Running head: LT ASSIGNMENTS FROM THE READINGS- WEEK 4

Learning Team Assignments from the Readings- Week 4 Sonya Razeghi, Stacey Scarborough, Ariana Hernandez, and Robbie Wolf ACC/497 October 28, 2013 Instructor: Silvana Moffitt

LT ASSIGNMENTS FROM THE READINGS- WEEK 4 I: 15-61 Tax Strategy Problems A fitting forum for the lawsuit filing versus the Internal Revenue Service has to be the United States Tax Court. The United States Tax Court possesses jurisdiction nationally and deals with cases related to tax only. Taking into account the lawsuit in regards to the IRS, HPU wouldnt have any intention of filing its lawsuit in United States District Court since the company disperses its product to companies nationally. Every state holds one U.S. District Court at least and these court systems are separate from each other. Because of this, decisions made by the United States District Court in an individual state may possibly not be in appliance in other states. Given that HPU nationally distributes products and desires for nationwide expansion, the company should desire this case to be heard in a court system that has jurisdiction nationally. United States Tax Courts specialize in dealing with disputes in tax which take place prior the IRS making a judgment of a formal tax. HPU may make the decision of filing their lawsuit in other court forums. Nonetheless, the United States Tax Court is the lone forum when HPU can get their case heard exclusive of having to pay the dispute amount. Say that this case was to be tried in the US Federal Claims Court or District court; the tax must be paid prior to the lawsuit being filed. I: 15-62 Case Study Problem CASE STUDY PROBLEM A client, Mal Manley, fills out his client questionnaire for the previous year and on it provides information for the preparation of his individual income tax return. The IRS has never audited Mals returns. Mal reports that he made over 100 relatively small cash contributions totaling $24,785 to charitable organizations. In the last few years, Mals charitable contributions have averaged about $15,000 per year. For the previous year, Mals adjusted gross income was roughly $350,000, about a 10% increase from the year before. Required: Applying Statements on Standards for Tax Services No. 3, determine whether you can accept at face value Mals information concerning his charitable contributions. Now assume that the IRS recently audited Mals tax return for two years ago and denied 75% of that years charitable contribution deduction because the deduction was not substantiated. Assume also that Mal indicates that, in the previous year, he contributed $25,000 (instead of $24,785). How do these changes of fact affect your earlier decision? Can I as a tax preparer accept Mals information concerning his charitable contributions at face value? Based on the Statements on Standards for Tax Services No. 3, I would not accept the information at face value. The amount of contributions is approximately 40% higher than previous years. This is a considerable difference. Even though his income was 10% higher I would still question the deductions and request supporting documentation. The IRS also requires itemized deductions and that tax payers retain copies of those records.

LT ASSIGNMENTS FROM THE READINGS- WEEK 4 Now assume that the IRS recently audited Mals tax return for two years ago and denied 75% of that years charitable contribution deduction because the deduction was not substantiated. If the IRS recently audited Mals tax return for two years ago and denied 75% of that years charitable contribution deduction I would question the deductions and request proof of all the contributions. Based on the available receipts I would include only those itemized contributions that were of Fair Market Value and had written proof of the contribution from the qualified charitable organization. Assume also that Mal indicates that, in the previous year, he contributed $25,000 (instead of $24,785). If Mal indicated that he contributed more than the amount originally reported of $24,785 and it was an even number, this would raise suspicion. As stated in Statements on Standards for Tax Services No. 3, item 7, Even though there is no requirement to examine underlying documentation, a member should encourage the taxpayer to provide supporting data where appropriate. This would allow the member to give full consideration for the deduction. How do these changes of fact affect your earlier decision? My earlier decisions were based on unusual changes in charitable contribution amounts. I would not change my request for additional information. I feel that the appropriate due diligence would be to request the proof of the contributions and include only those deductions that were allowable and could be proved in the event of an audit. TAX PLANNING ADVICE: My advice would be to maintain a log and receipts of all charitable contributions made throughout the year. I would also recommend that any contributions made by Mal were to organizations that were on the qualified charitable organizations list. In addition I would recommend that he make allowances for taxes that might be due for any contributions that might be disallowed, even if he was able to substantiate all of the contributions

LT ASSIGNMENTS FROM THE READINGS- WEEK 4 References: AICPA. 2013. Statement on Standards for Tax Services No. 3, Certain Procedural Aspects of Preparing Returns. Retrieved from http://www.aicpa.org/interestareas/tax/resources/standardsethics/statementsonstandardsfo rtaxservices/downloadabledocuments/ssts-no.3-certain-procedural-aspects-of-preparingreturns.pdf IRS.GOV. 2013. Topic 506 - Charitable Contributions. Retrieved from http://www.irs.gov/taxtopics/tc506.html Pope T.R., Anderson K. E., Kramer J. L., Bandy, D. D., Ford N. A., Gardner R. L., Joseph, R. J., & Luna L., Schadewald M. S. (2011). Prentice Halls Federal Taxation. Tax Research. ISBN: 9780132138574