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Tax Research Questions
ACCT 3305 | Fundamentals of Individual Income Tax
RQ #1 (P. 2-42)
Higgens v. Comm., 312 U.S. 212 (1941)
Talen v. U.S., 355 F.Supp.2d 22 (D.Ct. D.C., 2004)
Rev.Rul. 2008-18, 2008-13 I.R.B. 674
Pahl v. Comm., 150 F.3d 1124 (CA-9, 1998)
Veterinary Surgical Consultants PC, 117 T.C. 141 (2001)
Yeagle Drywall Co., T.C. Memo. 2001-284
RQ #3 (P. 2-42)
If an individual accepts any prize, even one from a charity event, they normally must count the value of the prize as income and must pay taxes on the amount. Organizations must report prizes worth $600 or more to the IRS. You may deduct donations to charity, but it will only help if you itemize the deductions rather than taking the standard deduction.
The sedans that Oprah gave away are included in taxable income. In this case, the tax is priced as fair market value of the sedan and is added to your income. Each household was given a $10,000 rebate. Since the furniture was given as a rebate taxable it is not considered in gross income and is not taxable.
RQ #6 (P. 2-42)
The Tax Court specializes in adjudicating federal income tax prior to the time in which the formal tax assessments are made by the IRS. The U.S. Tax Court is not an agency of, and shall be independent of, the executive branch of Government. A case in the court is commenced by filing a petition. The petition must be in a timeframe of the allowable time. The court cannot extend filing time; the filing time is set by the statute. In tax disputes of $50,000 or less, taxpayers may elect to have their case conducted under the Court’s simplified ‘small tax case’ procedure. The small tax cases are less formal and much quicker in process. Most cases are settled by a mutual agreement without a trial.
A summary opinion is a summary of the case, the arguments of each side, and the judge’s opinion. I found case that was filed August 2, 2016 and the respondent determined a deficiency of $2,111 in petitioners’ Federal income tax for the 2011 tax year.
A memo is a detailed analysis of a tax court case. These usually involve businesses. I found a case filed June 9, 2016 with petitioner, “Medtronic, Inc.” and respondent, “Commissioner of Internal Revenue”.
RQ #4 (P. 3-53)
According to the IRS.gov, an individual must file a form 8857 when they believe only the spouse or former spouse should be held responsible. This liability may come up when:
The Internal Revenue Service is examining their tax return and proposes to increase your liability
The individual receives a notice from the Internal Revenue Service.
The 8857 form must be filed no later than 2 years after the first attempt of the collection for the IRS.
RQ #5 (P. 3-53)
A nonresident alien individual engaged or even considered to be engaged in a trade or business in the United States during the year must file a United States tax return. However, if the individual’s only source of income is in wages in an amount less than the personal exemption amount, you are not required to file a tax return.
According to irs.gov:
“Before leaving the U.S., all aliens must obtain a certificate of compliance. This document must be secured from the IRS before leaving. You will receive a sailing or departure permit after filing a Form 1040-C. U.S. Departing Alien Income Tax Return or Form 2063.”
RQ #4 (P. 4-49)
An eligible gift card sale is defined as the sale of a gift certificate only if:
The taxpayer is primarily held liable to the customer holding the gift certificate for the value of the card until expiration.
The gift is redeemable by the taxpayer or another entity who is then legally obligated to the taxpayer to accept the gift certificate from a customer as payment.
Before this was enacted, there was a large uncertainty to the ability of taxpayers utilizing separate legal entities apart from the retailer to issue gift cards, operating gift card programs through franchisee networks, or belonging to a consolidated group in which one member sold the gift cards.
RQ#5 (P. 4-49)
33% Federal withholdings must be subjected to any merchandise prizes over $5,000. Lottery tickets such as scratch-offs, are generally a one payment prize; however, some games have annuity options for payments. California, on the other hand, does not tax California Lottery winnings, however it taxes lottery winnings from other jurisdictions. For Super Lotto Plus, Mega Millions, and Powerball payment schedule are on a graduated basis over 30 annual payments.
RQ #1 (P. 5-43)
According to the tax code, the only damages you can enjoy tax-free are those that compensate for physical damages. Any kind of reward for emotional distress is still considered taxable income. In Murray’s situation, the entire reward would then be taxable. Unfortunately, Murray’s reputation or emotional distress is not any type of physical injury, therefore Murray would need to report the income and give the IRS a portion of his reward.
RQ #3 (P. 5-44)
The only amount that John Butler would have to pay taxes on would be the amount that he used. If John used $30 worth of his prize, he would have to include $30 as income. The unused portion would not be included because of the chance it could be included in the following year or given away to another taxpayer.
RQ #5 (P. 5-44)
Rent is any amount you pay for the use of property you do not own. Generally, my client can deduct rent as an expense only if the rent is for property that is used in trade or business. If the client will receive equity in or title to the property, the rent is not deductible. Because my client was assigned for work, he would be able to deduct any kind of expenses that was in Australia. This would include the rent of his temporary residence. Since he is required to move to Australia for business, this would be considered a business-related expense.
RQ #4 (P. 6-45)
According to the Internal Revenue Service, you can make a 2015 IRA contribution until April 15th of 2016. Therefore, if Sarah contributes before the deadline, she would be able to contribute to the IRA in 2016. However, Sarah must keep in mind that the contribution may have penalties. If she makes the contribution at the last minute, she could miss out up to 16 months of potential gains. In other words, the earlier she contributes, the better.
RQ #5 (P. 6-45)
Annual base salary in large publicly owned companies is usually about $1 million. Salary that is paid over 1 million is not tax deductible for a firm; however this has not stopped some companies from going over the limit. The legislation is known to be stuffed with loopholes. It covers only companies with publicly traded stock, and it exempted “performance-based” compensation, including stock options, and huge bonuses based on easily attained goals, which allows unlimited deductions.
Define and recognize the rules of hobby losses.
A ‘hobby-loss’ is a non-deductible loss incurred as a result of doing an activity for personal pleasure instead of for profit. A taxpayer cannot deduct the hobby loss as a business loss. The hobby loss rule states that if an activity is profitable in three out of five years, then it can be treated as a business in the one or two years that a loss was realized. For instance, if a man builds and sells birdhouses for a hobby, but only makes profit one year out of the last five, the losses are considered as a hobby loss. This rule does not prohibit taxpayers from making any deductions on such activities if they are prepared to argue that the losses were created while attempting to make a profit.
Define charitable contributions.
In order to deduct any donations on your tax return, you must recognize its qualifications. In order for an organization to be a charity, they must obtain a “501c(3)” status from the Internal Revenue Service. You can deduct the value of any items you may have donated, costs related to any volunteer work such as: gas, oil, uniforms or supplies, and transportation costs. Most commonly, individuals deduct dollar amount of the donation money they may have donated in total for that year.
Define and recognize the rules of casualty losses.
A casualty loss is a tax loss that is sudden, unexpected, or an unusual event. The damage resulting from progressive deterioration of property through a steadily operating cause would not be a casualty loss. This may include natural disasters like tornadoes, floods, hurricanes, fire, accidents, theft, or vandalism. For instance, if a building you own is damaged by vandalism, the owner may take the costs of repair and deduct from income as a casualty loss.
RQ #3 (P. 7-38)
Esther would need to report the casualty loss in the year the loss occurred. Since the trees weakened and died in 2016, Esther would need to report the casualty loss in 2016.
RQ #2 (P. 8-40)
RQ #5 (P. 8-41)
RQ #1 (P. 9-53)
RQ #4 (P. 9-54)
RQ #6 (P. 9-54)
Why and when was the alternative minimum tax started?
Page | 10f his temporary residence. Since he is required to move to Australia for business, this would be considered a business-related expense.
Annual base salary in large publicly owned companies is usually about $1 million. Salary that is paid over 1 million is not tax deductible for a firm; however this has not stopped some companies from going over the limit. The legislation is known to be stuffed with loopholes. It covers only companies with publicly traded stock, and it exempted “performance-based” c