Investment Counsel Company

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We at the Investment Counsel Firm are pleased that you have decided to take advice on the company's tax returns for 2016. Our organization has specialized in US Code 6103 for over twenty years. Over that time, we have given outstanding guidance to our clients on secrecy and the transparency of sales and return records. We assume that any company should report tax details in accordance with the regulation. As your tax adviser, I will walk you through the issues that may arise from failure to recognise signs as revenue. I will also suggest a viable accounting method that will be applicable for the case of your firm.

A review of the confidentiality and disclosure of returns code is critical in helping you to make a viable economic decision. This step will ensure that you familiarize yourself with the laws concerning the release of tax returns.

Facts

Before we continue with this discussion, it is important to bring your situation into the context of law. During the 2016 Financial Year, your Casino had made a net income of $9,000,000. This amount excluded the markers of your customers. Including the markers in the net income increases the value to $11,000,000. So far, your Tax returns remain not filed, and your company has not yet made any accounting decision. The proprietor of the firms prefers to exclude the markers as a source of income for the enterprise.

§6103 requires that a company provides information concerning the returns, declaration of the estimated tax or the claim for a refund requested by the enterprise. The return information must include the income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liabilities, tax withheld, deficiencies, over-assessments and tax payments.

Analysis

With the essential characteristics of the Code exemplified, we proceed to determine if excluding the markers is a legal approach for the firm. The U.S. law requires any income generating individual or corporation to pay taxes to the government. The definition of the operations of your company clearly shows that it is an income generating firm. Therefore, it qualifies to pay taxes to the government. 26 U.S.C. §1 imposes a tax on taxable income. 26 U.S.C. §63 defines taxable income as the gross income less the allowed deductions. 26 U.S.C. §61 defines the gross income as the revenue from all sources derived. According to 26 U.S.C. §6012, every individual must file the returns with the gross income for every year. In most cases, firms and individuals have upheld the federal government’s authority to collect income taxes, based on invalid arguments.

From our exploration, we found that the U.S. law does require taxation on the debts. Individuals who are legally indebted to repay some fixed or determinable amount have a debt. However, there are cases where debts are canceled. Section 61(a) (12), codified of 284 U.S. §1, states that income from the discharge of indebtedness is included in the gross income. Cancellation of debts may result from a variety of transactions that involves relief of debt repayment obligation or by operational of law. Income arising out of bankruptcy or insolvency, with a focus on the difference in the tax treatment of corporations and partnerships, are taxable.

For the case of your firm, the markers are forms of debts that are payable to the enterprise for the customers. Before proceeding with further analysis, it is clear that the markers do not fall under the cancellation of debts, as per 284 U.S. §1. The markers can only be included in the Gross Income if the cash basis taxpayer does not pay them. Therefore, the markers are not taxable under the provisions of the U.S. tax laws.

From the information we have provided, your firm must prepare the tax returns for the year 2016. The law requires that every income generating entity pays tax to the federal government at the end of every financial year. The tax returns should file the taxable income, which includes the gross income less the allowed deductions. For this case, the gross income equals to:

Since the markers are forms of debts given to the customers, which they are required to repay into the firm. These markers are, therefore, not taxable under the requirements of the U.S. federal law. Therefore, we can classify them as the allowed deductions. The accounting plan should only include the gross income as the taxable income. The management of your firm should, therefore, design a taxation plan that considers all sources of income and allowed deductions. Such a policy will be applicable even in the future when the sources of income of the firm will have increased.

We hope that the advice we have provided delivers the best approach to develop the taxation plan for your firm. In case you have a further question or concern about tax disclosure, do not hesitate to contact us.

Sincerely,

Work Cited

Bellandi, Francesco. 2012. Dual Reporting for Equity and Other Comprehensive Income Under IFRSs and U.S. GAAP. Boston: John Wiley & Sons.

Congress. 2016. 26 U.S. Code § 6103 - Confidentiality and disclosure of returns and return information. July 3. Accessed April 25, 2017. https://www.law.cornell.edu/uscode/text/26/6103.

Hechman, Joseph. 2010. The Law that says we have to pay federal income tax. March 2. Accessed April 25, 2017. https://taxfoundation.org/must-pay-federal-income-tax/.

IntraWEB, LLC. 2014. Title 26 Internal Revenue Part 1 (§§ 1.61 to 1.169) (Revised as of April 1, 2014): 26-CFR-Vol-2. New York: IntraWEB, LLC.

Mandarino, C. Joseph. 2010. Real Property/Trust & Estate. March 29. Accessed April 25, 2017. http://www.americanbar.org/publications/probate_property_magazine_home/probate_2010_index/probate_mar_apr_2010_index/rppt_mo_premium_rp_publications_magazine_2010_ma_TaxEffectsofDebtCxl.html.

Muraco, M. Jason, and M. Michelle Brower. 2010. Debt Restructuring Poses Various Income Tax Challenges and Considerations. May 2. Accessed April 25, 2017. https://www.srr.com/article/debt-restructuring-poses-various-income-tax-challenges-and-valuation-considerations.

Pegach, Donald, P. Jefferson Jones, and M. James Wahlem. 2015. Intermediate Accounting: Reporting and Analysis. New Jersy: Cengage Learning.

Schwartzman, A. Randy, Patricia Brandstetter, and J.D. Melville. 2015. Tax Considerations for Cancellation-of-Debt Income. May 1. Accessed April 25, 2017. http://www.thetaxadviser.com/issues/2015/may/tax-clinic-06.html.

November 23, 2022
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Life Business

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Investment Tax Company

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