Discuss why Congress passed the innocent spouse provision and detail the requirements to be met in order to qualify as an innocent spouse and be relieved of liability for tax on unreported income.
What will be an ideal response?
The provision was passed because each spouse is liable for the entire tax on a joint return as well as penalties imposed. This would not be fair if one spouse concealed information regarding income or deductions from the other spouse.
An innocent spouse is relieved of liability when
| 1. | The amount is attributable to grossly erroneous items of the other spouse. |
| 2. | The innocent spouse did not know of and had no reason to know that there was such an |
| 3. | To hold the innocent spouse liable for the understatement would be inequitable. |
| 4. | The innocent spouse elects relief within two years after the IRS begins collection activities. |
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A business segment should be eliminated if the revenue generated by the segment exceeds only its fixed costs.
Answer the following statement true (T) or false (F)
When creating a note-card for the sources you will use in your speech, it is suggested that you record the title, _______, and subject on the top of each card.
Fill in the blank(s) with the appropriate word(s).
Thermocore is a medium-sized company that produces wall paneling. Thermocore is a wholly-owned subsidiary of a holding company called Tempra-Sure, Inc Both Thermocore and Tempra-Sure, Inc are owned by the same individuals as principal shareholders
Thermocore has fallen on hard times due to a downturn in the construction industry in the primary market area the company serves. Sales of the company have declined and net losses have occurred for each of the last three years. The company is in dire need of cash but the owners of Tempra-Sure, Inc and Thermocore know that additional financing from a bank or other source is unlikely due to the company's weakened financial condition. The owners of Tempra-Sure, Inc and Thermocore believe that the downturn in construction will eventually reverse and that Thermocore will return to profitability when conditions improve. Based on these beliefs, the owners have proposed to the independent auditors a plan whereby the holding company (Tempra-Sure, Inc) would obtain a loan from a bank and then make an intercompany loan to Thermocore. Under this plan, the owners would sell their personal residences to Tempra-Sure, Inc. Lease agreements between Tempra-Sure, Inc and the owners would be drafted. These lease agreements would allow the owners to continue to occupy their homes. Title to the homes would pass to Tempra-Sure, Inc. Tempra-Sure, Inc would become involved in property management in addition to holding the stock of Thermocore. Tempra-Sure, Inc would have no additional properties other than the personal residences of the owners. The acquisition of additional properties by Tempra-Sure, Inc is unlikely. Required: Assume that you are the partner in the public accounting firm performing the audit of Tempra-Sure, Inc and Thermocore. Prepare your response to the owners of Tempra-Sure, Inc and Thermocore regarding the plan to obtain additional financing. Include references to the Conceptual Framework and underlying assumptions of accounting in your response.
Someone authorized to act on behalf of another is generally known as a(n):
A) Independent contractor. B) Agent. C) Employee. D) Surety.