If Mrs A worked at a jewellery store and her employer gave her a sales bonus of a diamond ring valued at $10,000 how would you treat this for taxation purposes? Briefly explain making reference to any relevant case law.

If Mrs A worked at a jewellery store and her employer gave her a sales bonus of a diamond ring valued at $10,000 how would you treat this for taxation purposes? Briefly explain making reference to any relevant case law.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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You are Melina’s CPA, she to whom Walter “Buck” Swords left $50,000 and a used car in his will. What do you advise Melina as to her tax return – i.e., that she should report (include in her gross income) – both the $50,000 and the value of the car? the cash but not the car? the car but not the cash? neither the cash nor the car? What and why?
Which of the following items are inclusions in gross income? a. During the year, stock that the taxpayer purchased as an investment doubled in value. b. Amount an off-duty motorcycle police officer received for escorting a funeral procession. c. While his mother was in the hospital, the taxpayer sold some of her jewelry to help pay for the hospital bills. d. Child support payments received. e. A damage deposit the taxpayer recovered when he vacated the apartment he had rented. f. Interest received by the taxpayer on an investment in general purpose bonds issued by IBM. g. Amounts received by the taxpayer, a baseball "Hall of Famer," for autographing sports equipment (e.g., balls and gloves). h. Tips received by a bartender from patrons. (Taxpayer is paid a regular salary by the cocktail lounge that employs him.) I. Taxpayer sells his Super Bowl tickets for three times what he paid for them j. Taxpayer receives a new BMW from his grandmother when he passes the CPA exam.
For each of the following situations, indicate the nature and amount of the penalty that could be imposed. Description of the Penalty AND Penalty Amount $ a. Larry is a tax protester and files his tax return in the name of “Mickey Mouse.” b. Anne writes a check for $900 in payment of her taxes that she knows will not clear the bank due to insufficient funds in her account. c. Gerald understated his tax liability by $10,000. The total amount of tax that should have been shown on his return was $70,000.
2) Jane Doe of London, Ontario is a car salesperson who earned commissions totaling $300,000 in the tax year 2020. These commissions included vehicle sales and commissions on warranty sales. On her 2020 personal income tax return, Jane reported only the commissions related to the warranty sales in the amount of $100,000. Discuss the following: Were these instances of tax avoidance or evasion (define? Letter of the law vs spirit of the law) What was done wrong (how were taxes affected) What possible consequences? (payment-balance, interest, penalties, charges, jail, etc)
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A paid tax preparer must demonstrate due diligence. Review the following scenario, and then choose the appropriate response. Cherylynn Johnson (58) comes in to your office to have her tax return prepared. She states that she wants to use the head of household filing status and claim the Earned Income Tax Credit (EITC). She also tells you that her dependent child is her granddaughter, Alana (12), who currently lives with her. All of the following are appropriate questions to ask or actions to take EXCEPT: Ask Cherylynn how long Alana has lived with her and inquire into the whereabouts of Alana's parents. Ask Cherylynn who paid most of the expenses of maintaining her home. Inform Cherylynn that she must provide you with documentation proving Alana lived with her before you can prepare the return. Inquire whether the IRS has ever denied or reduced Cherylynn's EITC in a prior year.
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T uses frequent flyer miles to take his family on a vacation. T received the miles duringbusiness travel paid for by his employer. The normal airfare for his vacation wouldhave cost $7,000.a. T must realize and recognize $7,000 as income.b. Although T has realized income, he will not be required to recognize it becausethe IRS has chosen, as a matter of administrative convenience, not to requiretaxpayers to recognize the value of frequent flyer tickets earned duringemployer-paid travel.c. Had T earned the frequent flyer miles during travel he had paid for himself, theissue of income realization and recognition would not arise.d. Both (a) and (c) are correct.e. Both (b) and (c) are correct. T buys a parcel of real estate for $100,000, which he finances by giving the seller a nonrecoursemortgage for the full purchase price. The debt is due in one balloon payment inYear 5. When the debt becomes due in Year 5, T decides to give the property back to theseller in satisfaction of the debt…
1 Suppose the taxpayer originally purchased the machinery by paying $12,000 in cash and giving the seller a note for $12,000. When she sold it she received $38,000 in cash and the buyer assumed the $12.000 note. a. What is the amount realized? b. What is the adijusted basis of the machinery? c. What is the gain on the sale of the machinery?