Homework 1 –
1. In the following independent situations, is the tax position of the tax payer likely to change? Explain why or why not.
a) Yes, this is likely to change John’s tax position because of capital gains and losses on the disposition because of property now convert to ordinary income and losses.
b) Yes, this is likely to change Theresa’s tax position because now she is self employed and has to deal with the safe harbor of withholdings is lost and new quarterly payments on income and self employment taxes must be made.
c) Paul purchased a personal residence will have a tax position change because you will have a new mortgage interest and property tax deductions cause the standard deductions to be replaced by
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Who could deny the social desirability of encouraging taxpayers to provide care for their children while they work? b) Equity Consideration – the concept of equity is relative. Renters receive no Federal income tax benefit from the rent they pa. For homeowners however a large portion of the house payments they make may qualify for the federal interest and property tax deductions. c) Political Consideration- the major advantage extended was the provision allowing married taxpayers to file joint returns and compute their tax liability as if one-half of the income had been earned by each spouse. This result is automatic in a community property state, because half of the income earned by one spouse belongs to the other spouse. The income-splitting benefits of a joint return are now incorporated as part of the tax rates applicable to married taxpayers. d) Social Consideration-A tax deduction is not allowed for certain expenditures deemed to be contrary to public policy. The disallowance extends to such items as fines, penalties illegal kickbacks, bribes to government officials and gambling losses in excess of gains. Social considerations dictate that the tax law should not encourage these activities by permitting a deduction. e)
52. Judicial concept would be arm’s length concept. Dealings between related parties, transaction may be tested by looking to whether the tax payers acted in an arm’s length manner. The question to be asked