Question

[Research Problem 1]

Facts:

Jason is a promising left-handed pitcher for the KIU baseball team. he has been drafted by the Chicago Cups. In 2018, he is offered two separate contracts by the Cubs. The first contract provides that he will be paid $1,000,000 as a bonus in 2018. The second provides that the Cubs will transfer $1,000,000 into a bank account in his name for withdrawal no earlier than 2020. He will also be paid the market rate of interest upon payment of the $1,000,000 in 2020. Laser accepts the second contract.

Tax Issues:

Is the $1,000,000 payable to Laser in 2020 taxable to Loser and, if so, in what year?

Tax Sources:

Memo (Analysis & Conclusion):

Explanation:

[Research Problem 2]

Facts:

Emily has been charged with failure to file her 2017 federal Form 1040. As such, she has come to your office to seek your assistance. She wants to file her 2017 Form 1040 but believes the "reasonable cause" exception should apply. She was under a great deal of stress at work and her in personal life during the 2018 filing season. As a result, Emily developed a sleep disorder which was treated with a combination of pills and counseling.

You prepare Emily 2017 Form 1040. She agrees to pay the tax and related interest but insists the failure-to-pay penalty does not apply as she will ill. She feels she should not be expected to meet the usual deadline for filing since she was ill.

Tax Issues:

Please write letter to Emily explaining whether she will be required to pay the failure-to pay penalties or whether she meets the criteria to be exempted from the penalty. Write memo to the tax files supporting your conclusion.

Tax Sources:

Letter to Emily:

Memo:

[Research Problem 3]

Facts:

Your client, Jackie, has been accused of criminal tax fraud. Jackie dropped out of high school during her freshman year. Over the past several years she received hundreds of thousands of dollars from Sam, an elderly gentleman, in exchange for love and companionship. When Sam died and she was left out of the will, Jackie sued the estate for compensatory payments earned throughout her years of tending to Sam.

Tax Issues:

The government now accuses Jackie of fraud for failing to file income and self-employment tax returns for the open tax years. Please provide any defense Jackie may have against the fraud charges.

Tax Sources:

Tax Analysis and Conclusion:

Answer 1

Ans)

Reasearch problem 1)

Interest received by loser is taxable in the year in which it is received and Amount of $ 1000000 is taxable in the year in which it earned, therefore $ 1000000 which is receivable in the year is taxable in the year 2018 only.

Research problem 2)

As per IRS A taxpayer requires to pay penalties if he fails to file return on due date. reasonable cause can be considered by IRS only on the following situations.

• Fire, casualty, natural disaster or other disturbances
• Inability to obtain records
• Death, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family
• Other reason which establishes that you used all ordinary business care and prudence to meet your Federal tax obligations but were nevertheless unable to do so.stress of work does not fall in the above situations therefore she is liable to pay the penalties.

Research problem 3)

As per IRS Gross income includes all type of income earned from all sources and tax is paid on gross income minus deductions therefore in this case govt. correct and she should file return in open year