1) At the conclusion of his corporate audit, the Revenue Agent questions the reasonableness of the

corporation's accumulated earnings. For the current year, the corporation has total additions to accumulated earnings of $300,000. The balance at the beginning of the year was $750,000, and there is a plethora of liquid assets reflected on the corporate balance sheet. The corporation manufactures computer parts and has two shareholders, Mr. Greed and Mr. Glutt. Dividends have not been declared in the last 10 years.

However, the corporate minutes reflect various anticipated needs of the business as reasons for the accumulation of earnings, including an acquisition of or an expansion into other businesses.

(A) Should you discuss with the agent the grounds on which the corporation relies to establish the reasonableness of its accumulated earnings?

(B) Should you wait to discuss the issue with the Appeals Office? See Code Sec. 534.
2)Ray is the Vice-President of tax for BigCo Inc., a new client of your CPA firm during tax season in the spring of 2011. Ray tells you about an investment of BigCo during 2010. When you tell Ray that the investment is a listed transaction, he is not happy about BigCo disclosing it to the IRS. What are Ray's consequences of failing to disclose the listed transaction to the IRS?

Ray further tells you that BigCo is considering entering a transaction with a group that guarantees a refund of any fees if BigCo does not achieve the desired tax losses. What should you advise Ray regarding this potential transaction?