Federal tax problems




Rick, the sole proprietor of an adult entertainment club, is
audited by the IRS. On the third day of the field audit, the regular IRS
agent is accompanied by a special agent. Should Rick be concerned by this new
development? Explain.


Tracy has just been audited and the IRS agent has issued an RAR
that assesses a large deficiency. Since Tracy disagrees with the result, her next
step is to go to court. Do you agree?


Can a taxpayer start the 3-year statute of limitations on
additional assessments by the IRS by filing his income tax return early
(i.e., before the due date)? Can the period be shortened by filing late
(i.e., after the due date)?


Brayden files his Federal income tax return by April 15, but
does not pay the tax. Although he expects to pay interest on the large amount
of tax he still owes, he feels that the timely filing has avoided any
penalties. Is Brayden’s assumption correct?


Melinda has been referred to you by one of your clients. In the
past, she has prepared her own income tax returns, but she has become
overwhelmed by the increased complexity of the tax law. Consequently, Melinda
wants you to prepare her return for calendar year 2013. In reviewing her 2012
return, you note that she has claimed as a deduction the entire cost of a
business building that should have been capitalized and depreciated. What
course of action should you follow?


Your client, Connie, won $12,000 in a football office
pool. She sees no reason to include it in her income for several
reasons. First, the amount won will not be reported to the
IRS. Second, as an average income employee, she is unlikely to be
audited by the IRS. Third, she feels that she has probably lost this
much in other past office pools. How do you respond?


Under what conditions is it permissible, from an ethical
standpoint, for a CPA firm to outsource tax return preparation to a third


In terms of revenue neutrality, comment on a tax cut enacted by
Congress that:


contains revenue


includes a sunset provision.


The tax law contains various tax credits, deductions, and
exclusions that are designed to encourage taxpayers to obtain additional
education. On what grounds can these provisions be justified?


The tax law contains various provisions that encourage home


On what basis can
this objective be justified?


Are there any
negative considerations? Explain.


The tax law allows an income tax deduction (or a credit) for
foreign income taxes. Explain why.


The tax law allows, under certain conditions, deferral of gain
recognition for involuntary conversions.


What is the
justification for this relief measure?


What happens if
the proceeds are not entirely reinvested?


How do the net operating loss provisions in the tax law mitigate
the effect of the annual accounting concept?


In connection with facilitating the function of the IRS in the
administration of the tax laws, comment on the utility of the following:


An increase in the
amount of the standard deduction.


Dollar and
percentage limitations on the deduction of personal casualty losses.


Availability of
interest and penalties for taxpayer noncompliance.


Congress reacts to judicial decisions that interpret the tax law
in different ways. When it approves of a decision, Congress may act to amend
the Code to incorporate the holding. When it disapproves, Congress may amend
the Code to nullify its effect. Give an example of each one of these
congressional reactions.


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