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Full Download Taxation of Individuals 2016 Edition 7th Edition Spilker Solutions Manual
Full Download Taxation of Individuals 2016 Edition 7th Edition Spilker Solutions Manual
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ker-solutions-manual/
Chapter 2
Tax Compliance, the IRS, and Tax Authorities
SOLUTIONS MANUAL
Discussion Questions
(1) [LO1] Name three factors that determine whether a taxpayer is required to file a
tax return.
Filing status (e.g., single, married filing joint, etc.), age, and the taxpayer’s
gross income.
(2) [LO1] Benita is concerned that she will not be able to complete her tax return by
April 15. Can she request an extension to file her return? By what date must she
do so? Assuming she requests an extension, what is the latest date that she could
file her return this year without penalty?
Benita can file an automatic six month extension to file her tax return. This
extension must be filed by April 15th. October 15th is the latest date she can
file her return without penalty. If October 15th falls on a Saturday, Sunday,
or holiday, the extended due date will be the 1st day after October 15th that
is not a Saturday, Sunday, or holiday.
(3) [LO1] Agua Linda, Inc., is a calendar-year corporation. What is the original due
date for the corporate tax return? What happens if the original due date falls on a
Saturday?
The original due date for Agua Linda, Inc.’s corporate tax return is March
15th. If the 15th falls on a Saturday, Sunday, or holiday, the due date will be
the 1st day after March 15th that is not a Saturday, Sunday, or holiday. In
this example, Agua Linda, Inc.’s due date is March 17th (i.e., the Monday
after Saturday the 15th).
(4) [LO2] Approximately what percentage of tax returns does the IRS audit? What
are the implications of this number for the IRS’s strategy in selecting returns for
audit?
Currently, less than 2 percent of all tax returns are audited. The IRS must
be strategic in selecting returns for audit in an effort to promote the highest
level of voluntary taxpayer compliance.
(5) [LO2] Explain the difference between the DIF system and the National Research
Program. How do they relate to each other?
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Education.
The DIF system is basically a scoring system that assigns a score to each tax
return that represents the probability that the tax liability on the return has
been underreported (i.e., a higher score, a higher likelihood of
underreporting). The IRS derives the weights assigned to specific tax return
attributes from historical IRS audit adjustment data from the National
Research Program (NRP).
The NRP analyzes randomly selected returns to ensure that the DIF scorings
are representative of the population of tax returns. The DIF system then
uses these (undisclosed) weights to score each tax return based on the tax
return’s characteristics. Returns with higher DIF scores are then reviewed
to determine if an audit is the best course of action.
(6) [LO2] Describe the differences between the three types of audits in terms of their
scope and taxpayer type.
The three types of IRS audits consist of correspondence, office, and field
examinations. Correspondence examinations are the most common. These
audits (as the name suggests) are conducted by mail and generally are limited
to one or two items on the taxpayer’s return. Among the three types of
audits, correspondence audits are generally the most narrow in scope and
least complex.
Office examinations are the second most common audit. As the name
suggests, the IRS conducts these audits at the local IRS office. These audits
are typically broader in scope and more complex than correspondence
examinations. Small businesses, taxpayers operating sole proprietorships,
and middle to high-income individual taxpayers are likely candidates for
office examinations. In these examinations, the taxpayer receives a notice
that identifies the items subject to audit, requests substantiation for these
items as necessary, and notifies the taxpayer of the date, time, and location of
the exam. Taxpayers may attend the examination alone, or simply let their
tax adviser or attorney attend on the taxpayer’s behalf.
Field examinations are the least common audit. The IRS conducts these
audits at the taxpayer’s office (i.e., place of business), or the location where
the taxpayer’s books, records and source documents are maintained. Field
examinations are generally the broadest in scope and most complex of the
three audit types. They can last many months to multiple years and
generally are limited to business returns and the most complex individual
returns.
(7) [LO2] Simon just received a 30-day letter from the IRS indicating a proposed
assessment. Does he have to pay the additional tax? What are his options?
Simon does not have to pay the additional tax at this time. The 30-day letter
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Solutions Manual – McGraw-Hill’s Taxation
instructs the taxpayer that he or she has 30 days (1) to request a conference
with an appeals officer, who is independent (resides in a separate IRS
division) from the examining agent or (2) to agree to the proposed
adjustment. If the taxpayer chooses to go to the appeals conference and
reaches an agreement with the IRS at the appeals conference, the taxpayer
can then sign the Form 870. If the taxpayer and IRS do not agree on the
proposed adjustment at the appeals conference, or the taxpayer chooses not
to request an appeals conference, the IRS will then send the taxpayer a 90-
day letter (statutory notice of deficiency).
The U.S. District Court is the only court that provides for a jury trial; the
U.S. Tax Court is the only court that allows tax cases to be heard before the
taxpayer pays the disputed liability and the only court with a small claims
division (hearing claims involving disputed liabilities of $50,000 or less); the
U.S. Tax Court judges are tax experts, whereas the U.S. District Court and
U.S. Court of Federal Claims judges are generalists. Both the U.S. Tax
Court and local U.S. District Court cases appeal to the specific circuit court
based on the taxpayer’s residence. In contrast, all U.S. Court of Federal
Claims cases appeal to the U.S. Circuit Court of Appeals for the Federal
Circuit.
(9) [LO3] Compare and contrast the three types of tax law sources and give examples
of each.
The three types of tax law sources include statutory authority issued by
Congress (e.g., the Internal Revenue Code, committee reports), judicial
authority (i.e., rulings by the U.S. District Court, U.S. Tax Court, U.S. Court
of Federal Claims, U.S. Circuit Court of Appeals, or U.S. Supreme Court),
and administrative authority (e.g., regulations, revenue rulings, and revenue
procedures). In addition to being issued by different groups, the format and
purposes of each of these authorities are different. Whereas statutory
authorities are tax laws enacted by Congress, judicial and administrative
authorities generally interpret enacted tax laws.
(10) [LO3] The U.S. Constitution is the highest tax authority but provides very little
in the way of tax laws. What are the next highest tax authorities beneath the U.S.
Constitution?
The Internal Revenue Code of 1986 and Supreme Court decisions represent
the highest tax authority beneath the U.S. Constitution. However, the
Supreme Court does not establish law, but instead, simply interprets and
applies the Code (and other authorities).
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
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inserted. In this connection, it is interesting to note that considerable
experimenting with twelfths in the Ski-optometer proved them to be
needless, inasmuch as the instrument’s cylindrical lenses set directly
next to the patient’s eyes overcome all possible loss of refraction, as
explained in a later paragraph.
Transposition of Lenses
It is commonly understood that transposition of lenses is merely
change of form, but not of value.
For example, a lens +1.00 sph. = -.50 cyl. axis 180° may be
transposed to its equivalent, which is +.50 sph. = +.50 cyl. axis 90°.
The accepted formula in this special instance is as follows:
Algebraically add the two quantities for the new sphere, retain the
power of the original cylinder, but change its sign and reverse its axis
90 degrees. Applying this rule, a lens +.75 sph. = -.25 cyl. axis 180°,
is equivalent to +.50 sph. = +.25 cyl. axis 90°.
Similarly, a lens +1.00 sph. = -1.00 cyl. axis 180° is equivalent to
+1.00 cyl. axis 90°.
One of the difficulties in transposing is in reversing the axis. In
such cases, it is well to memorize the following simple rule:
To reverse the axis of any cylindrical lens containing three
numerals—add the first two together and carry the last. For example,
from 105 to 180 degrees, etc.:
105° Add—one and “0” equals 1 Then carry the 5 = 15°
120° Add—one and two equals 3 Then carry the 0 = 30°
130° Add—three and one equals 4 Then carry the 0 = 40°
150° Add—five and one equals 6 Then carry the 0 = 60°
165° Add—six and one equals 7 Then carry the 5 = 75°
180° Add—eight and one equals 9 Then carry the 0 = 90°
Rigidity of Construction
Illustration on following page (Fig. 11a) shows the reinforced
double bearing arms which hold the Ski-optometer lens batteries at
two points. This eliminates possibility of the instrument getting out of
alignment, and prevents wabbling or loose working parts.
The broad horizontal slides shown in the cut, move in and out
independently so that the pupillary distance is obtained for each eye
separately by turning the pinioned handle on either side of the
instrument. The scale denotes in millimeters the P.D. from the
median line of the nose outward, the total of both scales being the
patient’s pupillary distance.
Fig. 11a also serves to show the staunch construction of the base
of the Ski-optometer.
Fig. 11a—Showing staunch construction
of Ski-optometer base.
The Phorometer
As previously stated, it is practically impossible to accurately
diagnose a case of muscular imbalance with trial-case prisms. For
this reason the phorometer forms an important part of the equipment
for muscle testing in the Ski-optometer, having proven both rapid and
accurate. It consists of two five-degree prisms with bases opposite,
each reflecting an object toward the apex or thin edge. The patient
whose attention is directed to the usual muscle-testing spot of light,
will see two spots.
Aside from the instrument itself, and in further explanation of the
phorometer’s principle and construction, when two five-degree
prisms are placed together so that their bases are directly opposite,
they naturally neutralize; when their bases are together, their
strength is doubled. Thus while the prisms of the phorometer are
rotating, they give prism values from plano to ten degrees, the same
being indicated by the pointer on the phorometer’s scale of
measurements.
As a guide in dark-room testing, it should be noted that the
handle of the phorometer in a vertical position is an indication that
the vertical muscles are being tested; if horizontal, the horizontal
muscles are undergoing the test.