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This post addresses federal taxation ethics cases.

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An Indirect Route to a Contribution Deduction
In July, a plane crashed into a residential community in Middleboro, destroying and damaging many homes. Tanya's church, a qualified charitable organization, initiated a fundraising drive to help the Middleboro citizens whose homes had been affected. Tanya donated $50,000 to first Middleboro church and suggested to the pastor that $25,000 of her contribution should be given to her sister, Tanesha, whose home had suffered extensive damage. The pastor appointed a committee to award funds to needy citizens. The committee solicited applications from the community and awarded Tanesha $15,000.

- Discuss the factors that should be considered when determining deductions for charitable contributions.
- Evaluate whether or not Tanya is justified in deducting the full $50,000 of her charitable deduction when the charity awards only $15,000 of the gift to Tanya's sister and victim of the plane crash.
- Persuade the classmate your position is stronger by refuting his or her points.

Between a Rock and a Hard Place.
Robert Ryan, a candidate for governor, has released his income tax return to the public. As Ryan's former tax advisor, you examine the return closely and realize that a considerable amount of his income was not reported on the return. You confide to a friend in the tabloid newspaper business that you are aware that a candidate for high public office has filed a fraudulent tax return. Your friend assures you that you will be able to sell your story for at least $25000 to a tabloid and still remain anonymous. Another friend, a CPA, argues that you should inform Ryan and give him an opportunity to correct the problem. You tell your friend that you are concerned that Ryan will be very vindictive if you approach him about the issue.

- Discuss how the $25,000 would be taxed if you chose to sell your story to a tabloid newspaper.
- Evaluate the pros and cons of each decision and then indicate what you would do.
- Evaluate the ethical aspects of your decision.

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Solution Preview

Discuss the factors that should be considered when determining deductions for charitable contributions. Evaluate whether or not Tanya is justified in deducting the full $50,000 of her charitable deduction when the charity awards only $15,000 of the gift to Tanya's sister and victim of the plane crash.

There is a problem with what Tanya did. Because Tanya stated that she wanted money to go directly to a certain person, that portion disqualified Tanya to use the amount set aside as a donation. She gave a total of $50,000 and $15,000 went to her sister. The remaining $35,000 went to the others. According to the IRS, the charitable donation "must be made to a qualified organization and not set aside for use by a specific person" (Publication 526). The total ...

Solution Summary

This solution thoroughly discusses the following ethics cases from federal taxation:

An Indirect Route to a Contribution Deduction, Between a Rock and a Hard Place.

$2.19
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TOO MUCH OF A GOOD THING
Clark, a prospective new client, visits your office on March 12, 2011. He wants you to prepare a Form 1120S for 2010 for his washateria, wash clean, an S corporation. Clark owns at least six different businesses in your community and has a reputation of being a risk taker and an operator. He provides you with the financial data prepared monthly for wash clean by a local bookkeeping services. He hopes to file the S corporation return by March 15 to avoid any problems with the IRS. Clark also is the president of the Champer of commerce.

In the preparing the form 11205, you note that the net income for wash clean for exceeds that of several other washateria clients. About a month ago one of your golfing companions mentioned that he had heard that wash clean was laundering more than clothes.

Based on what you know about Clark, determine the scenario or stipulation(s) in which you would accept Clark as a client.
Illustrate with specific words and sentences you would say to Clark to propose your stipulation(s).

NOL carryover
John timely filed his 2007 and 2008 federal income tax returns reporting AGI of $90,000 and 100,000 respectively. For the years 2009 and 2010 john had NOLs of $25,000 and $40,000 respectively. Because john had NOLs for 2009 and 2010, he did not file tax returns for those years. In 2011, john has taxable income, so he is considering using his NOLs from 2009 and 2010 to offset his income for 2011.

Evaluate John's plan for tax year 2011.
Discuss whether or not you agree with John's actions in 2009 and 2010.
Evaluate if not filing a tax return is ethical.

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