taxation chapter2 - Chapter 2 Tax Compliance, the IRS, and...

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Chapter 2 Tax Compliance, the IRS, and Tax Authorities SOLUTIONS MANUAL Problems (1) [LO1] Ahmed does not have enough cash on hand to pay his taxes. He was excited to hear that he can request an extension to file his tax return. Does this solve his problem? What are the ramifications if he doesn’t pay his tax liability by April 15? Extensions allow the taxpayer to delay filing a tax return but do not extend the due date for tax payments. If a taxpayer fails to pay the entire balance of tax owed by the original due date of the tax return, the IRS charges the taxpayer interest on the underpayment from the due date of the return until the taxpayer pays the tax. The interest rate charged depends on taxpayer type (e.g., individual vs. corporation) and varies quarterly with the federal short-term interest rate. The interest rate for tax underpayments for individuals equals the federal short-term rate plus three percentage points. (2) [LO1] Molto Stancha Corporation had zero earnings this fiscal year; in fact, they lost money. Must they file a tax return? Yes, all corporations are required to file an income tax return regardless of their taxable income. (3) [LO1] The estate of Monique Chablis earned $450 of income this year. Is the estate required to file an income tax return? Because the estate’s gross income is less than $600, the estate is not required to file an income tax return. (4) [LO1] Jamarcus, a full-time student, earned $2,500 this year from a summer job. He had no other income this year and will have zero federal income tax liability this year. His employer withheld $300 of federal income tax from his summer pay. Is Jamarcus required to file a tax return? Should Jamarcus file a tax return? Jamarcus is not required to file an income tax return because his gross income of $2,500 is well below the gross income threshold for a single taxpayer. However, he should file a tax return to receive a refund of the $300 previously withheld. (5) [LO1] Shane has never filed a tax return despite earning excessive sums of money as a gambler. When does the statute of limitations expire for the years in which Shane has not filed a tax return?
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The statute of limitations remains indefinitely for years in which the taxpayer fails to file a return. (6) [LO1] Latoya filed her tax return on February 10th this year. When will the statute of limitations expire for this tax return? The statute of limitations generally ends three years from the later of (i) the date the tax return was actually filed (3 years from February 10th of this year) or (ii) the tax return’s original due date (3 years from April 15th of this year). Accordingly, Latoya’s statute of limitations for the tax return will end 3 years from April 15th. (7) [LO1] Using the facts from the previous problem, how would your answer change if
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taxation chapter2 - Chapter 2 Tax Compliance, the IRS, and...

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