Question & Answer

What are the taxpayer’s standards to avoid the substantial understatement of tax penalty?

Molto Stancha Corporation had zero earnings this fiscal year; in fact, they lost money. Must they file a tax return

The estate of Monique Chablis earned $450 of income this year. Is the estate required to file an income tax return?

Jamarcus, a full-time student, earned $2,500 this year from a summer job.  He had no other income this year and will have zero federal income tax liability this year.  His employer withheld $300 of federal income tax from his summer pay.  Is Jamarcus required to file a tax return?  Should Jamarcus file a tax return?

Shane has never filed a tax return despite earning excessive sums of money as a gambler.  When does the statute of limitations expire for the years in which Shane has not filed a tax return?

Charity Property Cost FMV Athens Academy School Cash $ 5,000 $5,000 United Way Cash 4,000 4,000 American Heart Association Antique painting 15,000 75,000 First Methodist Church Coca Cola stock 12,000 20,000 Determine the maximum amount of charitable deduction for each of these contributions ignoring the AGI ceiling on charitable contributions and assuming that the American Heart Association plans to sell the antique painting to fund its operations. Ray Ray has owned the painting and Coca-Cola stock since 1990.

Latoya filed her tax return on February 10th this year.  When will the statute of limitations expire for this tax return?

Latoya filed her tax return on February 10th this year.  When will the statute of limitations expire for this tax return?

Using the facts from the previous problem, how would your answer change if Latoya understated her income by 40 percent? How would your answer change if Latoya intentionally failed to report as taxable income any cash payments she received from her clients?

Paula could not reach an agreement with the IRS at her appeals conference and has just received a 90-day letter.  If she wants to litigate the issue but does not have sufficient cash to pay the proposed deficiency, what is her best court choice?

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?

Sophia recently won a tax case litigated in the 7th Circuit.  She recently heard that the Supreme Court denied the writ of certiorari.  Should she be happy or not, and why?

Yong’s tax return was audited because he calculated his tax liability incorrectly.  What IRS audit procedure identified his tax return for audit?

For each of the following citations, identify the type of authority     (statutory, administrative, or judicial) and explain the citation.

Randy deducted a high level of itemized deductions two years ago relative to his income level.  He recently received an IRS notice requesting documentation for his itemized deductions.  What audit procedure likely identified his tax return for audit?

Daniel Barenboim sells and erects shell houses, that is, frame structures that are completely finished on the outside but are unfinished on the inside except for flooring, partition studding, and ceiling joists. Shell houses are sold chiefly to customers who are handy with tools and who have time to do the interior wiring, plumbing, wall completion and finishing, and other work necessary to make the shell houses livable dwellings. Barenboim buys shell houses from a manufacturer in unassembled packages consisting of all lumber, roofing, doors, windows, and similar materials necessary to complete a shell house. Upon commencing operations in a new area, Barenboim buys or leases land as a site for its local warehouse, field office, and display houses. Sample display houses are erected at a total cost of $30,000 to $44,000 including the cost of the unassembled packages. The chief element of cost of the display houses is the unassembled packages, inasmuch as erection is a short, low-cost operation. Old sample models are torn down or altered into new models every 3 to 7 years. Sample display houses have little salvage value because dismantling and moving costs amount to nearly as much as the cost of an unassembled package. Instructions (a) A choice must be made between (1) expensing the costs of sample display houses in the periods in which the expenditure is made and (2) spreading the costs over more than one period. Discuss the advantages of each method. (b) Would it be preferable to amortize the cost of display houses on the basis of (1) the passage of time or (2) the number of shell houses sold? Explain.

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.  Provide her a recommendation based on the following alternative facts.

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 change if Juanita were a Kentucky resident (6th Circuit)?

Faith, a resident of Florida (11th Circuit) recently found a circuit court case that is favorable to her research question.  Which two circuits would she prefer to have issued the opinion?

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?

Jamareo has found a “favorable” authority directly on point for his tax question.  If the authority is an administrative authority, which specific type of authority would he prefer to answer his question?  Which administrative authority would he least prefer to answer his question?

For each of the following citations, identify the type of authority (statutory, administrative, or judicial) and explain the citation.

Justine would like to clarify her understanding of a code section recently enacted by Congress.  What tax law sources are available to assist Justine?

Aldina has identified conflicting authorities that address her research question.  How should she evaluate these authorities to make a conclusion?

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?