Individual Income Taxes

Leo Vodovozov

Income Tax 1

Module 1 Assignment Part 1

Chapter 2.

Research Problems # 3

A. Charles Y. Choi, T.C. Memo. 2002-183

You can't just estimate your gross receipts from your expenses. That's what the taxpayer did in Charles Y. and Jin Y. Choi (T.C. Memo. 2002-183). The taxpayer operated a grocery store and estimated his cash sales by marking up his purchases by 25%. The IRS used the bank deposits method to reconstruct his income and determined the taxpayers had underreported their income by $223,000 for one year and $161,000 for another. The taxpayer had pleaded guilty to criminal tax evasion for one year. The Court found the IRS was correct in its method of reconstructing income and the taxpayer was liable for tax on the unreported income. The Court also found the taxpayers liable for the fraud penalties because they exhibited a pattern of fraudulent activity and concealment of income. Trying to create loopholes in order to trick the government won’t work because the government are structured to be prepared for this particular situation.

B. Ltr. Rul. 200231003. It’s basically a tax free merger between the companies with no gain or loss to be recognized between the two.

C. Action on Decision, 2000-004, May 10, 2000

This particular case involves a tax protester who tries to argue that his wages and pension should not be subject to taxation. The Court considered the petitioner’s arguments frivolous, found for the IRS, and imposed a $1,500 penalty.