Problem 1. Tom Y, a longtime client and golfing buddy, has asked you to prepare his tax return. In looking at the material he has prepared for you, you notice that he has not mentioned the BMW that he won in the annual club tournament.
When you ask Tom about this, he says that he knows that the club never reports these items to the IRS and they told him to "proceed accordingly."
What would you advise Tom to do? What would you do?
2. Dr. Z is a cash basis taxpayer who maintains a dental practice as a sole proprietor. After performing various procedures, he billed the clients repeatedly, but never received payment. He is confident that these clients will never pay their bills.
So, for tax year 2008, he claims $20,000 as a bad debt deduction.
What do you think about Dr. Z's approach?
3. Why is real property a better tax base than personal property?