dqs

DQ1

Tom, an executive for a large corporation, enjoys the challenge of preparing his tax

return. He is aggressive in preparing his return and searches through all the available

publications to reduce his tax liability. In all the years Tom has completed his

return, he has never been audited. However, in preparing his 2012 tax return,

Tom misinterpreted a complex change in the law and is being audited. Aware that

he probably should have an expert represent him before the IRS, Tom has hired

Josephine, a local CPA. During the audit process, Josephine finds expenses that

Tom had failed to deduct. However, the IRS also disallowed some of Tom’s other

deductions. During a meeting, Josephine and the IRS agent agree on Tom’s revised

taxable income. When Josephine receives the auditor’s change letter, she

checks the agent’s calculation and finds that the agent has miscalculated the new

tax liability by $750 in Tom’s favor. In fact, Tom will now receive a refund. When

Tom receives his copy of the letter, he leaves a message on Josephine’s voice mail

congratulating her on her work. You are Josephine’s assistant. Josephine asks you

to write a letter to Tom explaining the course of action she must take.

DQ2

Harold works for the Zanten Corporation. Ken is self-employed. Zanten pays all of Harold’s medical insurance premiums, whereas Ken purchases medical insurance from his insurance agent. Explain how the payments of Ken’s and Harold’s medical insurance are treated for tax purposes. Does this treatment meet Adam Smith’s equity criterion (refer to chapter 1 in the textbook)?

textbook to use for reference:

Concepts in Federal Taxation, 2014 edition

Authors: Kevin E. Murphy, Mark Higgins, Tonya K. Flesher