Grossmont College reporting standards Problem Set Questions

11. Which of the following reporting standards is higher:

a. Substantial Authority versus Reasonable Basis?

b. Realistic Possibility of Success versus More Likely Than Not?

c. Reasonable Basis versus Realistic Possibility of Success?

d. Substantial authority versus More Likely Than Not?

13. Assume that the tax law does prescribe a reporting standard for a particular tax position. What threshold standard should a tax return preparer apply to avoid penalties?

16. Your client operates a small telemarketing company out of her home, and she has one full-time employee who assists in making phone calls to prospective customers. Her teenage daughter also enters data into the company’s electronic record-keeping system on a regular basis. Her daughter is somewhat “spoiled,” so your client pays her $40 cash per hour to encourage her to develop a solid work ethic and work diligently. Your client has told you that she wants to “be straight” with the IRS in every way. Are there any issues that you might want to challenge or research?

17. Your client owns a 3-bedroom home with a 2-car garage in a suburb of Tucson, Arizona. Although the home office rules are strict on deducting expenses, you have determined that your client satisfies these rules. Her home office occupies the spare bedroom in her home, and it comprises about 480 square feet of her 2,400 square foot home. The garage is an additional 480 square feet. Your client is interested in claiming the maximum allowable deductions for her home office. In reviewing your client’s tax return for last year, you noticed that she claimed a deduction equal to the full amount of her mortgage payment on the house. Your client did not, however, deduct any other expenses associated with her home office. She did not maintain detailed records and was concerned that the IRS might think that she was exaggerating her other expenses if she just “ballparked them” without adequate supporting documentation.

a. Are there any issues that you want to challenge or research?

b. Should you inform the tax return preparer who filed her return last year about these errors?

c. What other advice should you give to your client?

d. Assume that the prior-year tax return preparer is a friend of yours, but he really screwed up and should compensate your client if she incurs tax penalties and interest. Would you inform your client about her rights against your friend? Should you inform your friend about this?

18.Kupan, a famous forensic pathologist, failed to report income from the sale of his mansion on his tax return. His gain on sale exceeded $1.7 million. He also sold stock at a $400,000 gain and did not report that gain either. In a criminal prosecution against Kupan for tax fraud, Kupan blamed his accountant, Rachel, for the omission, claiming that Rachel knew that the pathologist was a “poor record-keeper.” Kupan admitted that he read the tax return prepared by Rachel and signed it. Will Kupan’s defense of shifting responsibility to Rachel in this criminal prosecution be successful?