...MEMO TO: Act490 students DATE: September 8, 2015 RE: Research Assignment (Fall 2015) Below are three tax research problems. You must complete two of the three research problems. Your analysis must be emailed to me no later than November 30, 2015. Completion of the problems makes up 50% of your internship grade. You must use the RIA Checkpoint database and correctly cite information from the Internal Revenue Code, Regulations, and tax court cases to support your conclusions. http://library.csuohio.edu/research/databases/index.html RESEARCH PROBLEM #1 Tranquility Funeral Home, Inc., your client, is an accrual basis taxpayer that sells preneed funeral contracts. Under these contracts, the customer pays in advance for goods and services provided at the contract beneficiary’s death. These payments are refundable at the contract purchaser’s request, pursuant to state law, anytime until the goods and services are furnished. Tranquility, consistent with its financial accounting reporting, includes the payments in income for the year the funeral service is provided. The IRS agent insists that the payments be prepaid income subject to tax in the year of receipt. Write a letter to Tranquility that contains your advice about how the issue should be resolved. The client’s address is 400 Rock Street, Memphis, TN 38152. RESEARCH PROBLEM #2 Esther owns a large home on the East Coast. Her home is surrounded by large, mature oak trees that significantly...
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...MEMORANDUM TO: FROM: DATE: RE: Joseph Lucky/Timing of Lottery Winnings and Revenue Recognition ______________________________________________________________________________ FACTS Joseph Lucky, of Minneapolis, MN, purchased an instant lottery ticket on the evening of Thursday, December 9, 2010 from a local liquor store. Upon arriving at home, he discovered he had won $10,000. On December 15, 2010, Mr. Lucky returned to the local liquor store and attempted to cash the instant lottery ticket. Mr. Lucky was informed that winnings over $1,000 needed to be cashed from the lottery headquarters by mail or an in-person visit. Mr. Lucky discovered that the lottery headquarters were open from 9:00 a.m. to 4:00 p.m. This time frame conflicted with Mr. Lucky’s work schedule and due to work being busy; his boss would not allow him to take an extended lunch to drive to the headquarters in St. Paul. Mr. Lucky received and deposited the check for the lottery winnings on January 7, 2011. ISSUE Does an individual taxpayer recognize the income from lottery winnings upon discovering the amount of the winnings or when the check for the winnings is received? CONCLUSION Lottery winners generally use the cash receipts and disbursements method of accounting. Under this method of accounting, the IRS allows for the recognition of income when actually or constructively received. This method of income recognition means that income is constructively received...
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...EXECUTIVE SUMMARY The taxpayer, Craig Terry, deducted $6,000 in charitable contribution to his church, which operates his children’s school. The IRS disallowed $4,800 of this deduction claiming that it was tuition. When Terry made the contribution, he was not acting out of pure generosity, but in anticipation that his children would receive an education. Terry made a quid pro quo contribution, in which only the excess of the value of the services received is deductible. We rule in favor of the IRS due to overwhelming legislative support, as outlined below. FACTS * In 2006, Craig Terry “contributes” $6,000 to his church which operates the school that his two children attend. * The school charges no tuition for students to attend, but the families are provided with a suggested donation of $200, which is how much it costs to educate a child per year. However, no child is refused admission to the school if their family is unable to contribute. * The IRS disallows $4,800 of the charitable contribution stating it is tuition. * Terry responds that because the school charges no tuition, the entire $6,000 is deductible. Terry, also, argues that because the IRS allows the Church of Scientology to deduct fees paid to the church for religious education, he should be allowed this deduction as well. ISSUES Per IRC section 170(c)(2)(B), “a charitable contribution is defined as a contribution or gift to or for the use of a corporation, trust, or community chest, fund...
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...COMMISSIONER OF INTERNAL REVENUE. Case Information: Code Sec(s): | | Court Name: | U.S. Court of Appeals, Ninth Circuit. | Docket No.: | No. 5602. | Date Decided: | 02/25/1929 | Disposition: | | Cites: | 7 AFTR 8508, 30 F2d 898. | HEADNOTE . Reference(s): OPINION Warren Olney, Jr., J. M. Mannon, Jr., Henry D. Costigan, and Robert L. Lipman, all of San Francisco, Cal., for petitioner. Mabel Walker Willebrandt, Asst. Atty. Gen., and Sewall Key and Millar E. McGilchrist, Sp. Asst. Attys. Gen. (C. M. Charest, Gen. Counsel, and Prew Savoy, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent. Appeal from the United States Board of Tax Appeals. Petition by Guy C. Earl, for review of a decision of the Board of Tax Appeals, sustaining an order of the Commissioner of Internal Revenue, determining that there was a deficiency in income tax paid by the petitioner for the years 1912 and 1921. Reversed. Before RUDKIN and DIETRICH, Circuit Judges, and BEAN, District Judge. Judge: BEAN, District Judge. This is a petition for review of a decision of the Board of Tax Appeals. Section 1001, Revenue Act of 1926; 26 USCA § 1224. The petitioner is, and was during the times hereinafter mentioned, a married man domiciled in the state of California. In 1920 and 1921, the years here involved, he earned for personal services the sums of $24,839.00 and $22,946.20. He and his wife made separate income tax returns for the years stated...
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...775.37 basis in 1955 when the market value of the stocks is $82,250. Mr. Davis believed that the transfer was a nontaxable event. However, the Commissioner claimed that Mr. Davis should be taxed on the gain realized in the transfer. They brought the disagreement to the United States Court of Claims first, and the Court of Claims ruled in Mr. Davis’ favor. Then, the Commissioner appealed this case to the Court of Appeals which ruled in the Commissioner’s favor. Finally, the case reached the United States Supreme Court. ISSUE: Whether the transaction to fulfill the marital settlement is a taxable event, and if it is a taxable event, how to determine the taxable gain realized of the transaction. HOLDING: Yes, the transfer of the property to release the husband’s marital obligation is a taxable event. The amount realized in the transaction should be equal to the market value of the property at the time of transfer. LEGAL ANALYSIS: Both the Tax Court and the Court of Appeals for the Sixth Circuit stated that the appreciated property transferred to fulfill the divorce settlement had no tax effect on the transferor because the market value of marital rights which were the amount realized by husband is indeterminable. However, the Courts of Appeals of the Second and Third Circuits argued that by assuming that the value of marital rights had the same value as the transferred property, the amount realized is determinable. SUMMARIZE THE TAXPAYER’S AND THE GOVERNMENT’S ARGUMENT: The...
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...Individual Case Individual Case 1 Facts: Mame Green is the owner and operator of the sole proprietorship Green Haven hotel in St. Simons, Georgia. At the beginning of the 2015 tax year, the hotel had a fair market value of $3,000,000 and an adjusted basis of $1,500,000, the hotel furniture and other furnishings had a fair market value of $1,000,000 and an adjusted basis of $100,000, and the hotel had a fair market value of $5,000,000 and an adjusted basis of $3,000,000. Three months ago, Green Haven was completely destroyed by a fair. Green Haven was covered under a fire insurance policy, and as a result, Mame received $4,000,000 after settling the claim. $3,000,000 was allocated to the building and $1,000,000 for the loss of furniture and equipment. Using the $4,000,000, Mame plans to use $3,150,000 to build a smaller hotel on the same land Green Haven was located and $350,000 to purchase hotel furniture and furnishings. Mame plans to use the remaining $500,000 from the proceeds to invest in undeveloped beach property on the other side of the island. The hotel is expected to be completed in 2 ½ years. Issue: 1. Does Mame have to recognize any gain on his $500,000 purchase on undeveloped beach property, and if so, what will the character be? 2. Will Mame have to recognize any gain on the construction of the hotel building or purchase of the replacement furniture and furnshings? Authorities Issue 1 IRC Sec. 1033(a)(2)(A) IRC Sec. 1231(a)(3)(A)(ii) Rev. Rul...
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...Chapter 5 Research Case 98 MEMORANDUM Date: July 12, 2012 From: Kathryn Baker To: Teddy Chow (“Taxpayer’s) Tax File Regarding: Federal Income Tax Consequences of damages awarded to the Taxpayer after Taxpayer was injured in an auto accident. I. Relevant Facts: The taxpayer filed a lawsuit to recover damages for personal injuries sustained in a 2000 auto accident. In 2004, a jury awarded the taxpayer $1,620,000. In addition, delay damages in the amount of $1,080,000 were then added to that award, resulting in a total judgment of $2,700,000. The defendants appealed the award, and while the appeal was pending, the parties reached a settlement, which provided for payment to Teddy of $2,550,000. In 2009, after attorney’s fees of $850,000 were subtracted, Teddy received $1,700,000. II. Issue: 1. How are the damages treated for tax purposes? 2. Is the attorney’s fee deductible? III. Relevant Authorities: A. Compensation for Injury or Sickness Internal Revenue Code (“IRC”) Sec. 104(a) provides the general rule that- Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include that--- IRC Sec. 104 (a)(2) the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on...
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...0 tax amnesties generate revenue D that the tax authorities would not otherwise collect? Will tax amnesties pro- vide continuing or long-run revenue gains not available from enhanced enforcement alone? And if a change in tax enforce- ment is to occur, in what sense is an am- nesty appropriate in the transition to the new regime? Although twenty-six states have conducted tax amnesty programs since 1982, there has been little analysis of them to date, and almost none based on actual amnesty results.' In this paper we examine individual participation in am- nesties, both from the point of view of what economic analysis would lead us to expect and on the basis of evidence from actual amnesty programs. The empirical analy- sis is based on detailed information gath- ered on a random sample of taxpayers participating in the Michigan amnesty, and on fragmentary evidence we have been *Michigan State University, East Iiming, MI 48824 able to gather on amnesties in other states. In our view, information about the types of taxpayers (or nontaxpayers) who par- ticipate in amnesties and the circum- stances that lead them to participate can be of considerable use in evaluating the effects of amnesties and for predicting the prospects for a federal tax amnesty from the state results. Under a tax amnesty, taxpayers are of- fered an opportunity to come forward dur- ing a specified period of time and pay pre- I 15 unpaid taxes. The carrot viousiy encouraging participation is usually for-...
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...Problem 1: If Robin corp distributed dividend to Nancy,she will report the dividend income on her tax return. Thus the income that has already been taxed at the corporate level is also taxed at the shareholder level.If Robin distributes $100000 of dividend to Nancy and assuming Nancy has no other income sources,her taxable income will be $ 90,500 (100000-5800-3700).She pays tax at the preferential rate applicable to dividends received by individuals.Her tax is $ 13575. Dividend distributions are not deductible by corporations, but corporate shareholders are entitled to dividend received deduction and shareholder can apply preferencial tax rate on constructive dividend. Paying $ 100000 as a salary would get the corporation deduction in contrast if corp pays dividend it won’t get the deduction for the same. If Nancy receives $ 100000 as salary she will have to pay tax of $ 35000,instead if she receive $ 100000 as dividend she will be taxed at preferential tax rate of 15 %. So it is beneficial for Nancy to receive dividend. From Robin corporation point of view dividend distributions are not deductible so they will have to pay tax of $ 35000 . If Robin pays $ 100000 as salary, they are entitle for deduction. Problem 2: Section 351 provides that gain or loss is not recognized upon the transfer of property to a corporation solely in exchange for stock,however if taxpayer receives property other than stock (i.e. cash or boot) from corp,realized gain is recognized. For transactions...
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...Research objectives The purpose of this thesis is to test whether Mauritius is truly a platform for tax evasion and to what extent the measures that are being taken by the Government to combat this bad publicity are effective. The specific objectives of this study are: To understand the purpose and functioning of treaty arrangements Mauritius has with other countries throughout the world. To test the effectiveness of the measures to combat tax evasion. To test the knowledge of employees in the global business sector. Research questions To what extent employees understand the tax regime for global companies? Based on their experience, how complicated do they perceive the tax regime to be? Do they believe that Mauritius is a tax...
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...9.0 METHOD TO CONTROL EVASION OF INCOME TAX IN THE MALAYSIAN LAW 9.1 Cultural and Moral Side Raise an ethical awareness of tax, by informing the taxpayers of the state's legitimacy right to impose the tax, the real need for this money, and that the tax burden is distributed between the taxpayers in justice, thus showing how payoff spent on them and their community, all that will reduce tax evasion. 9.2 Administrative Side Tax administration contribute to evasion (unintentionally), therefore must bear part of the responsibility, and should do the following: Tax management must coordinate with other administrative bodies in order to learn the various economic activities for income owners. Training staff and raise their efficiency....
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...Case study of “Rigorous or Not?: A Case of Auditor Judgment for Deferred Tax Issues” Judgment Framework and Professional Judgment Discuss the importance of “judgment framing.” “Judgment framing” occurs early in the judgment process. The definition of framing follows: Frames are mental structures that we use, usually subconsciously, to simplify, organize, and guide our understanding of a situation. They shape our perspectives and determine the information that we will see as relevant or irrelevant, important or unimportant. Frames are a necessary aspect of judgment, but it is important to realize that our judgment frames provide only one particular perspective. The importance is that judgment framing question management’s perspective appropriately by viewing other frames and it is a foundation to professional skepticism. How do perceptual biases relate to judgment biases? Our eyes and related perceptual skills ordinarily are quite good at perceiving and helping us to accurately judge shape similarity. However, optical illusions can predictably and systematically fool our eyes. The judgment biases are similar to the perceptual ones, like there are times when our intuitive judgment falls prey to systematic traps and biases. What are the five steps in the judgment process? a. Clarify Issues & Objectives: To get at issues, ask “what is the problem to be solved?” To get at objectives ask “what is wanted or needed?” Ask “what” and “why” questions. b. Consider...
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...SUBJECT: Business Tax, Outcome 1, Ali Case study. Income Tax Legislation. Income tax legislation can be found in the Income Tax (Earnings and Pensions) Act 2003, the Income Tax (Trading and Other Income) Act 2005 and the Income Tax Act 2007. Taxable supplies. A good understanding of the principles of VAT is very important in advising business. The third largest source of government revenues is value added tax (VAT), charged at 20% on supplies of goods and services. It is therefore a tax on consumer expenditure. Certain goods and services are exempt from VAT, and others are subject to VAT at a lower rate of 5% (the reduced rate, such as domestic gas supplies) or 0% ("zero-rated", such as most food and children's clothing). Exemptions are intended to relieve the tax burden on essentials while placing the full tax on luxuries, but disputes based on fine distinctions arise, such as the notorious "Jaffa Cake Case" which hinged on whether Jaffa Cakes were classed as (zero-rated) cakes—as was eventually decided—or (fully taxed) chocolate-covered biscuits. Five things to remember about exempt supplies: • You don’t include VAT in the price of exempt goods or services; • You are not eligible to claim input tax credits in acquiring exempt supplies; • You don’t include the value of the exempt supplies in your taxable turnover when establishing your VAT registration threshold; • If you only supply exempt goods or services, you cannot register for VAT purposes; • You...
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...JAMES V. U.S., 61-1 USTC 9449, 7 AFTR2D 1361, 366 U.S. 213 (USSC, 1961) FACTS: In this particular case, the defendant, Eugene C. James, embezzled money from both his union employer as well as an insurance company and failed to include these funds as gross income for tax purposes. The taxpayer disputed that the embezzled money should not qualify as taxable income as the funds were already required to be returned. James used a previous decision from Commissioner of Internal Revenue v. Wilcox to show that the money was not taxable as he had “no claim of right” to the money because he no longer had possession of it. The court held that all income was to be taxed The court ultimately overturned the Wilcox case and ruled that the money was to be included in gross income because both legal and illegal earnings that are) acquired without the consensual recognition of an obligation to repay, are fully taxable. James was required to face legal penalties of three years in jail for his attempt at evading taxes in addition to the tax penalties of the crime. ISSUE: The issue being litigated in this case is whether embezzled funds should be a part of the embezzler’s gross income regardless of a repayment obligation. HOLDING: The Supreme Court ruled in agreement with the lower court’s decision and held that the defendant’s embezzled earnings were to be included on his tax return as gross income. LEGAL ANALYSIS: This ruling was supported by §61 of the Internal Revenue Code which...
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...The issue is whether Laurence Wong (LW) is a resident of Australia for tax purposes from the period 1st of July 2009 until the 30th of June 2012, given that LW has been living and working abroad in Singapore from July 2009. Residence is an important consideration for this case as under s6-5(2) of the ITTA1997 if LW is a resident his income from all sources will be taxable in Australia whereas if he is a foreign resident his assessable income would only include income from Australian sources, e.g. his Australian listed share dividends and his rent from the rental of his family home. The complicated facts are that LW signed a 3-month contract on the 1st July and then went on to sign a 3-year contract on the 5th of October 2009. In May 2012, LW returned to Australia due to family illness. Rules A person is a resident if he/she resides in Australia under Section 6(1)(a) of ITAA1936 and includes a person i) Whose domicile is in Australia, unless the Commissioner is satisfied that the person’s permanent place of abode is outside Australia. ii) Who has actually been in Australia, continuously or intermittently, during more than one half of the year of income. iii) Who is: a) A member of the superannuation scheme established by deed under the superannuation act 1990; or b) An eligible employee for the purposes of the Superannuation Act 1976; or c) The spouse, or a child under 16, of a person covered by sub-subparagraph (A) or (B) Section...
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