1. Serena operates a lawn maintenance service in Southern California. As most of her employees are itinerant, they are paid on a day-to-day basis. Because of cash-flow problems, Serena requires her customers to pay cash for the services she provides.
a. What are some of the tax problems Serena might have?
b. Assess Serena's chances of audit by the IRS
2. Using the legend provided, classify each of the following statements:
A - Tax avoidance
E - Tax evasion
N- Neither
a. Monica writes a $1,000 check for a charitable contribution on December 28, 2011, but does not mail the check to the charitable organization until January 10, 2012. She takes a deduction in 2011.
b. Robert decides not to report interest income from a bank because the amount is only $11.75.
c. Jim pays property taxes on his home in December 2011 rather than waiting until February 2012.
d. Jane switches her investments from taxable corporate bonds to tax-exempt municipal bonds.
e. Ted encourages his mother to save most of her Social Security benefits so that he will be able to claim her as a dependent.