Item 3 of 5 Assume that you have just passed the CPA (congratulations!), and a local cell phone technology business, wants to hire you to prepare its U.S. federal income tax return. When talking with the 3 equal owners of the company, they seem focused on minimizing the current years total tax liability. They also expressed interest in possibly omitting various items of income, inflating the amount of claimed deductions, and compensating you based on a percentage of the refund that you will report on the return. After making a quick review of the companys tax return filed in the previous year, you notice that the business used Form 1120 and there was an obvious error made on page 1 of the return. One of the owners ends the conversation by saying, Well, you can always represent us before the IRS or in court if something is wrong with the tax returns. By default, how will the company be classified for tax purposes if you discover that the business has never filed articles of incorporation? Is it OK that the business filed a Form 1120 for the previous year (why or why not)? From a tax planning perspective, is this the ideal tax classification for this business (from the perspective of both the business and its individual owners)? Would it be possible for this business to make an S-corporation election (why or why not)? Build an effective and convincing argument for why minimizing the current years tax liability is not always the best objective for the business owners what should be their objective? Create an example that supports your argument. Suggest a better perspective for the owners to take regarding the returns earned on their investment in the company. Explain the services that you can provide as a CPA tax practitioner to this client in addition to preparing the federal tax return. Explain the difference between tax avoidance and tax evasion, and briefly summarize your responsibilities as a CPA for preparing the tax return in this situation in accordance with Circular 230, the AICPA Code of Professional Conduct, and the AICPA Statements on Standards for Tax Services. Be certain to address the appropriateness of the proposed compensation arrangement, your responsibility regarding the error found on the previous years return, and your ability to represent the client before the IRS or in court. What are some options available to you if you believe that your new client is not providing accurate and true information for use in preparing the tax return for this business? Item 4 of 5 (25 points) Victoria just received a Schedule K-1 from the JKL Partnership that included a ($20,000) ordinary business loss allocation. Her tax basis in JKL at the beginning of JKL's most recent tax year was $10,000. Victoria noted that the Schedule K-1 correctly reflects the $1,000 cash contribution that she made to JKL during the year, and a comparison between the most recent and prior year information shows that her share of JKL Partnership recourse debt increased from $0 to $8,000 during the year. Assume Victoria is a material participant in JKL Partnership, and she received $5,000 of passive income from another, unrelated investment during the same year she was allocated the JKL loss. a) Briefly discuss how the U.S. Internal Revenue Code treats partnerships as entities separate from their partners (entity approach), but also treats partnerships simply as an aggregation of the partners separate interests in the assets and liabilities of the partnership (aggregate approach). Provide an example of each approach. b) How much of the $20,000 loss from JKL can Victoria deduct currently, and how much of the loss is suspended because of the tax-basis limitation, the at-risk limitation, the passive activity loss limitation, and/or the excess business loss limitation (the four hurdles)? Clearly show any related calculations for each limitation. How does each of your answers change if Victoria is not a material participant in the JKL Partnership? c) Assume Victoria is a calendar year-end individual with a 30% profits and capital interest in the JKL Partnership; however, the taxable year-end for JKL is March 31. Show your calculation of how many months of deferral Victoria receives in this situation (assume Victoria files a Form 1040 for each calendar year ending December 31). In general, explain how Victoria did or did not benefit from the deferral during the most recent tax year. Identify and explain three different ways that JKL Partnership could have a taxable year-end of March 31 even though Victoria is considered to be a principal partner. When is the due date for the JKL partnership to file its federal income tax return, and what is the possible extended due date? Item 5 of 5 Mildred is a single person who is a 25 percent owner of a local business that operates using the name Four Rivers. The business reports $500,000 of taxable business income for the year 2022. Assume the business income allocated to Mildred is qualified business income. For each of the independent parts a) through d) below, show your calculation of the following four items and provide a brief explanation of how you determined each amount (i.e., why an amount was included or excluded from the calculation): Mildreds self-employment tax liability (if any) related to Four Rivers. Mildreds additional Medicare tax liability (if any) related to Four Rivers. Mildreds qualified business income deduction (if any) related to Four Rivers. Mildreds net investment income tax liability (if any) related to Four Rivers assume no investment expenses. a) Assume Four Rivers is taxed as a partnership, and Mildred does not do any work for the business. Before considering her business income allocation from Four Rivers, and the self-employment tax deduction (if any), Mildreds adjusted gross income is $250,000 related to a salary she receives from working as an employee at an unrelated business. b) Assume Four Rivers is taxed as a partnership, and Mildred works full-time for the business. In return, she receives a guaranteed payment of $100,000 that was already taken into account when determining the partnerships $500,000 of taxable business income. Before considering her business income allocation from Four Rivers, and the self-employment tax deduction (if any), Mildreds adjusted gross income is $250,000, which includes the $100,000 guaranteed payment from Four Rivers and $150,000 salary from working as an employee at an unrelated business. Because Mildred will owe self-employment tax on her guaranteed payment, include the guaranteed payment in your calculation of Mildreds self-employment tax liability. c) Assume Four Rivers is taxed as an S corporation, and Mildred does not do any work for the business. Before considering her business income allocation from Four Rivers, and the self-employment tax deduction (if any), Mildreds adjusted gross income is $250,000 related to a salary she receives from working as an employee at an unrelated business.