response
Maree29
Participateinfollow.docxParticipate in follow-up discussion by asking questions or adding a tax issue to a classmates' post that they may not have included in their original discussion.
1 posts
Re: Topic 1 DQ 1
The AICPA’s Statements on Tax Standards sets forth as an ethical framework for the working relationship between a tax professional and their client. The standards express that the tax professional is to serve as an advocate to their client, where their primary duty lies. Although these standards are not legally enforceable, they carry significant weight as the “standard of care” for tax advisors (Anderson et al., 2020). However, the Treasury Department sets forth actual duties or rules that pertain to practicing tax advisors with Circular 230. The guidelines set with Circular 230 present duties and restrictions for people representing taxpayers before the IRS. These guidelines differ from the AICPA’s Statement on Tax Standards because they give government the authority to impose penalties for violations (Anderson et al., 2020).
Under statement number 6 of the AICPA’s Statements on Standards for Tax Services, a tax preparer should inform a taxpayer when they uncover an error either in a previous return, an error in a return that is subject of an administrative proceeding, or when a taxpayer fails to file a return (Anderson et al., 2020). The advisor should also inform their client the potential consequences of the error and they must recommend corrective actions that should be taken to fix the error. This standard applies whether or not the advisor actually prepared or signed the return that contains the error (AICPA, 2018). If the client refuses to take the appropriate action to correct an error in a previous return, the tax advisor may withdraw from their engagement. The tax advisor may also advise a client to consult with an attorney for cases involving potential fraud or criminal charges (AICPA, 2018).
American Institute of Certified Public Accountants (AICPA). (2018). Statement on standards for tax services no. 6, knowledge of error: Return preparation and administrative proceedings. Retrieved from https://future.aicpa.org/resources/article/statement-on-standards-for-tax-services-no-6-knowledge-of-error-return
Anderson, K., Hulse, D., & Rupert, T. (2020). Pearson’s Federal Taxation 2020 Corporations, Partnerships, Estates, & Trusts. Hoboken, NJ: Pearson Education, Inc. Retrieved from https://etext-ise.pearson.com/courses/5948317/products/147974/pages/47?locale=&platformId=1030&isTpi=Y&iesCode=j5cTPuosYM
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1 posts
Re: Topic 1 DQ 1
Issued by the American Institute of Certified Public Accountants (AICPA), the Statements on Standards for Tax Services (SSTSs) provide ethical guidance for tax advisors and the relationship to their clients. Consisting of seven statements, the fourth statement on standards for tax services concerns the use of estimates (Anderson, Hulse, & Rupert, 2020, p. 1-31). In a situation that a taxpayer is not able to provide sufficient records or have a record of small transactions, the tax advisor may suggest estimates to use in completing a tax return. Although an estimate may be advised by the member, the taxpayer must provide the estimated values and information. Though estimates may be used, except in situations that are explicitly stated by the IRC to not use estimates.
Just as in this statement where estimate information to be provided is entirely in the responsibility of the taxpayer, there are other instances in the SSTSs where an advisor’s duties are excluded. The first of these exclusions is in SSTSs No. 3, which deals with the Certain Procedural Aspects of Preparing Returns, where a member is not required to “examine or verify supporting data” (Anderson, Hulse, & Rupert, 2020, p. E-4). Though verification is not necessary, suspicious supporting documentation should be inquired. The next excluded advisor duty is in SSTSs No. 7, where a member is not required to update a previous provided advice when subsequent developments may affect that advice. (Anderson, Hulse, & Rupert, 2020, p. E-7).
References:
Anderson, K., Hulse, D., & Rupert, T. (2020). Pearson’s Federal Taxation 2020 Corporations, Partnerships, Estates, & Trusts. Hoboken, NJ: Pearson. Retrieved from: https://www.gcumedia.com/digital-resources/pearson/2020/pearsons-federal-taxation-2020-corporations-partnerships-estates-and-trusts_33e.php
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1 posts
Re: Topic 1 DQ 2
Question:
C:2-26: Carl contributes equipment with a $50,000 adjusted basis and an $80,000 FMV to Cook Corporation for 50 of its 100 shares of stock. His son, Carl Jr., contributes $20,000 cash for the remaining 50 Cook shares. What tax issues regarding the exchange should Carl and his son consider?
Answer:
Carl contributes equipment with a $50,000 adjusted basis and an $80,000 FMV to Cook Corporation for 50 of its 100 shares of stock. His son, Carl Jr., contributes $20,000 cash for the remaining 50 Cook shares. What tax issues regarding the exchange should Carl and his son consider?
Based on the information provided, there are a few things that Carl and his son should consider about this situation. The first thing is Section 351. Section 351 states that the transferors don't have to recognize gain or loss when they transfer property to a corproation if stock is the only thing exchanged and right after incorporation, the transferors are in control of the corporation (Anderson, Hulse & Rupert, 2020). Another thing to consider is boot. Boot is any property that may not be received tax-free in some nontaxable transactions (Anderson, Hulse & Rupert, 2020). In this situation, this transaction would be a nontaxable event. Since Carl and his son own more than 80% of the company, this transaction is nontaxable.
Anderson, K. E., Hulse, D. S., & Rupert, T. J. (2020). Pearson's federal taxation 2020 corporations, partnerships, estates & trusts. Pearson.
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1 posts
Re: Topic 1 DQ 2
Question:
C:2-25: Peter Jones has owned all 100 shares of Trenton Corporation stock for the past 5 years. This year, Mary Smith contributes property with a $50,000 basis and an $80,000 FMV for 80 newly issued Trenton shares. At the same time, Peter contributes $15,000 in cash for 15 newly issued Trenton shares. What tax issues regarding the exchanges should Mary and Peter consider?
Answer:
The long-term capital gains tax on Trenton shares is one of the tax concerns to examine in this problem. Peter is concerned about this issue because he has owned Trenton Corporation stock for 5 years. Both Peter and Mary meet the Sec.351 requirements. The requirements under Sec. 352 are:
1. The nonrecognition of gain or loss rule applies only to transfers of property in exchange for a corporation’s qualified stock. It does not apply to an exchange of services for stock.
2. The property transferors must be in control of the transferee corporation immediately after the exchange. Control means ownership of at least 80% of the voting power and at least 80% of the total number of shares of all other classes of stock. Stock disposed of after the exchange pursuant to a prearranged plan does not meet the “immediately after the exchange” requirement.
3. The nonrecognition rule applies only to the gain realized in an exchange of property for qualified stock. If the transferor receives property other than qualified stock, such property is considered to be boot. The transferor recognizes gain to the extent of the lesser of the FMV of any boot received or the realized gain.
Transferors who swap property only for transferee corporation qualifying stock and manage the corporation immediately after the exchange are not required to report any gain or loss under Sec. 351. Qualified stock can be voting or nonvoting, and it can be common stock or qualified preferred stock for this purpose. Peter satisfies the minimum stock ownership control requirement of 80%. Mary will not realize any profit on the asset exchanged; instead, she will take a $50,000 basis in the Trenton Corporation shares. Trenton Corporation does not recognize a gain if they transfer their stock and obtain $50,000 in the property.
Reference:
Anderson, K. E., Hulse, D. S., & Rupert, T. J. (2020). Pearson's federal taxation 2020 corporations, partnerships, estates & trusts. Pearson.
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