25 May Question 1. Troy Center Ltd. withheld from its employees’ paychecks $200,000
Question
1. Troy Center Ltd. withheld from its employees’ paychecks $200,000 in Federal income and Social Security taxes for the Monday, June 30 payroll. It then spent the $200,000 on equipment upgrades, missing altogether the August 2 due date for the tax remittances. How much does Troy now owe the government in taxes and penalties? Ignore interest accruals, and assume that the Treasury can prove that Troy’s redirecting of the tax withholdings was willful.
2. Loren Ltd., a calendar year taxpayer, had the following transactions, all of which were properly reported on a timely filed return. Presuming the absence of fraud, how much of an omission from gross income must occur for Loren before the six-year statute of limitations applies? Show your computations.
| Gross receipts | $3,500,000 | |
| Cost of sales | (1,000,000) | |
| Gross profit | $2,500,000 | |
| Capital gain | $100,000 | |
| Capital loss | (30,000) | 70,000 |
| Total income | $2,570,000 |
3. Yin-Li is the preparer of the Form 1120 for Cloves Corporation. On the return, Cloves claimed a deduction that the IRS later disallowed on audit. Compute the tax preparer penalty that could be assessed against Yin-Li in each of the following independent situations.
| Form 8275 disclosure on the return of the disputed deduction? | Tax reduction that resulted from the deduction ($) | Probability that the deduction would be approved by the courts (%) | Yin-Li’s fee to complete the Cloves return ($) | |
| a. | No | 40,000 | 75 | 10,000 |
| b. | No | 50,000 | 30 | 500 |
| c. | No | 60,000 | 40 | 3,000 |
| d. | Yes | 70,000 | 30 | 6,000 |
| e. | Yes | 80,000 | 20 | 6,000 |
4. A tax professional needs to know how the IRS is structured and how it works to carry out its mission. Evaluate this statement.
5. What are the chief responsibilities of the IRS Commissioner, and of the Chief Counsel of the IRS?
6. The IRS national office is organized into operating divisions, broadly on the basis of the tax returns that are each
division’s responsibilities. List at least four the IRS’s operating divisions.
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