methods is used to select tax returns for audit? More than one answer may be correct.a. DIF proceduresb. Random samplesc. Amount of gross incomed. Type of income, for example,
What are the most important activities that the IRS currently is carrying out in its data collection and audit efforts?
Should the IRS audit more or fewer returns every year? What issues would you consider in this regard if you were a politician? A wealthy individual?
Carol takes some very aggressive positions on her tax return. She maintains, ‘‘With the downsizing of the government, my chances of getting caught are virtually zero.’’ Is Carol’s approach
Identify several items that you believe are included in the prevailing DIF model.
Suggest other information documents that the IRS computers could add to the IDMP.
Add two items to the “dos and don’ts” list included in the discussion of audit etiquette.
Distinguish among the various means by which the IRS selects a tax return for examination. For this purpose, examine the criteria of:a. Scope of reviewb. Probability of selectionc. Preservation of
Relate some of the “audit etiquette” tactics that you have heard taxpayers or tax professionals discuss.
Why might it be desirable to settle with an agent rather than continue by appealing to a higher level within the IRS?
What techniques other than the random selection of returns for audit does the IRS use in its enforcement function?
What are the chances of having a tax return audited this year?
Distinguish between the Math/Clerical Error program and the Unallowable Items program.
List three of the items included in one of the Taxpayer Bills of Rights.
What are the chief responsibilities of:a. The IRS Commissionerb. The IRS Chief Counselc. The National Taxpayer Advocated. Local Taxpayer Advocates
What are the major functions of the national office of the IRS?
Why must the tax professional be cognizant of how tax law administration works?
Maris Corporation put into service $100,000 of equipment that qualifies for its state’s 10 percent research credit. To the extent that the credit is claimed, no cost recovery deductions are
Paris Corporation holds a $100,000 unrealized net capital gain and a capital loss carryforward that will expire in the current year. Should Paris accelerate the recognition of this gain from next
Should Harris Corporation accelerate $100,000 of gross income into 2011, its first year subject to the AMT?Harris is subject to a 14 percent cost of capital. The corporate AMT rate is a flat 20
Should Ferris Corporation elect to forgo the carryback of its $60,000 year 2010 net operating loss? Ferris is subject to a 15 percent cost of capital. Corporate tax rates are as in IRC §11. a. Tax
Greg Jones lives in New York City and has the opportunity to rent his condominium during the 2010 Olympic Games. He has two offers—one to rent for 10 days at $500 per day and the other to rent for
A taxpayer can invest $10,000 in a taxable 10-year bond that yields an annual pre-tax return of 6 percent or buy land (a capital asset) for $10,000 that is expected to increase at an annual pre-tax
Assume that a taxpayer can choose when he is to receive $10,000 of fully taxable income. If the taxpayer receives the income at the end of Year 1, he will receive exactly $10,000. If he delays
George, a high-bracket taxpayer, wishes to shift some of his own taxable income from corporate bonds he owns to his 25-year-old daughter, Debra, so that Debra is taxed on the interest rather than
Julia currently is considering the purchase of some land to be held as an investment. She and the seller have agreed on a contract under which Julia would pay $1,000 per month for 60 months, or
On creating a new 100 percent-owned corporation, Ben was advised by his tax consultant to treat 50 percent of the total amount that was invested as a loan and 50 percent as a purchase of corporate
Examples 12-2 and 12-3 in this chapter concern a decision between the same two mutually exclusive alternatives under identical conditions, except for the corporation’s marginal tax rate. In Example
With respect to the system of coding used in Exercises 14 and 15, create one new illustration in each tax planning category.
Using the codes from Exercise 14, identify the basic approach(es) to tax avoidance that are used in each of the following cases:a. Retainer Corp. is a U.S.-owned corporation that was incorporated
Using the following codes, identify the basic approach(es) to tax avoidance that are used in each of the following cases:AR Avoiding recognition of taxable income CT Changing the timing of
Is the objective of tax planning always to minimize taxes? Explain.
Higher-income taxpayers tend to engage in tax planning more than do lower-income taxpayers. Why?
When might a taxpayer undertake transactions seemingly opposite to the usual tax planning principles?
Why does tax planning analysis focus on the marginal tax rate?
Summarize the most important planning services that a tax professional can offer to a client.
What planning engagements can the tax professional offer? Why is he or she in an ideal position to offer these services?
How does the typical tax practitioner divide his or her time among planning, compliance, research, and litigation?
Name two types of tax traps and give an example of each.
Give one or more examples to show how a taxpayer might take advantage of preferential tax rates on longterm capital gains by structuring transactions to produce capital gains rather than ordinary
Give an example of a transaction between two taxpayers in which an inconsistent treatment is afforded the two taxpayers. Explain how related taxpayers might structure a transaction to take advantage
Give some examples of U.S. taxes that employ proportional, progressive, and regressive rate structures.
How might a tax adviser ignoring the present value approach to tax planning arrive at an improper conclusion?Illustrate.
How do taxes fit into the general economic goals of most taxpayers?
Are Amazon.com and other online sellers required to collect and remit sales tax to your state?
The Downtown Wellness Clinic, a tax-exempt organization, sells memberships to corporations so that their employees can work out before and after office hours. Three blocks away, the Power Up Fitness
GoodCo donated $40,000 of goods from its inventory to the Red Cross. Does your state require GoodCo to collect or pay sales/use tax on these donated goods?
SalesCo sold Tom a prepaid phone card for $100 in Year 1. Tom used the phone card for communications services in Year 2.When can your state collect sales/use tax from SalesCo for the sale to Tom?
For the current period, what is the short-term, quarterly compounded Federal AFR? What is the mid-term rate? What is the long-term exempt interest rate for computing loss carryforwards under §382?
Does your state provide a form with which to file for a manufacturer’s exemption from sales/use tax?Which form is used for this purpose, where do you obtain it, and where is it to be filed?
As the result of a Federal audit, your current year Federal taxable income increased by $27,000. By when must you report this adjustment to your state’s revenue department? What form is used for
Chan’s only transaction in the United States this year was to sell the biggest office building in Denver at a$100 million gain. Chan has no assets, offices, or employees in the United States. Can
According to the Tax Foundation, what was the country’s Tax Freedom Day in 2010? How has Tax Freedom Day changed since 2000?
Wes and Donna were the only members of an LLC, and they fended off unwanted takeover suitors with a clause in the charter that shares could change hands only with unanimous approval from all of the
Edna is a well-paid executive with ADley, a firm that uses stock options and deferred compensation as well as high salaries to compensate its most successful employees. When Edna and Ron were
After her employer transferred her to another town, Rosemary put her house up for sale. After two years of Internet listings, open houses, repairs, and price cuts, a buyer finally came along. By this
Chico is a corporation operating in several states on the accrual basis. Chico received a state income tax refund this year (Year 4) based on the following sequence of events. In which tax year does
Tony received some nonqualified and incentive stock options when he worked for his employer in Oregon.When he took a two-year assignment in another country, however, the corporation employing Tony
Jim Jones owns 50 percent of the stock of an S-corporation. In 2010, Jim obtains a health insurance plan providing coverage for Jim, his wife, and their two children. Jim makes all of the premium

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