February 26, 2014 TAX FILE MEMORANDUM FROM: Laura Reed and Lisa Andersen SUBJECT: Kiwi Corporation and Shelly Zumaya (sole shareholder) Facts: Shelly Zumaya (2220 East Hennepin Avenue, Minneapolis, MN 55413) is the president and sole shareholder of Kiwi Corporation (stock basis of $400,000). Incorporated in 2003, Kiwi Corporation’s sole business has consisted of the purchase and resale of used farming equipment. In December 2011, Kiwi transferred its entire inventory (basis of $1.2 million) to Shelly in a transaction described by the parties as a sale. According to Shelly and collaborated by the minutes of the board of directors, the inventory was sold to her for the sum of $2 million, the fair market value of the inventory. The terms of the sale provided that Shelly would pay Kiwi Corporation the $2 million at some future date. This debt obligation was not evidenced by a promissory note, and to date, Shelly has made no payments (principal or interest) on the obligation. The inventory transfer was not reported on Kiwi’s 2011 tax return, either as a sale or a distribution. After the transfer of the inventory to Shelly, Kiwi Corporation had no remaining assets and ceased to conduct any business. Kiwi did not formally liquidate under state law. Upon an audit of Kiwi Corporation’s 2011 tax return, the IRS asserted that the transfer of inventory constituted a liquidation of Kiwi and, as such, that the corporation recognized a gain on the liquidating distribution in the amount of $800,000 [$2 million (fair market value) - $1.2 million (inventory basis)]. Further, because Kiwi Corporation is devoid of assets, the IRS assessed a tax due from Shelly for her gain recognized in the purported liquidating distributi... ... middle of paper ... ...return audit. Kiwi Corporation should have a recognized gain of $800,000 for liquidating the inventory and Shelly is responsible for the tax liability based on transferee liability. Shelly Zumaya should have a recognized gain of $1.6 million ($2 million inventory value - $400,000 stock basis). Research: We started our research by reading through the discussions posted within the Topic of Research. From there we read the recommended pages of the text, 20-2, 20-3, and 20-4 regarding the liquidation process. Using the CCH Tax Research Network, we used a selected content search, Federal Tax--Federal Tax Editorial Content--Standard Federal Tax Reporter (2014), to research the following laws: Section 331(a), 336(a), and 6901(a). We also used the Citator in CCH to review the facts and decisions shown in the liquidation cases of Kennemer and Al Zuni of Arizona.
... incident related to misuse of inventory to the manager. He can also be charged of planning to join the scheme later due to which he didn’t reported about the fraud.
Moncrief Company agreed to pay Jim Lester 20% of the gross profit made from the 2013 sales of the Zelenex. Between January 1, 2013 and December 28, 2013, Moncrief’s total available units for sale were, 50,000 units of Zelenex for $30.00 per unit ($1,500,000). Also in addition to the former activities, Moncrief sold 35,000 units for $60.00 per unit ($2,100,000). Moncrief Company uses periodic LIFO inventory method as a result, Jim Lester was to receive $210,000. (Textbook pg.469)
In the case or Yost v. Rieve Enterprises, Inc. Rieve Enterprises engages into a contract with Mr. Yost for a lease to purchase deal. The facts of the case are that Rieve visited the Red Barn Barbecue Restaurant with the intention of purchasing. Rieve and Mr. Yost entered into a contract after Rieve conducted a visual inspection of the premises. The deal was to include a five year lease with the option to buy the land and building. Prior to the sale, the Red Barn had been cited for numerous health code violations. Mr. Yost had these all corrected and disclosed this information. Mr. Yost then warranted that “the premises will pass all inspections” to conduct business. Shortly after Rieve Enterprises
The company Builder Square, Inc. was in the market to sell, subletting, or leasing vacant K-mart stores, in-turn found Network Group to carry out this process throughout the Ohio area. A deal was struck that Reisenfeld’s with the company Network that they would receive $1 per square foot for a store that was subleased totaling $260,320 in commissions. Unfortunately, Network’s sole shareholder was defrauding BSI in various ways. As a result, that Reisenfeld’s was left high and dry, with no money from the commission. After having a suit brought against Reisenfeld’s, and BSI stated that under restitution (unjust enrichment). Under Ohio law, there are three elements for quasi-contract claim. There must be (1) a benefit conferred by the plaintiff upon the defendant; (2) knowledge by the defendant of the benefit; (3) retention of the benefit by the defendant under circumstances where it would be unjust to do without payment (Kubasek, 2015, p. 313). It is the third one that the disagreement was based on was having the problem with; whether it would be unjust for BSI to retain the benefit it received without paying Reisenfeld’s for it. The courts ruled that Reisenfeld’s may seek payment from BSI under quasi-contract theory this in fact overruled the trial court’s judgment.
The IRS usually do not need to validate ordinary business transactions since both the involved parties behave on their own self-interests. However, the IRS is skeptic of any transactions when it comes to evasion of estate taxes and international subsidiaries. When two unrelated companies enter in a transaction, they are involved in arm’s length transaction. However, such is not the case for related companies as they may try to distort the price of the transaction to avoid tax burden. As the boundary of tax evasion and tax avoidance is very thin, especially when it comes to estate tax and international subsidiaries, people often tend to topple over to the evasion side. The case of Estate of H.A. True, Jr. v Commissioner of Internal Revenue in 2005 illustrates the difficulty of obtaining the objective of tax avoidance and how expensive the failed effort of tax avoidance can be (Journal of Financial Service Professionals). Numerous cases of tax avoidance and evasion such as XILINX Inc. and H.A. True illustrate the confusion surrounding the arm’s length standards (ALS) and its application to cost sharing agreements (CSAs). In case of XILINX, the court altered its decisions few times considering the uncertainties of the arm’s length standards. Meanwhile the company believed to have satisfied the standards. Due to the complexity of the arm’s length standards, these cases were compared to other similar transactions. However, it is rare to find two identical cases which meet all the criteria. In both of these cases, the court couldn’t pin point what the actual standards of the arm’s length standards were, giving rise to opportunities of tax evasion. To put the arm’s length standards to a simplest form, the standard requires the two related parties to structure their transactions in such a manner as they would if they were two unrelated parties in similar
In Dean Q. Wynn’s 3½ IRS Audit Red Flags, he attempts to teach the layperson to learn how to hire competent personnel to ensure proper and accurate filing of tax returns in order to avoid being audited by the IRS. This is because he believes that for most people, the reason behind being subjected to IRS audits is the improper filing of tax returns, which is in turn due to having hired incompetent personnel. Wynn does this by listing the various traps one has to avoid and supplements this by providing real-life case studies of various tax scenarios for better understanding.
Madura, Jeff. What Every Investor Needs to Know About Accounting Fraud. New York: McGraw-Hill, 2004. 1-156
Ms. Read reported the interest income from the installment promissory note in her 1988, 1989, and 1990 tax returns. However, she did not report any principal income from the stock transfer transaction in her tax return. Mr. Read also
According to the Case Management Society of America, case management is "a collaborative process of assessment, planning, facilitation, care coordination, evaluation, and advocacy for options and services to meet an individual's and family's comprehensive health needs through communication and available resources to promote quality, cost effective outcomes" (Case Management Society of America [CMSA], 2010). As a method, case management has moved to the forefront of social work practice. The social work profession, along with other fields of study, recognizes the difficulty of locating and accessing comprehensive services to meet needs. Therefore, case managers work with these
Morgens died on August 25, 2002, but made transfers in 2000 and 2001 into a trust. Her estate tax return was timely filed (on extension) on November 24, 2003. Under the “gross-up rule,” a decedent's gross estate includes all gift taxes paid by the decedent within three years of her death. Conversely, the return filed by the Estate did not include, as part of the gross estate, the gift taxes shown as paid on Mrs. Morgens' 2000 and 2001 gift tax returns. The Commissioner determined a deficiency based on the failure to include the gift tax in the gross estate, and issued a notice of deficiency accordingly. The Estate petitioned the Tax Court for a redetermination.
FIJI Water (FIJI) is a brand of bottled water that is derived from an aquifer in the Nakauvadra Mountains in Fiji. FIJI was created for international distribution in 1995, under the corporate name of Natural Waters of Viti Ltd. It was marketed to appeal to health-conscious and image oriented consumers by touting the water’s silica-rich property that has been attributed to anti-aging and immunity boosting. FIJI Water has captured a large share in the bottled water industry in the niche premium segment alongside Evian and Perrier. The initial success of FIJI has been overshadowed by multifaceted issues that were exacerbated by management’s actions.
Taxes in the United States include payroll taxes, property taxes, sales taxes, and a multitude of others. These taxes may be imposed on individuals, business entities, estates, trusts, or other forms of organizations. In general, there is a lot of inquiry on the current tax system. With endless loopholes, a regressed economy, and corruption there has been widespread anger on the current structure of taxation. Consequently, the wealthy have managed to become even richer despite the economic crisis. Furthermore, many taxpayers in the upper class have found loopholes to avoid substantial taxation or otherwise known as tax evasion. (Stewart 2013) Tax evasion has only grown over the years and with the national debt has become a major issue. What is more, is the intense complexity of the entire taxation process. Addressing all the issues and problems regarding the taxation structure is a meticulous and arduous process. With this in mind, politicians from both parties have tried to address individual issues within the taxation paradigm. Being that the United States has the highest corporate tax in the globe, politicians have tried to change policy regarding taxation on businesses. (Sullivan 2013) How...
In today's society income taxes are something in which almost everyone is familiar. However, the tax law and general purpose of income taxes is something in which the general society gives little thought. In addition, few tax preparers are aware that differences exist between the Generally Accepted Accounting Principles (GAAP) and tax accounting, not to mention the ramifications of avoiding or evading to proper complete the reporting of income taxes. This paper will discuss the objectives of modern tax law, the differences between Generally Accepted Accounting Principles (GAAP) and tax accounting as well as the differences between tax evasion and tax avoidance.
There are 3 types of corporate income taxes as follows: National 30% of taxable income, Local 20.7% of National Tax, and Enterprise 10.08% of taxable income. The calculated effective tax rate of 42.05% although they simply add up to 46.29% (30.0% + 30.0%X20.7% + 10.08%). It is because Enterprise tax is deductible for the other tax purposes only when it becomes due. Tax evasion involves fraudulent or criminal behavior, conduct involving deception, concealment, or destruction of records. Tax evasion occurs when the taxpayer fraudulently or criminally avoids the payment of taxes otherwise due and owing under the tax laws. There are many tax crimes under the Internal Revenue Code. The criminal violations cover the same territory as the civil fraud penalties, although the government has a higher burden of proof in the criminal cases. The criminal cases, however, reach a far greater spectrum of potential defendants. Unlike the civil penalties which target only the taxpayer, the criminal penalties reach anyone engaging in the defined offense, including employees, accountants, lawyers and tax preparers. Under IRC Sec. 7206(2), a person is guil...
Evolving since the 1980’s, case management, an essential part of quality assurance programs, promotes excellence and efficiency in consumer health care, while conserving costs for health care organizations. Effective case managers answer the demands of changing health in promoting and facilitating a patient’s progression of care (Scott 2014).