Question & Answer

What two factors increase the difference between present and future values?

Why is understanding the time value of money important for tax planning?

The concept of the time value of money suggests that $1 today is not equal to $1 in the future.  Explain why this is true.

Describe the ways in which the timing strategy has limitations

How do changing tax rates affect the timing strategy?  What information do you need to determine the appropriate timing strategy when tax rates change?

What factors increase the benefits of accelerating deductions or deferring income?

What are some common examples of the timing strategy?

Why is the timing strategy particularly effective for cash-method taxpayers?

What are the two basic timing strategies?  What is the intent of each?

In this chapter we discussed three basic tax planning strategies.  What different features of taxation does each of these strategies exploit?

Describe the three parties engaged in every business transaction and how understanding taxes may aid in structuring transactions.

The goal of tax planning is to minimize taxes.”  Explain why this statement is not true.

Maurice has a client that recently asked him about the odds of the IRS detecting cash transactions not reported on a tax return.  What are some of the issues that Maurice should discuss with his client?

Sasha owes additional tax imposed in a recent audit.  In addition to the tax, will she be assessed other amounts?  If so, how will these amounts be determined?

Using the same facts from the previous problem, how would your answer change if Randy estimates that there is only a 20 percent chance that the position will be sustained upon audit or judicial proceeding? 

Randy has found conflicting authorities that address a research question for one of his clients.  The majority of the authorities provide an unfavorable answer for his client.  Randy estimates that if the client takes the more favorable position on its tax return that there is approximately a 48 percent chance that the position will be sustained upon audit or judicial proceeding.  If the client takes this position on its tax return, will Randy be subject to penalty?  Will the client potentially be subject to penalty?

Benjamin, a new staff accountant for Local Firm CPAs, LLC, takes a CPA review course to help prepare for the CPA exam. Benjamin is not reimbursed for the cost of the course ($1,500), but his firm expects him to take and pass the exam.

Use an available tax research service to determine if Benjamin may deduct the cost of the CPA exam course.

 Write a memo communicating the results of your research.

Latrell recently used his Delta Skymiles to purchase a free roundtrip ticket to Milan, Italy (value $1,200).  The frequent flyer miles used to purchase the ticket were generated from Latrell’s business travel as a CPA.  Latrell’s employer paid for his business trips, and he was not taxed on the travel reimbursement. 
 a.  Use an available tax research service to determine how much income, if any, does Latrell have to recognize as a result of purchasing an airline ticket with Skymiles earned from business travel.  b.  Write a memo communicating the results of your research.

Shaun is a huge college football fan.  In the past, he has always bought football tickets on the street from ticket scalpers.  This year, he decided to join the university’s ticket program, which requires a $2,000 contribution to the university for the “right” to purchase tickets.  Shaun will then pay $400 per season ticket.  Shaun understands that the price paid for the season tickets is not tax deductible as a charitable contribution.  However, contributions to a university are typically tax deductible.  a.  Use an available tax service to determine how much, if any, of Shaun’s $2,000 contribution for the right to purchase tickets is tax deductible. b. Write a letter to Shaun communicating the results of your researc

Matt and Lori recently were divorced.  Although grief stricken, Matt was at least partially comforted by his monthly receipt of $10,000 alimony.  He was particularly excited to learn from his friend, Denzel, that the alimony was not taxable.  Use an available tax service to determine if Denzel is correct.  Would your answer change if Matt and Lori continued to live together?

Paris was happy to provide a contribution to her friend Nicole’s campaign for mayor, especially after she learned that charitable contributions are tax deductible.  a.  Use an available tax service to determine whether Paris can deduct this contribution. b.  Write a memo communicating the results of your research.

Pierre recently received a tax penalty for failing to file a tax return.  He was upset to receive the penalty, but he was comforted by the thought that he will get a tax deduction for paying the penalty.  a.  Use an available tax research service to determine if Pierre is correct. b.  Write a memo communicating the results of your research.

Katie recently won a ceramic dalmatian valued at $800 on a television game show.  She questions whether this prize is taxable since it was a “gift” she won on the show.  a.  Use an available tax research service to answer Katie’s question. b.  Write a letter to Katie communicating the results of your research

J.C. has been a professional gambler for many years.  He loves this line of work and believes the incomis tax-free.  a.  Use an available tax research service to determine whether J.C.’s thinking is correct.  Is the answer to this question found in the Internal Revenue Code?  If not, what type of authority answers this question? b.  Write a short memo communicating the results of your research.

Sandy has determined that her research question depends upon the interpretation of the phrase “not compensated by insurance.”  What type of research question is this?