Return to the facts of problem 67. Assume that you are the CPA in charge of preparing the tax return

Return to the facts of problem 67. Assume that you are the
CPA in charge of preparing the tax return for each of the taxpayers in the
problem. Based on the Statements on Standards for Tax Services (Appendix D),
explain what you should do in each case. Your discussion should indicate which,
if any, of the eight statements is applicable and your obligations with regard
to each applicable statement. If the facts are not sufficient to determine
whether a statement applies to a situation, discuss the circumstances in which
the statement would apply.

Problem  67

For each of the following
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Return to the facts of problem 67. Assume that you are the
CPA in charge of preparing the tax return for each of the taxpayers in the
problem. Based on the Statements on Standards for Tax Services (Appendix D),
explain what you should do in each case. Your discussion should indicate which,
if any, of the eight statements is applicable and your obligations with regard
to each applicable statement. If the facts are not sufficient to determine
whether a statement applies to a situation, discuss the circumstances in which
the statement would apply.

Problem  67

For each of the following situations, state whether the
taxpayer’s action is tax evasion or tax avoidance.

a. Tom knows that farm rent received in cash or farm produce
is income subject to tax. To avoid showing a cash receipt on his records, he
rented 50 acres for 5 steers to be raised by the tenant. He used 2 of the
steers for food for his family and gave 3 to relatives. Because he did not sell
the livestock, he did not report taxable income.

b. Betty applied for and received a Social Security number
for Kate, her pet cat. Surprised by how easy it was to get a Social Security
number, she decided to claim a dependent exemption on her tax return for Kate.
Other than being a cat, Kate met all the tests for a dependent.

c. Glen has put money in savings accounts in 50 banks. He
knows a bank is not required to report to the IRS interest it pays him that
totals less than $10. Because the banks do not report the payments to the IRS,
Glen does not show the interest he receives as taxable income. Although Glen’s
accountant has told him all interest he receives is taxable, Glen insists that
the IRS will never know the difference.

d. Bob entered a contract to sell a parcel of land at a
$25,000 gain in 2009. To avoid reporting the gain in 2009, he closed the sale
and delivered title to the land to the buyers on January 2, 2010.

e. Asha’s taxable income for 2010 puts her in the 33%
marginal tax bracket. She has decided to purchase new equipment for her
business during 2011. A special election allows Asha to treat the $25,000 of
the cost of the equipment as a current period expense. Because she expects to
be in a lower tax bracket next year, Asha buys and begins using $25,000 worth
of the equipment during December 2010. She claims a $25,000 expense deduction
under the special election for 2010.

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