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Credible Evidence in Taxation

1. In 1998, Congress passed legislation concerning shifting the burden of proof to the IRS. The taxpayer must introduce "credible evidence" to shift the burden of proof to the IRS. What constitutes "credible evidence"

2. Why should tax researchers take note of the date on which a Treasury Regulation was adopted?

3. What is the impact on a transferor if a Sec. 351 exchange involves the assumption of the shareholder's liabilities by the corporation?

4. Discuss the tax planning opportunities that are available in forming a corporation when one of the parties owns property that has a high basis and a low FMV.

5. Lass Corporation reports a $25,000 net capital loss this year. The corporation reports the following net capital gains during the past three years.

Year
Net Long-Term
Capital Gain
Net Short-Term
Capital Gain
Third previous year
Year before last
Last year
$5,000
7,000
-0-
$6,000
3,000
-0-

Determine the amount of net capital loss carried back to each preceding tax year and the amount of capital loss, if any, available as a carryforward. Though full credit of 20 points requires the correct calculation, correct explanation of the process to make this calculation is more a majority of the points.

6. Chambers Corporation is a calendar year taxpayer using the accrual method of accounting. In 2009, its board of directors authorizes a $20,000 contribution to the Boy Scouts. Chambers pays the contribution on March 12, 2010. What is the maximum contribution allowed in 2009 What is the maximum contribution allowed in 2010? Though full credit of 20 points requires the correct calculation, correct explanation of the process to make this calculation is more a majority of the points.

7. What is a constructive dividend? Under what circumstances are constructive dividends most likely to arise?

8. Smartmoney, Inc. was formed by three wealthy dentists to pool their investment funds. They each invested $200,000 in the corporation, which was immediately used to purchase stocks to be held as investments. The first year the corporation received dividends of $70,000 and filed a tax return paying a corporation tax in the amount of $3,150 [($70,000 dividends - $49,000 DRD)×.15 = $3,150]. The IRS audits this corporation and sends a tax bill in the amount of $10,028 ($66,850 UPHCI×0.15 = $10,028) plus underpayment penalty and interest. What is this additional tax and what should the dentists do about it (explain the tax, not calculate anything)? What action(s) do you recommend the corporation take for the tax year in question and subsequent tax years to avoid this additional tax going forward?

9. Parent Corporation owns 80% of the stock of an insolvent subsidiary corporation. Vic owns the remaining 20% of the stock. The courts determine the subsidiary to be bankrupt, and the shareholders receive nothing for their investment. How do they report their losses?

10. Toby Corporation owns 85% of James Corporation's single class of stock and 35% of Mony Corporation's single class of stock. James Corporation owns 45% of Mony's stock. The remainder of James and Mony's stock is owned by 80 individual shareholders. Are the corporations' part of an affiliated group and can they elect to file a consolidated tax return?

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In 1998, Congress passed legislation concerning shifting the burden of proof to the IRS. The taxpayer must introduce "credible evidence" to shift the burden of proof to the IRS. What constitutes "credible evidence"

Answer:

Credible evidence is defined as the quality of evidence which, after critical analysis, the court would find sufficient upon which to base a decision on the issue, if no contrary evidence were submitted. If a taxpayer merely makes implausible factual assertions, frivolous claims, or tax protestor-type arguments then in this situation the taxpayer has not produced credible evidence for these purposes.

Why should tax researchers take note of the date on which a Treasury Regulation was adopted?

Answer:

The tax researchers should note the date on which a Treasury Regulation was adopted mainly because the IRC may have been revised subsequent to that date. This is done to ensure that the current version of IRS may not be interrupted by the regulation. Not taking note of the date on which a Treasury Regulation was adopted will cause discrepancies between the IRC and the regulation.

What is the impact on a transferor if a Sec. 351 exchange involves the assumption of the shareholder's liabilities by the corporation?

Answer:

As far as gain recognition is concerned, the transferee corporation's assumption of liabilities in a property transfer that is qualified under Sec. 351 is not considered equivalent to the transferor's receipt of money i.e. based on the assumption of liabilities by the transferee corporation, the part or all of transferor's realized gain does not result into any type of recognizing. In calculation transferor's stock basis, the transferee corporation's assumption of liabilities is treated as money received and thus it decreases the transferor's stock basis and in calculating the transferor's realized gain, the transferee corporation's assumption of liabilities is treated as part of the transferor's amount realized.

Discuss the tax planning opportunities that are available in forming a corporation when one of the parties owns property that has a high basis and a low FMV.

Answer:
In this situation the party that owns the property ...

Solution Summary

Credible evidence in taxation are examined. The expert detemines if tax researchers should take notes of the date on which a Treasury Regulation was adopted.

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