SWFT Individual Income Taxes
43rd Edition
ISBN: 9780357391365
Author: YOUNG
Publisher: Cengage
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Your new client, Ms. X, had her 2018 tax return audited last year and found the whole experience so painful that she never wants to take a chance on ever having to deal with the IRS again. (She should have hired you to help defend the audit, but didn’t.) Specifically, she lost a very big part of her research tax credit because the IRS reclassified a large category of expenses that she had included in calculating the credit as “not sufficiently research-related.”
As to her 2019 return, you note that Ms. X has even more expenses in that same category, meaning that her tax credit would be much larger if they were included in the calculation. And, more importantly, you’re aware that a Tax Court decision from earlier this year held, in another taxpayer’s almost identical circumstances, that the very same category of expenses was properly included in the research credit calculation. Can you, or should you, advise Ms. X that her own expenses in this same category can be used to her benefit in…
Your new tax return client, Ms. X, had her 2018 tax return audited last year and found the whole experience so painful that she never wants to take a chance on ever having to deal with the IRS again. (She should have hired you to help de-fend the audit, but didn’t.) Specifically, she lost a very big part of her research tax credit because the IRS reclassified a large category of expenses that she had in-cluded in calculating the credit as “not sufficiently research-related.”
As to her 2019 return, you note that Ms. X has even more expenses in that same category, meaning that her tax credit would be much larger if they were included in the calculation. And, more importantly, you’re aware that a Tax Court decision from earlier this year held, in another taxpayer’s almost identical circumstances, that the very same category of expenses was properly included in the research credit calculation. Can you, or should you, advise Ms. X that her own expenses in this same category can be used to…
Your qualitative answers should be written in full sentences with depth to your responses when needed. For questions and problems requiring computations, you need to share your supporting calculations.
1a. Jim files his return one month after the due date and pays the remaining $8,000 of tax owed by him. What are his delinquency penalties?
1b. Why is income-shifting considered such a major tax planning concept?
1c. Olivia is being audited by the IRS. The revenue agent determines that certain expenses that were deducted on her return are not valid, and he accordingly makes adjustments to her tax liability. Upon receipt of her 30-day letter, she phones you, a CPA, for advice regarding possible future action on the matter. What options would you discuss with Olivia?
1d. Compute the taxable income for 2020 under each of the following circumstances:
Jim is married and files a joint return. Jim and his wife have two dependent children. They have adjusted gross income of $30,000 and…
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- In each of the following problems, identify the tax issue(s) posed by the facts presented. Determine the possible tax consequences of each issue that you identify. Binh met Anika 10 years ago at a cocktail party. Anika was a wealthy investor with extensive holdings in the oil and gas industry. Binh was a real estate agent earning about 35,000 a year. Several months later, Binh proposed marriage and Anika accepted. Just before the wedding, Anika told Binh that she had a mental hangup about marriage, and Binh agreed to live with her without being married. In return, Anika promised to leave Binh her entire estate. In the ensuing years, they had an intimate, marriage-like relationship, attending social, business, and family functions together. Anika died in 2015. No will was found immediately. A few months after Anikas death, her sister found a one-page paper signed by Anika. The paper left Anikas entire estate to her brothers and sisters and named her sister as executor of the estate. Binh sued Anikas estate and won a judgment of 2 million for services rendered to Anika during their relationship. The estate appealed the decision, which was affirmed as to liability but reversed and remanded for a new trial on the amount of the judgment. Binh and the estate subsequently worked out an agreement in which the estate paid Binh 1.2 million to settle his claim.arrow_forwardAndy Simmons is a CPA with his own accounting and tax practice. He occasionally does an audit for small business clients. One day an audit client shows Andy a letter from the local Property Tax Assessor’s office. It seems the client inquired about the process to be followed to appeal the 20 percent increase in his property taxes. He already wrote an appeal letter and was denied. The letter said that most folks who appeal those decisions hire a CPA to represent them before the administrative board in property tax assessment hearings. If your client asks you to represent him in the appeal process, can you do so under the AICPA Code? Explain.arrow_forwardJames has just been audited by the IRS and, as a result, has been assessed a substantial deficiency (which he has not yet paid) in additional income taxes. In preparing his defense, James advances the following possibilities. Are any of them viable? Although a resident of Texas, James plans to sue in a District Court in Oregon that appears to be more favorably inclined toward taxpayers. If (a) is not possible, James plans to take his case to a Texas state court as he is more familiar with the practices there. Yes If he loses at the trial court level, James plans to appeal to either the Federal Circuit or the 11th Circuit Court of Appeals because he has relatives in both Washington D.C., and Atlanta. Staying with these relatives could save James lodging expense while his appeal is being heard by the court. Even if he does not win at the trial court or appeal court level, James feels certain of success on an appeal to the Supreme Court.arrow_forward
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