Paris Corporation holds a $100,000 unrealized net capital gain and a capital loss carryforward that will expire in the current year. Paris is subject to a 14 percent cost of capital. Its marginal tax rate is 40 percent. 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? a. $40,000 b. $10,000 c. Repeat the computation using the amounts in parts a and b, but this time assume that Paris is subject to a 6 percent cost of capital.
> Jack and Jill filed a joint return in 2014 showing Jill’s wages of $50,000 and Jack’s self-employment income of $30,000. Jack and Jill divorced in 2015. In 2016, the IRS audited their return and found that Jack did not report $20,000 of self-employment i
> What are the rules for equitable relief?
> What are the rules for innocent spouse relief under the provisions of IRC Section 6015(b)?
> Briefly discuss the three ways that a spouse can request relief from joint and several liability.
> What is joint and several liability?
> 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 statem
> 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 pertine
> Give one or more examples to show how a taxpayer might take advantage of preferential tax rates on long-term capital gains by structuring transactions to produce capital gains rather than ordinary income.
> 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 government nonetheless. Which of the following coul
> 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 filin
> Define and illustrate the following terms or concepts: a. Fraud b. Negligence c. Reasonable cause d. Lack of reasonable cause e. Civil penalty conviction f. Criminal penalty conviction
> Kold Corporation estimates that its 2018 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-t
> How has Congress used tax penalties to discourage the development of certain tax shelters?
> What is an injunction, and when may the IRS seek an injunction?
> 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
> 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
> Which type of audit is used most often to substantiate the reported items of income or deduction for individuals who have only wages? a. Field b. Office c. Correspondence
> Jenna and Sam sold a piece of property for $300,000, claiming that their basis was $150,000 and report a taxable gain of $150,000. Their 2016 return filed in February 2017 reported gross income of $250,000. Jenna and Sam later determine that the property
> Discuss some of the key points that the tax researcher must consider with respect to evaluating court cases as part of a research project.
> David accidentally omitted from his 2016 tax return $40,000 of the gross receipts that he collected as the owner of a restaurant. His 2016 return indicated collective gross receipts of $25,000. The IRS no longer can pursue David with the threat of collec
> Carl purposely omitted from his 2017 tax return $40,000 of the gross receipts that he collected as the owner of a restaurant. His 2017 return indicated collective gross receipts of $25,000. The IRS no longer can pursue Carl with the threat of collection
> Blanche filed her 2016 income tax return on April 4, 2017. On December 14, 2017, she learned that 100 shares of stock that she owned had become worthless in 2016. Because she did not deduct this loss on the 2016 return, Blanche intends to file a claim fo
> Ace filed her 2016 income tax return on January 25, 2017. 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 2016 return expires on: a. January 25, 2020 b. Apri
> 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 marginal estate tax rate of 50 percent.
> 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
> Indicate whether the following statements are true or false: a. The statute of limitations for assessment of taxes never extends beyond three years from the filing of a return. b. There is no statute of limitations relative to a taxpayer’s claim for a re
> Construct a scenario in which the tax adviser should recommend that the client terminate an IRS challenge with the following: a. Lawsuit b. Offer in compromise c. Closing agreement d. Appeals conference e. Office audit f. Correspondence audit
> Distinguish between the receipt of a 30-day letter and a 90-day letter.
> In early 2017, the IRS selected Amber’s 2014 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 who claims that Amber owes $2,500
> List and discuss the primary parts of a tax research memo.
> Respond to the following client 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!”
> Why must the tax professional be cognizant of how tax law administration works?
> Examine some tax journal articles and treatises to put together a checklist, “How to Prepare for an Appeals Conference.”
> What are the statutes of limitations for the IRS and taxpayers? Why did Congress create them? When can they be shortened, extended, or suspended?
> 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?
> 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 Co
> 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?
> Identify several items that you believe are included in the prevailing DIF model.
> 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 review b. Probability of selection c. Preservation of taxpayer constitutional rights
> Relate some of the “audit etiquette” tactics that you have heard taxpayers or tax professionals discuss.
> What are the major functions of the national office of the IRS?
> 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?
> Distinguish between the mathematical/clerical error program and the unallowable items program.
> List three of the items included in one of the Taxpayer Bills of Rights.
> Rex incurred $8,000 of employment-related meal and entertainment expenses during the year. Rex’s employer is trying to determine whether to reimburse Rex directly for the expenses (and claim the $4,000 deduction on its corporate tax return) or to pay him
> It is late 2017, and you are a successful executive working in New York for a large company. Tomorrow morning you will have the opportunity to negotiate receiving a $100,000 bonus at the end of the year or an amount of deferred salary in 3 years. Both yo
> Joan filed her unextended 2017 tax return on November 15, 2018, 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, 2018. Compute the
> 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 th
> In each of the following scenarios should Harris Corporation accelerate $100,000 of gross income into 2017, 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 Corp
> What is a research memo designed to do?
> In each of the following scenarios should Ferris Corporation elect to forgo the carryback of its $60,000 year 2017 NOL? Ferris is subject to a 16 percent cost of capital. Corporate tax rates are as in IRC § 11. a. Tax Year ……………………………… Actual or Projecte
> What are the chief responsibilities of the following? a. The IRS commissioner b. The IRS chief counsel c. The National Taxpayer Advocate d. Local taxpayer advocates
> Greg Jones lives in Augusta, Georgia, and has the opportunity to rent his condominium during the next Masters golf tournament. 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 wi
> A taxpayer can invest $10,000 in a taxable 10-year bond that yields an annual pretax return of 6 percent or buy land (a capital asset) for $10,000 that is expected to increase at an annual pretax rate of 4 percent. The taxpayer expects to hold the bond a
> 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 wil
> 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 rather than George is taxed on the interest. One alternative is to make a gift of the interest,
> 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,
> Discuss the penalties imposed on TRPs. Who is a preparer, what is defined as a tax return preparation, and what is not considered preparation?
> 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 stock. What tax advantage does this arrangement have over
> 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 12-2, in which the marginal tax rate was 40 percent, the
> Jim received a six-month extension (to October 15, 2018) to file his 2017 tax return. Jim actually filed the return on October 20, 2018, paying the $20,000 amount due at that time. He has no reasonable cause for failing to file the return by October 15 o
> Give an example of tax planning between a shareholder/employee and a related corporation.
> What planning engagements can the tax professional offer? Why is he or she in an ideal position to offer these services?
> Name two types of tax traps and give an example of each.
> 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?
> Briefly summarize the key takeaways regarding the use of visual aids in oral presentations.
> Explain the imposition of criminal penalties. What is the relationship between criminal and civil penalties? What are the defenses against criminal penalties?
> You are preparing for an audit with an IRS agent for an important client. Your research has uncovered several favorable rulings and court decisions. What are the key points that should guide you in evaluating sources of the law?
> Julie filed a valid extension for her 2017 tax return, giving her until October 15, 2018, 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 tim
> 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?
> Define the following terms: • Foreign exchange market • Foreign exchange transaction •Foreign exchange
> Define and give an example of the following: a. Direct quote between the U.S. dollar and the Mexican peso, where the United States is designated as the home country. b. Indirect quote between the Japanese yen and the Chinese renminbi (yuan), where China
> With reference to interbank quotations, what is the difference between American terms and European terms?
> Explain the meaning of “cross-rate consistency” as used by MNEs. How do MNEs use a check of cross-rate consistency in practice?
> With reference to foreign exchange turnover in 2010: a. Rank the relative size of spot, forwards, and swaps as of 2010. b. Rank the five most important geographic locations for foreign exchange turnover. c. Rank the three most important currencies of de
> Define each of the following types of foreign exchange transactions: a. Spot. b. Outright forward. c. Forward-forward swap.
> Explain the meaning and probable significance for international business of the following contract specifications: • Specific-sized contract • Standard method of stating exchange rates • Standard maturity date • Collateral and maintenance margins • Count
> For each of the foreign exchange market participants, identify their motive for buying or selling foreign exchange.
> Incomplete exchange rate pass-through is one reason that a country’s real effective exchange rate can deviate for lengthy periods from its purchasing power equilibrium level of 100. What is meant by the term exchange rate pass-through?
> Exhibit 7.3 compares the real effective exchange rates for Japan, the United States, and the Euro area. If the comparative real effective exchange rate was the main determinant, does Japan or the United States have a competitive advantage in exporting? W
> What formula is used to convert a nominal effective exchange rate index into a real effective exchange rate index?
> At what point in the globalization process did Trident become a multinational enterprise (MNE)?
> What are the three major functions of the foreign exchange market?
> Why do you believe it is important for many of the world’s largest commercial and investment banks to be considered on-the-run in the interbank market?
> What is a credit default swap (CDS)?
> What is a structured investment vehicle (SIV)?
> After reading this chapter’s description of Trident’s globalization process, how would you explain the distinctions between international, multinational, and global companies?
> What were the three major forces behind the credit crisis of 2007–2008?
> What are the three primary methods that might be used individually or in combination to resolve the debt crisis?
> Numerous exchange rate forecasting services exist. Trident’s CFO Maria Gonzalez is considering whether to subscribe to one of these services at a cost of $20,000 per year. The price includes online access to the forecasting service’s computerized econome
> Why has the case of Portugal been termed a “case of contagion” rather than a sovereign debt crisis?
> Explain the difference between foreign currency options and futures and when either might be most appropriately used.
> What is the European Financial Stability Facility (EFSF), and what role might it play in the resolution of the eurozone debt crisis?
> Why are the sovereign debtors of the eurozone considered to have a problem that is different from these of any other heavily indebted country, like the United States?
> What were the three key elements of the package used by the U.S. government to resolve the 2008–2009 credit crisis?
> Why were LIBOR rates so much higher than Treasury yields in 2007 and 2008? What is needed to return LIBOR rates to the lower, more stable levels of the past?
