Question 1: Betty Beebalm is your client. She comes to you with a dilemma. She and her husband, Barney Beebalm, were married in 2007. At the time they married, they started an antiques business together. At first the business was operated as a partnership. But as it grew and grew, the Beebalms decided to incorporate. Betty comes from a very wealthy industrial family. The 1000 shares of stock of Beebalm Antiques, Inc. were issued 50 percent each to Barney and Betty. In 2015, Betty fell in love with Fred Ferncliff. She is in the process of divorcing Barney and the divorce was final in 2017. Betty would like to cash out her share of the antique business and would like to know the tax consequences to her if she receives cash in exchange for her 500 shares in Beebalm, Inc. The value of the business has substantially increased over the years thanks to the hard work of both Beebalms. The Beebalms did have one child of their marriage, Honey, who is a six year old little girl. Betty is not asking for alimony, but she would like child support. What question is Betty asking you, the researcher, to answer? Provide a summary of the relevant facts of the case given the question Betty has asked you to answer. Can you think of any questions you would ask of Betty to elicit additional useful facts?
Question 2: A calendar-year taxpayer files an individual tax return for the 2016 tax year on March 20, 2017. The taxpayer neither committed fraud nor omitted amounts in excess of 25% of gross income on the tax return
a. What is the latest date that the Internal Revenue Service can assess tax and assert a notice of deficiency?
b. Assume the same facts described above except the same taxpayer omitted amounts in excess of 25% of gross income on the tax return, when would the statute of limitations expire?
c. Assume the same facts described above except the same taxpayer committed fraud, when would the statute of limitations expire?
d. Provide a summary of IRC Section 6501.
Question 3: Read IRC Section 274(n). What is the rationale for the disallowance of 50% of the cost of meals as a deduction under this code section?
Question 4: Mr. Cole is considering purchasing a new principal residence for $1,500,000 and intends to finance the purchase with a mortgage in the amount of $1,150,000. Which code section and subsection provide the maximum amount of acquisition indebtedness mortgage on which the interest expense will be deductible? Make a memorandum to Mr. Cole describing the results of your research.
Question 5: Gabriel O'Scatterbrain receives a notice from his local IRS office indicating that his 2015 return is being audited, in particular his Schedule C which shows gross receipts of $222,000. The letter informs Gabriel that an appointment has been scheduled on June 30, 2017, at 10:00 a.m. for him to come to the office. He is told to bring with him copies of the documentation which will substantiate his claimed travel expenses and his deduction for meals and entertainment. The letter also requests that he provide documentation supporting his gross receipts of $222,000. This is an example of what method of conducting an audit? What alternative methods are available? Explain each.
Question 6: What role does the 30-day letter play in the audit process? Explain your answer by indicating the courses of action the taxpayer may pursue and how to implement those courses of action.
Question 7: Taxpayers are subject to a penalty for failure to file a return and for failure to pay the tax due with the return. Explain when each of these penalties applies, how they are calculated, and how they interrelate.
Question 8: Mrs. Vick is considering making contributions to a qualified tuition program to provide savings for her daughter's college education. However, Mrs. Vick is concerned that the contributions will be considered a gift of a future interest and result in a taxable gift. Which code section and subsection provide the gift tax treatment for contributions to a qualified tuition program? Describe the results of your research in a memorandum to Mrs. Vick.
Question 9: The IRS is assessing additional taxes, interest, and penalties against Leona. She is outraged because in her opinion, "Only the little people pay taxes!" She is further outraged because she relied on an article in Time magazine and followed that advice in taking one of her return positions and disclosed that on the return. After calming her down, you must explain which authorities and do not have "precedential value." How do you do that? What would be your response to your client?
Question 10: How long is a taxpayer required to retain tax records?