George and Weezy received $30,200 of Social Security benefits this year ($12,000 for George; $18,200 for Weezy). They also received $5,000 of interest from jointly owned City of Ranburne Bonds and dividend income. What amount of the Social Security benefits must George and Weezy include in their gross income under the following independent situations? a. George and Weezy file married joint and receive $8,000 of dividend income from stocks owned by George. b. George and Weezy file married separate and receive $8,000 of dividend income from stocks owned by George. c. George and Weezy file married joint and receive $30,000 of dividend income from stocks owned by George. d. George and Weezy file married joint and receive $15,000 of dividend income from stocks owned by George.
> Using the facts from the previous problem, when should Hank send the bill if he expects his marginal tax rate to be 33 percent next year? 25 percent next year?
> Hank, a calendar-year taxpayer, uses the cash method of accounting for his sole proprietorship. In late December he performed $20,000 of legal services for a client. Hank typically requires his clients to pay his bills immediately upon receipt. Assume hi
> Using the facts from the previous problem, when should Reese pay the bill if she expects her marginal tax rate to be 33 percent next year? 25 percent next year?
> Under what circumstances would you expect the after-tax return from an investment in a capital asset to approach that of tax-exempt assets assuming equal before-tax rates of return?
> Reese, a calendar-year taxpayer, uses the cash method of accounting for her sole proprietorship. In late December she received a $20,000 bill from her accountant for consulting services related to her small business. Reese can pay the $20,000 bill any ti
> Why is understanding the time value of money important for tax planning?
> Describe the ways in which the timing strategy has limitations.
> How do changing tax rates affect the timing strategy? What information do you need to determine the appropriate timing strategy when tax rates change?
> What factors increase the benefits of accelerating deductions or deferring income?
> What are some common examples of the timing strategy?
> In this chapter we discussed three basic tax planning strategies. What different features of taxation does each of these strategies exploit?
> Describe the three parties engaged in every business transaction and how understanding taxes may aid in structuring transactions.
> “Tax avoidance is discouraged by the courts and Congress.” Is this statement true or false? Please explain.
> Distinguish earned income from unearned income, and provide an example of each.
> What is the difference between tax avoidance and tax evasion?
> Jim purchased 100 shares of stock this year and elected to participate in a dividend reinvestment program. This program automatically uses dividends to purchase additional shares of stock. This year Jim’s shares paid $350 of dividends and he used these f
> Randy has found conflicting authorities that address a research question for one of his clients. The majority of the authorities provide an unfavorable answer for his client. Randy estimates that if the client takes the more favorable position on its tax
> Latrell recently used his Delta Skymiles to purchase a free round trip ticket to Milan, Italy (value $1,200). The frequent flyer miles used to purchase the ticket were generated from Latrell’s business travel as a CPA. Latrell’s employer paid for his bus
> J.C. has been a professional gambler for many years. He loves this line of work and believes the income is tax-free. a. Use an available tax research service to determine whether J.C.’s thinking is correct. Is the answer to this question found in the In
> Georgette has identified a 1983 court case that appears to answer her research question. What must she do to determine if the case still represents “current” law?
> Justine would like to clarify her understanding of a code section recently enacted by Congress. What tax law sources are available to assist Justine?
> For each of the following citations, identify the type of authority (statutory, administrative, or judicial) and explain the citation. a. IRC Sec. 280A(c)(5) b. Rev. Proc. 2004-34, 2004-1 C.B. 911 c. Lakewood Associates, RIA TC Memo 95-3566. d. TAM 20042
> For each of the following citations identify the type of authority (statutory, administrative, or judicial) and explain the citation. a. Reg. Sec. 1.111-1(b) b. IRC Sec. 469(c)(7)(B)(i) c. Rev. Rul. 82-204, 1982-2 C.B. 192 d. Amdahl Corp., 108 TC 507 (19
> Robert has found a “favorable” authority directly on point for his tax question. If the authority is a court case, which court would he prefer to have issued the opinion? Which court would he least prefer to have issued the opinion?
> Juanita, a Texas resident (5th Circuit), is researching a tax question and finds a 5th Circuit case ruling that is favorable and a 9th Circuit case that is unfavorable. Which circuit case has more “authoritative weight” and why? How would your answer cha
> Under what circumstances would the IRS issue an acquiescence? A nonacquiescence? An action on decision?
> Benita is concerned that she will not be able to complete her tax return by April 15. Can she request an extension to file her return? By what date must she do so? Assuming she requests an extension, what is the latest date that she could file her return
> What is the key factor in shifting income from a business to its owners? What are some methods of shifting income in this context?
> What are the basic differences between regulations, revenue rulings, and private letter rulings?
> Jackie has just opened her copy of the Code for the first time. She looks at the table of contents and wonders why it is organized the way it is. She questions whether it makes sense to try and understand the Code’s organization. What are some reasons wh
> Compare and contrast the three trial-level courts.
> What are the tax practitioner’s standards to avoid a penalty for recommending a tax return position?
> What are some of the most common civil penalties imposed on taxpayers?
> What are the basic differences between civil and criminal tax penalties?
> What is Circular 230?
> Levi is recommending a tax return position to his client. What standard must he meet to satisfy his professional standards? What is the source of this professional standard?
> How are citators used in tax research?
> Describe some ways in which taxes affect the political process in the United States.
> Armando identifies a tax research question as being a question of fact. What types of authorities should he attempt to locate in his research?
> What are some ways that a parent could effectively shift income to a child? What are some of the disadvantages of these methods?
> Discuss the basic differences between annotated and topical tax services. How are these services used in tax research?
> Amber is a tax expert, whereas Rob is a tax novice. Explain how their process in identifying tax issues may differ.
> In writing a research memo, what types of facts should be included in the memo?
> What is the difference between open and closed facts? How is this distinction important in conducting tax research?
> Locate the IRS Web site at http://www.irs.gov/. For every $100 the IRS collected, how much was spent on the IRS collection efforts? What tax system criterion does this information help you to evaluate with respect to the current U.S. tax system?
> Congress would like to increase tax revenues by 10 percent. Assume that the average taxpayer in the United States earns $65,000 and pays an average tax rate of 15 percent. If the income effect is in effect for all taxpayers, what average tax rate will re
> Lorenzo is considering starting a trucking company either in Texas or Oklahoma. He will relocate his family, which includes his wife, children, and parents, to reside in the same state as his business. What types of taxes may influence his decision of wh
> Jorge is puzzled that the IRS and his CPA could legitimately reach different conclusions on a tax issue. Why does this happen?
> What are some aspects of business that require knowledge of taxation? What are some aspects of personal finance that require knowledge of taxation?
> Consider the following tax rate structure. Is it horizontally equitable? Why or why not? Is it vertically equitable? Why or why not? Тахраyer Salary $10,000 Total Tax Marilyn $ 600 Kobe 20,000 3,000 Alfonso 30,000 6,000
> What factors have to be present for income shifting to be a viable strategy?
> Consider the following tax rate structure. Is it horizontally equitable? Why or why not? Is it vertically equitable? Why or why not? Total Tax Тахрауеr Rajiv Salary $10,000 $600 LaMarcus 20,000 600 Dory 10,000 600
> Using the facts in the previous problem, what is the minimum tax that Pedro should pay to make the tax structure vertically equitable with respect to the amount of tax paid? This would result in what type of tax rate structure? Facts in the previous prob
> Using the facts in the previous problem, what is the minimum tax that Pedro should pay to make the tax structure vertically equitable based on the tax rate paid? This would result in what type of tax rate structure? Facts in the previous problem Тахр
> What is the difference between primary and secondary authorities? Explain the role of each authority type in conducting tax research.
> Using the facts from the previous problem, what will happen to the government’s tax revenues if Song chooses to spend more time pursuing her other passions besides work in response to the tax rate change and earns only $75,000 in taxable income? What is
> Song earns $100,000 taxable income as an interior designer and is taxed at an average rate of 20 percent (i.e., $20,000 of tax). If Congress increases the income tax rate such that Song’s average tax rate increases from 20 percent to 25 percent, how much
> Using the facts in the previous problem, what minimum tax would need to be assessed on Shameika to make the tax progressive with respect to effective tax rates?
> “The goal of tax planning is to minimize taxes.” Explain why this statement is not true.
> Given the following tax structure, what minimum tax would need to be assessed on Shameika to make the tax progressive with respect to average tax rates? Total Tax Тахраyer Mihwah Salary $10,000 50,000 Muni-Bond Interest $10,000 $600 Shameika 30,000 ?
> Using the facts in the previous problem, what interest rate does the state of New York need to offer to make Fergie indifferent between investing in the two bonds?
> Fergie has the choice between investing in a State of New York bond at 5 percent and a Surething bond at 8 percent. Assuming that both bonds have the same nontax characteristics and that Fergie has a 30 percent marginal tax rate, in which bond should she
> The IRS recently completed an audit of Shea’s tax return and assessed $15,000 additional tax. Shea requested an appeals conference but was unable to settle the case at the conference. She is contemplating which trial court to choose to hear her case. Pro
> Using the facts in the previous problem, what interest rate does Surething, Inc. need to offer to make Hugh indifferent between investing in the two bonds?
> Hugh has the choice between investing in a City of Heflin bond at 6 percent or a Surething bond at 9 percent. Assuming that both bonds have the same nontax characteristics and that Hugh has a 40 percent marginal tax rate, in which bond should he invest?
> Melinda invests $200,000 in a City of Heflin bond that pays 6 percent interest. Alternatively, Melinda could have invested the $200,000 in a bond recently issued by Surething, Inc. that pays 8 percent interest with similar risk and other nontax character
> Using the facts in the previous problem, if Scot and Vidia earn an additional $70,000 of taxable income, what is their marginal tax rate on this income? How would your answer differ if they, instead, had $70,000 of additional deductions?
> Scot and Vidia, married taxpayers, earn $240,000 in taxable income and $5,000 in interest from an investment in City of Tampa bonds. Using the U.S. tax rate schedule for married filing jointly, how much federal tax will they owe? What is their average ta
> What are the taxpayer’s standards to avoid the substantial understatement of tax penalty?
> Cameron purchases stock in Corporation X and in Corporation Y. Neither corporation pays dividends. The stocks both earn an identical before-tax rate of return. Cameron sells stock in Corporation X after three years and he sells the stock in Corporation Y
> Using the facts in the previous problem, if Jorge and Anita earn an additional $100,000 of taxable income, what is their marginal tax rate on this income? What is their marginal rate if, instead, they reported an additional $100,000 in deductions? Facts
> Jorge and Anita, married taxpayers, earn $150,000 in taxable income and $40,000 in interest from an investment in City of Heflin bonds. Using the U.S. tax rate schedule for married filing jointly, how much federal tax will they owe? What is their average
> Using the facts in the previous problem, if Campbell earns an additional $15,000 of taxable income, what is her marginal tax rate on this income? What is her marginal rate if, instead, she had $15,000 of additional deductions?
> Campbell, a single taxpayer, earns $400,000 in taxable income and $2,000 in interest from an investment in State of New York bonds. Using the U.S. tax rate schedule, how much federal tax will she owe? What is her average tax rate? What is her effective t
> Jackie has a corporate client that has recently received a 30-day notice from the IRS with a $100,000 tax assessment. Her client is considering requesting an appeals conference to contest the assessment. What factors should Jackie advise her client to co
> Identify some of the sources for tax professional standards. What are the potential ramifications of failing to comply with these standards?
> Using the facts in the previous problem, if Chuck earns an additional $40,000 of taxable income, what is his marginal tax rate on this income? What is his marginal rate if, instead, he had $40,000 of additional deductions? Facts from previous problem Ch
> Chuck, a single taxpayer, earns $75,000 in taxable income and $10,000 in interest from an investment in City of Heflin bonds. Using the U.S. tax rate schedule, how much federal tax will he owe? What is his average tax rate? What is his effective tax rate
> “The federal income tax scores very high on the economy criterion because the current IRS budget is relatively low compared to the costs of a typical collection agency.” Explain why this statement may be considered wrong.
> Many years ago a famous member of Congress proposed eliminating federal income tax withholding. What criterion for evaluating tax systems did this proposal violate? What would likely have been the result of eliminating withholding?
> Clark owns stock in BCS Corporation that he purchased in January of the current year. The stock has appreciated significantly during the year. It is now December of the current year, and Clark is deciding whether or not he should sell the stock. What tax
> Compare the federal income tax to sales taxes using the “certainty” criterion.
> Discuss why evaluating vertical equity simply based on tax rate structure may be less than optimal.
> Montel argues that a flat income tax rate system is vertically equitable. Oprah argues that a progressive tax rate structure is vertically equitable. How do their arguments differ? Who is correct?
> What is the difference between horizontal and vertical equity? How do tax preferences affect people’s view of horizontal equity?
> What is the difference between the income and substitution effects? For which types of taxpayers is the income effect more likely descriptive? For which types of taxpayers is the substitution effect more likely descriptive?
> Campbell’s tax return was audited because she failed to report interest she earned on her tax return. What IRS audit selection method identified her tax return?
> Kobe strongly dislikes SUVs and is appalled that so many are on the road. He proposes to eliminate the federal income tax and replace it with a $50,000 annual tax per SUV. Based on the number of SUVs currently owned in the United States, he estimates the
> Benjamin recently bought a truck in Alabama for his business in Georgia. What different types of federal and state taxes may affect this transaction?
> When we calculate average and effective tax rates, do we consider implicit taxes? What effect does this have on taxpayers’ perception of equity?
> What are the differences between an explicit and an implicit tax?
> Explain how implicit taxes may limit the benefits of the conversion strategy.
> Describe in general the process by which new tax legislation is enacted.
> What are the three committees that debate proposed tax legislation? What documents do these committees generate, and how might they be used?
> The state of Georgia recently increased its tax on a pack of cigarettes by $2.00. What type of tax is this? Why might Georgia choose this type of tax?
> What is stare decisis and how does it relate to the Golsen rule?
> What is the distinguishing feature of an excise tax?
> In researching a tax question, you find only one authority (a trial-level court opinion) that is directly on point. Which court would you least prefer to have heard this case and why?
> In choosing a trial-level court, how should a court’s previous rulings influence the choice? How should circuit court rulings influence the taxpayer’s choice of a trial-level court?
> Tyrone recently read a regulation that Congress specifically requested the IRS to issue. What type of regulation is this? How does this regulation’s authoritative weight compare to other regulations?
