Power Point Presentation
Research Case 2-4 (p.463)
Gwen Gullible was married to Darrell Devious. They were divorced two years ago. Three years ago (the year before their divorce), Darrell received a $500,000 retirement plan distribution, of which $100,000 was rolled over into an IRA. At the time, Gwen was aware of the retirement funds and the rollover. The distribution was used to pay off the couple’s mortgage, purchase a car, and cover living expenses. Darrell prepared the couple’s joint return, and Gwen asked him about the tax ramifications of the retirement distributions. He told her he had consulted a CPA and was advised that the retirement plan proceeds used to pay off a mortgage were not taxable income. Gwen accepted that explanation and signed the return. In fact, Darrell had not consulted a CPA. One year ago (after the divorce), Gwen received a letter from the IRS saying it had not received the tax return for the last full year of marriage. On advice from a CPA, Gwen immediately filed the return (she had a signed copy of the unfiled joint return). The IRS notified Gwen that no estimated payments on the retirement distribution had been paid by Darrell, and that she owed $140,000 in tax, plus penalties and interest.
a) List as many possible tax research issues as you can to determine whether Gwen is liable for the tax, interest, and penalties.
b) After completing your list of tax research issues, list the keywords you might use to construct an online tax research query.
c) Execute an online search using your query. For simplicity, select the IRS Revenue Rulings database from the online tax service you use. Summarize your findings.
Answer from Solution Manual
a) Possible tax research issues might include the following:
· Would payment of the tax by Gwen constitute financial hardship?
· Was Gwen involved in taking care of the couple ‘s finances?
· Was Gwen abused by her ex-spouse?
· Was there a divorce decree that would cause Darrell to be responsible for making the tax payments?
· Did Gwen derive benefit from the IRA distribution?
b) Examples of key words:
· IRA
· distribution
· medical
· tax liability
· spouse
· divorce
· joint return
· relief
· innocent
· deceit
c) There are many possible search queries, many of which will locate the answer to this case. For example, a proximity query using CheckPoint could be as follows:
―spouse tax liability‖ and divorce and ―joint return‖
This query should return IRC § 6015, which explains that it‘s possible Gwen could be relieved of the tax liability if she files for relief from joint and several liability on her joint return. Particularly, astute students will observe that the CPA that Gwen consulted that instructed her to immediately file the copy of the return was negligent. The CPA should have advised Gwen to immediately file a return including only her own income and using either the Married Filing Separate or Head of Household filing statuses (as appropriate), which would have allowed Gwen to fully avoid liability for the tax stemming from Darrell‘s retirement withdrawals.
Requirements
Using current literature, prepare a
PowerPoint presentation with 4-5 slides in response to Research Case 2-4 (p.463) . Your presentation must have either
speaker notes or you can record sound of what you will present as the solution to this case.
Source: Federal Tax Research book and checkpoint
