Federal Taxation Week 1 Quiz

Note: (1) The building is subject to a nonrecourse liability of $10,000, which is assumed by the partnership.

The current tax code for the United States is almost 74,000 pages long. Or to put that into a different light: About 116 copies of Herman Melville’s Moby Dick. It is small wonder that a few of the announced candidates for President of the United States, have again begun to kick the tires on the topic of a Flat Tax. But is a flat tax actually a solution to our country’s growing tax complexity? What are the potential economic effects of a flat tax (both positive and negative)? Finally, is a flat tax even a viable solution? In short, will it work? As a concept, a flat tax is spectacular. Simplicity at its finest. As a fiscal policy, I believe that same simplicity must be examined and inspected closely.

a. What amount of ordinary income and separately stated items are allocated to them for years 1 and 2 based on the information above?

Therefore, each partners’ distributive shares of income attributable to the transfer of all substantial rights to the patent would be considered proceeds from the sale or exchange of a capital asset held for more than 1 year.

4. In a § 351 transfer, a shareholder receives boot of $10,000 but ends up with a realized

Tiebreaker rules: If a child is claimed as a qualifying child by two or more taxpayers in a given year, the child will be the qualifying child of:

The phase "ordinary and necessary" has been defined to mean that an expense must be essential and indispensable to the conduct of a business.

Code section 7525 generally gives taxpayers protections of confidentiality with respect to tax advice. Since there is no accountant-client privilege under the common law, code section 7525 states that the confidentiality privilege that applies to a communication between a taxpayer and an attorney is applied to a communication between a taxpayer and an accountant as well. Although accountant-client privilege is derived from attorney-client privilege, the protection of the discussion between an accountant and a taxpayer is more limited. For example, code section 7525 provides protection for communications between a taxpayer and a federally authorized tax practitioner, which means that the tax practitioner should be a certified public accountant (CPA); however, all active attorneys are federally authorized tax practitioners. Furthermore, there are two more limits on what matters and communications are covered by code section 7525. First limitation is that accountant-client privilege just applies to noncriminal tax matters before the Internal Revenue Service and noncriminal tax proceedings in federal court, and it does not apply to written communications between a taxpayer and a CPA in regards to the promotion of a tax shelter. For example, an opinion letter that was written by a CPA to a client in connection with a tax shelter is not privileged under code section 7525.

|  c. Capital losses may be carried back for 3 years to offset capital gains in those years.

1) What is the couple’s taxable income and liability using the amounts reported on the tax return?

David and Lilly Fernandez have determined their tax liability on their joint tax return to be $1,740. They have made prepayments of $1,100 and also have a child tax credit of $1,000.

This letter is in response to the tax notice dated October 5, 2015, (copy enclosed) for the $20,000 penalty assessment under IRC Section 6038A(d)(1) for failure to timely provide complete information on Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business for the period ended December 31, 2014. A copy of the executed Power of Attorney is enclosed.

Tax return and other tax related identity theft is a growing problem that CPAs can help their clients with. The IRS is trying to combat the fraud from their number one worst problem even though the proposed ways are extremely ambitious for many smaller businesses to comply with. Currently the IRS just doesn’t have enough resources to help thwart this problem, which is why it is up to CPAs to help inform their clients about the growing problem. CPAs can help their clients to take preventative actions and corrective actions after theft has happened.

The tax system of the United States is as complicated as it gets. It is a system that has enough loopholes in which it benefits the wealthy over the less fortunate. The wealthiest people are especially aware of these loopholes so they take advantage of it and determine ways of cheating the system, instead of trying to make it fair for all different types of classes. With these tools to cheat the system, the middle-class and lower-class are more harshly penalized and hounded for their taxes than the wealthy - who get away with a lot more. All of this information and more is discussed in David Cay Johnston’s book Perfectly Legal. Johnston discusses how cheated the tax system really is and how just the lack of political backup can really cause

a)As per Spar 251 (2)(i)(c)(iii) Corporation Health, Energy and Spirit are related, since Heidi and Esther are related, therefore two corporations are related persons, if one