W2 Discussions
W2 Discussion #1
Let’s start off the week by looking at items that are considered in tax research. Choose one of the following independent situations and indicate whether the item is generally a tax or a nontax consideration in solving a tax research or tax planning problem. Please include a full explanation as to why you have chosen the way you did and try and choose one that hasn’t been done. Once we have worked through these 5, please make up one of your own and ask your classmates what they think.
a. The taxpayer hates to pay Federal taxes. He will take any legal action to avoid paying any Federal income, estate, or gift taxes.
b. The taxpayer does not trust the United States banking system and moves all her money to a bank in Switzerland.
c. The taxpayer is married and his spouse is financially nave. Since he is in bad health, the taxpayer wants to make sure his wife will be taken care of financially if he were to suddenly die.
d. The taxpayer wants to purchase rental real estate. He wants to make sure that he will not be subject to a high state tax where he buys.
e. The taxpayer owns city of San Diego bonds instead of putting his money in a commercial bank.
Comment #1
Tax Research is the process undertaken to answer taxation questions relevant to the researchers needs (Sawyers, Raabe, Whittenburg, Gill, 2015). The tax research process requires the use of skills including solving problem, reasoning, and creativity. The first steps in the tax research process are to analyze the available facts, pin-point the legal issues involved, and formulate an appropriate tax question (or questions) to be researched (IRS, 2020).
The tax research process includes six steps:
1. Establish the facts
2. Identify the issue (s)
3. Locate authority
4. Evaluate authority
5. Develop conclusions and recommendations
6. Communicate the recommendations
During the tax research process is important to consider significant tax facts that can influence the situation including: clients tax entity, family status and stability, past, present and projected marginal tax rates, place of legal domicile and citizenship, motivation for the transaction and relationship between client and other partied involved in the transaction. There are many resources available when conducting tax research.Primary sources are documents issued by the government; secondary sources are prepared by vendors who provide tax research services, legal analysts, scholars, and tax professionals.
The independent situation I choose is: The taxpayer is married, and his spouse is financially nave. Since he is in bad health, the taxpayer wants to make sure his wife will be taken care of financially if he were to suddenly die. This independent situation is generally a tax consideration in solving a tax research problem because it represent an individuals family status and stability which is one of the significant tax facts that can influence a clients situation.
Comment #2
The taxpayer that is willing to take any legal action to avoid paying Federal income, estate, or gift taxes in my opinion would be a tax consideration in solving a tax research problem. A gift tax is imposed for each calendar year upon the transfer during such year by any individual, resident or non-resident, of property by gift (Pecci, 1969).In the tax research process the most important step is to find the legal issues that are involved. The tax applies whether the transfer is in trust or otherwise, whether the property is real or personal, tangible or intangible (Pecci, 1969).For citizens or residents, the tax applies whether the property is situated within or without the United States, to the extent the value of the transfers exceeds the exclusions and deductions allowed (Pecci, 1969). When taxpayer fail topayfederal income taxeswithout a cause they may be charged a late penalty of thetaxesowed for every month or part of the month thetaxremains unpaid. The IRS handles those taxes that are not paid. Althoughtax researchis frequently performed at the staff level and the staff person’s work is typically reviewed by superiors in the firm, the information located (or not located) by the staff person is likely to influence the advice given to clients and, at a minimum, affects the cost of providing this advice (Cloyd, 1995).
I chose this specific topic because there are many taxpayers that find ways to get out of paying taxes which is wrong. The federal estate tax, originally adopted in 1916 as an emergency measure, is now regarded as a permanent part of our federal tax system (Dyckman, 1957). Its primary purpose is to tax the transfer of property at death (Dyckman, 1957). Mechanically the tax is levied not only on testamentary and intestate transfers, but also on transfers which Congress has deemed to be their substantial equivalents (Dyckman, 1957). It is the sum total of all this property, called the gross estate, which provides the logical starting point for the study (Dyckman, 1957). COVID has affected many taxpayers which may result in many issues for taxpayers that still has not paid.
Discussion #2
Tax law provisions tend to change over time.Explain how this might affect tax research and planning and provide an example of when this has happened.
Comment #1 (SD)
Tax laws provisions usually change on a yearly basis whereas research and planning project may encompass several tax years. Changes that occur during the period might affect a project. When using the provisions, you should always be updated with the changes.The major purpose of The Revenue Act of 1964 is not only for tax reform but also to improve our foreign balance of payments and to stimulate our economy (Salzman, 1965).It is expected that investments in new facilities will encourage increased employment (Salzman, 1965).With changes in the tax laws which establish what appear to be tougher rules in relation to personal holding companies, sales of over-depreciated realty, multiple corporations, etc., tax revenue should increase as the economy continues to improve due to the many beneficial law changes (Salzman, 1965). The TaxCuts and Jobs Act of 2017 (TCJA) is generally considered the most significant taxlegislation since the TaxReform Act of 1986 (Honaker & Thomas, 2019). While companies initially focused on the law’s taxconsequences, financial statement considerations are also significant, particularly given the proximity of the law’s passage to the 2017 calendar year-end (Honaker & Thomas, 2019). Changes in tax provisions might affect economic growth.
Also, positive or even negative impacts on the future can increase or reduced marginal tax rates may impact personal savings and investments.Internal Revenue Code (IRC) section 7216 and its lengthy regulations govern when a tax return preparer may disclose or use a taxpayer’s taxreturn information without first obtaining the taxpayer’s consent (Rule, 2019). Because it is a federal crime to violate section 7216 and its regulations, CPAs should familiarize themselves with these provisions (Rule, 2019). Because there are so many changes researches can arrive at different conclusions and recommendations. The tax year would be a major fact when having differences.
Comemment # 2 (FM)
To provide a better service, tax professionals must be prepared in accordance with current regulations. AICPA establishes the best practices for tax research through Circular 230, Code of Professional Conduct and the Statements of Tax Criteria and Services (SSTS). According to these standards, CPAs must keep excellent record of all tax studies. (AICPA, 2017) Most professionals agree that the most important aspect of tax practice is tax research. To define it in a simple way, it can be said that tax research is a method of gathering and synthesizing information to address a specific tax problem. Whatever the area of tax practice (compliance, preparation or litigation), tax investigation plays an important role.
Another important area of tax practice is tax planning. Although taxpayers generally have a degree of control over their potential tax liabilities, a professional can offer better strategies to ensure a more favorable tax impact. Tax planning takes care of that. However, both areas of tax practice, research and planning are constantly faced with changes in tax provisions issued by the relevant institutions. Owing to adjustments in tax laws, effective proposals formulated in previous years may no longer be eligible in the current year for replication. The tax professional must be confident when preparing a tax plan that a proposal complies with the laws in place at the time the proposal is to be put into action.
