Nova Southeastern University IRS Practice and Procedure   Final Exam    John Gray

Please submit to me via internal course email by noon ET on Monday, December 8, 2014

  Use a Nova coversheet.

Question One is a Short Answer Question.  Each part of this question can be answered in a sentence.  The other questions generally require longer answers.

1. C-Ment Industries, Inc. is in the business of designing, manufacturing and selling concrete equipment vehicles. In 2013, C-Ment designed and manufactured a line of concrete pumping vehicles to transfer concrete from cement mixers to specific points within a construction site. The pumping equipment is mounted on a specially modified truck chassis.

C-Ment wishes to ensure that the concrete pumping vehicles are not subject to excise tax under Internal Revenue Code Section 4051.

(1) With what level of the IRS will Wheeler have to deal?

(2)  With which office?

(3) Before going ahead with its plans, what type of ruling should C-Ment seek from the IRS?

2.  You prepared Henry Helpless’ tax return for 2013 and Helpless has been called in by a Revenue Agent. He asks you to attend the meeting.

(A) Assume that you are Friendly Frank, Helpless’ neighbor, who has prepared the return without compensation. What document(s), if any, must you file with the IRS to accompany the taxpayer and act in the capacities described below?

(1) To receive or inspect confidential tax information.

(2) To act as an advocate on behalf of Helpless and perform acts as described in Reg. § 601.504(a).

(B) Assume the same facts in (A), except that Helpless is not present at the meeting. What document(s), if any, must you file in the following capacities:

(1) To receive or inspect confidential tax information.

(2) To act as an advocate on behalf of Helpless and perform acts as described in Reg. § 601.504(a).

(C) Assume that Henry Helpless compensates you for preparing his return. Would your answers to the questions in (A) and (B), above, differ? Why or why not?

3. You work for Modmfg as an internal accountant. Modmfg is a very successful sole proprietorship. During the year, Peter Proprietor sells his business, Modmfg, to Newton Owner. Owner asks you to stay on as internal accountant and you agree. At the same time, Proprietor wishes you to continue to prepare his personal tax returns, something you have done for fifteen years.

When it comes time to prepare Peter Proprietor’s personal return, you review the contract for the sale of the business. You notice for the first time that the contract drafted by Owner’s attorney has allocated 100% of the purchase price to the tangible assets of the business, with no amount allocated to good will at all. You believe that this is an unreasonable allocation, so in reporting the gain on Proprietor’s return, you allocate 50% of the purchase price to good will. You are not involved in the preparation of the personal return for Newton Owner, since that task is handled by the outside accountant who worked with Owner’s attorney in drafting the contract for the purchase of the business.

Approximately a year later, Proprietor receives a notice that he has been called in for an office examination for a review of the sale of the business. Proprietor asks you to represent him before the IRS in connection with this audit. At the same time, your responsibilities at Modmfg have been growing and Newton Owner has just asked you to be its senior representative in dealing with the IRS in connection with a field audit that is about to be conducted of the operations of Modmfg. You realize that Proprietor’s and Owner’s interests are adverse as to the allocation of the purchase price and that you may have a potential conflict of interest in seeking to represent both of them.

(A) Under Circular 230, can you represent both of them?

(B) What could you do if you wish to represent them both?  Can you do anything?

(C)Can they agree on an allocation of the purchase price between themselves prior to the time that the audits are scheduled?

(D)  If they agree on an allocation of the purchase price between themselves prior to when the audits are scheduled, is the IRS bound by their agreement/allocation?

4.  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 thereasonableness of its accumulated earnings?

(B) Should you wait to discuss the issue with the Appeals Office? See Code Sec. 534.

5.  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?

6.  Constance C. Enshus, the limited partner in BildaBrickhouse, a real estate partnership, received a copy of financial information prepared by the general partners of the partnership. In reviewing the information,Connie finds what she believes should be an additional deduction for the partnership for the preceding year. Connie writes to the general partner (who is also the TMP) asking that he prepare an amended return. The general partner disagrees with Connie and informs her of his decision. Connie still believes she is right and proceeds to file a Request for Administrative Adjustment (RAA) seeking a refund of $4,050, her proportionate share of the refund due as a result of the adjustment at the partnership level. Connie is notified by the IRS on September 16, 2009, that her RAA has been treated as requesting a refund for a nonpartnership item.

(A) Assuming the IRS decides the TMP was correct and no refund is allowable, what is the last day that Connie can commence an action in federal court to litigate the matter?

(B) What action, if any, is required as a condition precedent to Connie’s commencing legal action?

(C) Does it matter that the partnership has elected to be governed by the large partnership rules?