Federal Tax Research 9th International Edition William A. Raabe, Gerald E. Whittenburg, Debra Sanders - Solutions

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52. Tobey was late in filing his Federal income tax refund claim, but he requested an extension of the statute of limitations, citing the financial disability exceptions of $6511(h). Tobey's mother is chronically ill, and he must make four-day-a-week trips to another city to care for her. Will the
51. Duane paid his 2005 Federal income taxes in January 2008 in the amount of $10,000, and then paid $4,000 interest and penalties on this amount in May 2009. In April 2011, Duane filed a claim for refund of the$14,000, due to a sizable operating loss from his business in tax year 2010. Can he
50. Joan, a traveling sales representative, kept no formal books and records to summarize her gross receipts for the year, but she retained copies of all customer invoices and reported her gross income for the year from these totals. Is she liable for a negligence penalty under $6662 for failing to
49. For the completion and filing of his 2011 Federal income tax return, Ron retains the services of a tax pre-parer. Because of a particularly hectic tax preparation season, the preparer does not complete and file the return until June 2012. Is Ron excused from the failure to file and pay
48. The Scooter Company, owned equally by Julie (chair of the board of directors) and Jeff (company presi-dent), is in very difficult financial straits. Last month, Jeff used the $100,000 withheld from employee pay-checks for Federal payroll and income taxes to pay off a creditor who threatened to
47. Your client, Lee Ann Harkness, has been accused of criminal tax fraud. A high school dropout, she received hundreds of thousands of dollars over the years from Bentley, an elderly gentleman, in exchange for love and companionship. When Bentley died and Harkness was left out of the will, she
46. Chang wants to claim a cost recovery deduction for the acquisition of original artwork to be hung in the reception area of her dental office. The paintings were specially chosen because of their tendency to relax the patients who would be viewing them, thereby facilitating the conduct of
45. Butcher attended meetings of tax protestors for many years in which the constitutionality of the Federal income tax and its means of collection were routinely challenged. Members of various protestor groups were provided with materials to assist them in preparing returns such that little or no
44. The Church of Freedom encourages its members to file "tax protestor" returns with the IRS, objecting to both the government's failure to use a gold standard in payment of tax liabilities, and its sizable expendi-tures for social welfare programs. These returns routinely are overturned by the
43. Blanche Creek has engaged your firm because she has been charged with failure to file her 2010 Federal Form 1040. Blanche maintains that the "reasonable cause" exception should apply. During the entire tax fil-ing season in 2011, she was under a great deal of stress at work and in her personal
42. The Bird Estate committed tax fraud when it purposely understated the value of the business created and operated by the decedent, Beverly Bird, Executor Wilma Holmes admitted to the Tax Court that she had withheld several contracts and formulas that, had they been disclosed to the valuation
41. Mimi had $40,000 in Federal income taxes withheld in 2010. Due to a sizable amount of itemized deduc- tions, she figured that she had no further tax to pay for the year. For this reason and because of personal problems, and without securing an extension, she did not file her 2010 return until
40. White Corporation estimates that its 2012 taxable income will be $800,000 and its tax liability to be$272,000. For each of the following independent cases, compute the minimum quarterly estimated tax pay-ments that will be required to avoid an underpayment penalty.a. White Corporation's 2011
39. Kold Corporation estimates that its 2012 taxable income will be $900,000. Thus, it is subject to a flat 34 percent income tax rate and incurs a $306,000 tax liability. For each of the following independent cases, compute the minimum quarterly estimated tax payments that will be required from
38. What is the applicable filing period under the statute of limitations in each of the following independent situations?a. No return was filed by the taxpayer.b. The taxpayer incurred a bad debt loss that she failed to claim.C. A taxpayer inadvertently omitted a large amount of gross income.d.
37. When Maggie accepted employment with Martin Corporation, she completed a Form W-4, listing 14 exemptions. Since Maggie was single and had no exemptions, she misrepresented her tax situation in an attempt to increase her cash flow. To what penalties is Maggie exposed?
36. Trudy's AGI last year was $200,000. Her Federal income tax came to $40,000, which she paid through a combination of withholding and estimated payments. This year, her AGI will be $300,000, with a projected tax liability of 560,000, all to be paid through estimates. Ignore the annualized income
35. Compute Dana's total penalties. She underpaid her tax by $50,000 due to negligence and by $150,000 due to civil fraud.
34. Kim underpaid her taxes by $15,000. Of this amount, $7,500 was due to negligence on her part because her record-keeping system is highly inadequate, Determine the amount of any negligence penalty.
33. Compute the undervaluation penalty for each of the following independent cases involving the executor's reporting of the value of a closely held business in the decedent's gross estate. In each case, assume a mar-ginal estate tax rate of 50 percent.Reported Value Corrected IRS Valuation a$
32. Compute the overvaluation penalty for each of the following independent cases involving the taxpayer's reporting of the fair market value of charitable contribution property. In each case, assume a marginal income tax rate of 35 percent, Taxpayer Corrected IRS Value Reported Valuation
31. Krista, who is subject to a 40 percent marginal gift tax rate, made a gift of a sculpture to Ann, valuing the property at $100,000. The IRS later valued the gift at $500,000. Compute the applicable undervaluation penalty.
30. Brian, who is subject to a 40 percent marginal gift tax rate, made a gift of a sculpture to Adam, valuing the property at $100,000. The IRS later valued the gift at $250,000. Compute the applicable undervaluation penalty,
29. Greg, who is subject to a 35 percent marginal gift tax rate, made a gift of a sculpture to Karen, valuing the property at $80,000. The IRS later valued the gift at $150,000. Compute the applicable undervaluation penalty.
28. Todd, who is subject to a 35 percent marginal gift tax rate, made a gift of a sculpture to Becky, valuing the property at $7,000. The IRS later valued the gift at $15,000. Compute the applicable undervaluation penalty.
27. Beth, a calendar-year taxpayer subject to a 34 percent marginal tax rate, claimed a charitable contribution deduction of $600,000 for a sculpture that the IRS later valued at $100,000. Compute the applicable over-valuation penalty.
26. Susan, a calendar-year taxpayer subject to a 34 percent marginal tax rate, claimed a charitable contribution deduction of $400,000 for a sculpture that the IRS later valued at $150,000. Compute the applicable over-valuation penalty.
25. Samantha, a calendar-year taxpayer subject to a 34 percent marginal tax rate, claimed a charitable contribu-tion deduction of $170,000 for a sculpture that the IRS later valued at $100,000. Compute the applicable overvaluation penalty.
24. John, a calendar-year taxpayer subject to a 34 percent marginal tax rate, claimed a charitable contribution deduction of $15,000 for a sculpture that the IRS later valued at $10.000. Compute the applicable overvalu-ation penalty.
23. 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 pay the tax that was due on April 15, 2010. Compute the failure-to-pay and failure-to-file
22. 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 reasonable cause for failing to file the return by October 15 or for failing to pay the tax that was due
21. 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 Julie be subject to interest? For what period of time will Julie be subject to the
20. Discuss which penalties, if any, the tax adviser might be charged with in each of the following independent circumstances. In this regard, assume that the tax adviser:a. Suggested that the client invest in a real estate tax shelter.b. Provided a statement of assurance as to the accuracy of the
19. Discuss which penalties, if any, the tax adviser might be charged with in each of the following independent circumstances. In this regard, assume that the tax adviser:a. Provided information about the taxpayer's Federal income tax returns to the pertinent state income tax agency.b. Provided
18. The client's return is found by the U.S. Tax Court to have included improper business deductions. The court agreed that the taxpayer's position had some statutory and judicial merit, but it held for the govern-ment nonetheless. Which of the following could the IRS charge with a preparer
17. 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 conferencee. Office auditf. Correspondence audit
16. 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 longer can pursue Mike with the threat of collection of the related tax, interest and penalties on
15. 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 IRS no longer can pursue Diane with the threat of collection of the related tax, interest, and
14. 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 no longer can pursue Carl with the threat of collection of the related tax, interest, and
13. 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 on the 2009 return, Blanche intends to file a claim for refund. This claim must be filed by no
12. 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 Ace's 2008 return expires on:a. January 25, 2012b. April 15, 2012c. January 25, 2015d. April 15,
11. 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 interest on the assessment stops accruing immediately.c. The agreement is binding on both the
10. 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 individual's tax return.C. An extension of time for filing a return results in an automatic extension
9. Define and illustrate the following terms or concepts:a. Fraudb. Negligencec. Reasonable caused. Lack of reasonable cause.e. Civil penalty convictionf. Criminal penalty conviction
8. How has Congress used tax penalties to discourage the development of certain tax shelters?
7. What are the statutes of limitations for the IRS and taxpayers? Why did Congress create them? When can they be shortened, extended, or suspended ?.
6. What is an injunction, and when may the IRS seek an injunction?
5. Discuss the penalties imposed on TRPs. Who is a preparer, and what is defined as a tax return preparation and what is not preparation?
What are the defenses against criminal penalties?
4. Explain the imposition of criminal penalties. What is the relationship between criminal and civil penalties?
3. 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 estimated payments?What is a frivolous return?
2. What is the role of the statute of limitations in the Federal income tax system?
1. 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 tax payments is discovered late in the tax year.
35. 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 dedicated to audit activities. Next decide which types of taxpayers and returns you will be graphing.
34. Examine some tax journal articles and treatises to put together a checklist, “How to Prepare for an Appeals Conference.”
33. Examine some tax journal articles and treatises to put together a checklist, “How to Prepare for a Tax Audit.”
32. 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 attorney in presenting the case. Your billing rate for this type of engagement is $500 per hour, the
31. 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 mention of the audit to Annie. When Annie was clearing the answering machine that they shared, she
30. 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 assertion.
29. 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 computations using assumptions that the IRS would find to be “too aggressive.” In addition, the file
28. 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 bureaucracy of the IRS, from the national office through the district headquarters, by 15 percent.
27. Distinguish between the receipt of a 30-day letter and a 90-day letter.
26. 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 many of the expenses and claims that Amber owes $2,500 of additional taxes. Discuss Amber’s
25. How should the tax professional advise a client whose charitable contributions are double that of the US.norm for his or her income level?
24. 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 contrary judgment.c. Either the IRS or the taxpayer can appeal a contrary judgment.d. Neither
23. 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!"
22. 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 this purpose, examine the following criteria:a. Scope of reviewb. Type of documentation that
21. 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
20, When an agreement cannot be reached with a Revenue Agent, a letter is transmitted stating that the tax-payer has 30 days to do which of the following?a. File a suit in the U.S. Tax Courtb. Request an administrative appealc. Pay the taxd. Find additional facts to support his or her position
19. 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 based on the hazards of litigation.b. Settle a question of fact,c. Reach an agreement that will be
18. Which type of audit is used most often to substantiate the reported items of income or deduction for indi-viduals who have only wages?a. Fieldb. Officec. Correspondence
17. 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, business or wages
16. What are the most important activities that the IRS currently is carrying out in its data collection and audit efforts?
15. 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?
14. 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 correct?
13. Identify several items that you believe are included in the prevailing DIF model.
12. Suggest other information documents that the IRS computers could add to the IDMP.
11. Add two items to the "dos and don'ts" list included in the discussion of audit etiquette.
10. Distinguish among the various means by which the IRS selects a tax return for examination. For this pur-pose, examine the criteria ofa. Scope of reviewb. Probability of selectionc. Preservation of taxpayer constitutional rights
9. Relate some of the "audit etiquette" tactics that you have heard taxpayers or tax professionals discuss,
8. Why might it be desirable to settle with an agent rather than continue by appealing to a higher level within the IRS?
7. What techniques other than the random selection of returns for audit does the IRS use in its enforcement function?
6. What are the chances of having a tax return audited this year?
5. Distinguish between the Math/Clerical Error program and the Unallowable Items program.
4. List three of the items included in one of the Taxpayer Bills of Rights.
3. What are the chief responsibilities ofa. The IRS Commissionerb. The IRS Chief Counselc. The National Taxpayer Advocated. Local Taxpayer Advocates
2. What are the major functions of the national office of the IRS?
1. Why must the tax professional be cognizant of how tax law administration works?
27. 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 allowed. Maris is subject to a 14 percent cost of capital. If the credit were not claimed, the property
26. 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 year to this year, assuming a net capital loss carryforward in each of the following amounts?
25. 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 percent, and Harris Corporation exceeds the annual AMT exemption phase-out level of income.at Tax
4. 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 Year Actual or Projected Taxable Income 2009 $700,000 2011 $700,000 b.Tax Year Actual or Projected
23. 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 16 days at $400 per day. Rental expenses will be negligible. What is your advice to Greg?
22. 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 rate of 4 percent.The taxpayer expects to hold the bond and the land for 10 years and expects to
21. 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 receipt of the income until the end of Year 2, the amount will grow to $11,000. If the taxpayer takes
20. 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 George. One alternative is to make a gift of the interest, and the other is to make a gift of the
19. 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 $60,000 total. The seller, not in the real estate business, acquired the land several years ago by
18. On creating a new 100 percent-owned corporation, Ben was advised by his tax consultant to treat 50 per-cent of the total amount that was invested as a loan and 50 percent as a purchase of corporate stock. What tax advantage does this arrangement have over structuring the entire investment as a
17. Examples 12-2 and 12-3 in this chapter concern a decision between the same two mutually exclusive alter-natives under identical conditions, except for the corporation's marginal tax rate. In Example 12-2, where the marginal tax rate was 40 percent, the conclusion was to accept Alternative 1. In
16. With respect to the system of coding used in Exercises 14 and 15, create one new illustration in each tax planning category.

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Federal Tax Research 9th International Edition William A. Raabe, Gerald E. Whittenburg, Debra Sanders - Solutions

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