Instructor Manual For Principles of
Taxation for Business and
Investment Planning 2026 (2025
Release) By Sally Jones, Shelley
Rhoades-Catanach (All Chapters 1-
18, 100% Original Verified, A+
Grade)
All Chapters Arranged Reverse: 18-1
This is the Only Original and
Complete Instructor Manual for
2026 Edition (2025 Release), All
Other Files in The Market are
Fake/Old/Wrong Edition.
,Chapter 18 The Tax Compliance Process
Questions and Problems for Discussion
1. The federal government charges interest on tax deficiencies regardless of the reason for the
deficiency, just as a bank charges interest on a loan regardless of the borrower’s reason for the
loan. The interest charge simply acknowledges the time value of money.
2. If the IRS concludes that GNT’s treasurer filed false or fraudulent returns with the intent to evade
tax, there is no statute of limitations on the time period during which the IRS can initiate an audit
of the returns.
3. A good tax law is certain in application and convenient for taxpayers. Without a statute of
limitations, the IRS could audit returns reflecting transactions and events that occurred many
years in the past and of which the taxpayer (or anyone else) has no accurate recollection.
People could never be certain that their tax payments for prior years settled their account with
the government. Finally, people would be required to keep a lifetime of records supporting the
information reported on their annual tax returns.
4. The return with a relatively small AGI and no itemized deductions would probably yield minimal
additional revenue if audited. In contrast, the return with a relatively large AGI and substantial
itemized deductions reflects a richer, more complicated, financial situation and is more likely to
contain errors. Consequently, an audit of this return would have an above average probability of
yielding additional revenue.
5. The return with AGI from the sole proprietorship has a much greater chance of audit because the
IRS knows that a self-employed individual has more opportunity for aggressive tax avoidance
than an employee.
6. The fact that both a national CPA firm and the SEC monitor the financial information on which
Vitronix’s tax returns are based suggests that the return accurately reflects the corporation’s
income. Because Wilson is closely held, its financial records may not even be audited.
Moreover, Vitronix’s managers may be more interested in maximizing the corporation’s reported
earnings per share than minimizing tax costs at the shareholder level. In contrast, Wilson’s
managers are more likely to engage in tax avoidance schemes that directly benefit the
corporation’s shareholders.
7. Because NK has so much more taxable income than CS, an audit of the former should generate
more revenue than an audit of the latter.
8.
a. Because Mrs. Merrick can provide written substantiation of the charitable contribution, the
IRS will certainly allow the deduction, and Mrs. Merrick will have no change in tax liability.
b. Because Mrs. Merrick ignored the request for substantiation, the IRS may disallow the
deduction and assess additional tax.
9. There is no right or wrong answer to this question. The IRS’s ability to cross check information
returns (Form W-2s, Form 1099s, Schedule K-1s) filed by payers of income against Form 1040s
that should report the income make it easier for the IRS to discover an omission of income.
However, many cash transactions in which individuals receive income do not leave a “paper
trail.” The omission of such income from a return may be almost impossible for the IRS to
discover.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution permitted without the prior written
consent of McGraw Hill LLC.
18-1
, The IRS has no systematic way to cross check many individual tax deductions. However, many
deductions are allowed only if the individual can provide written substantiation of the expense or
loss on which the deduction is based. Moreover, overstated or questionable deductions must
actually appear on the tax return, and their inclusion may be the red flag that triggers IRS
scrutiny.
10.
a. The IRS bears the burden of proof in demonstrating by a preponderance of evidence that
the taxpayer was negligent in preparing the tax return and is liable for the accuracy-related
penalty.
b. The IRS bears the burden of proof in demonstrating by clear and convincing evidence that
the taxpayer committed fraud in preparing the tax return and is liable for the civil fraud
penalty.
c. The IRS bears the burden of proof in demonstrating beyond a reasonable doubt that the
taxpayer committed criminal fraud in preparing a tax return and is guilty of a felony.
11.
a. Mr. Daly is liable for the $8,900 deficiency plus interest.
b. Mr. Daly apparently did make a significant effort to ensure the accuracy of the tax return.
Because of this good faith effort, the IRS should not impose an accuracy-related penalty on
Mr. Daly.
c. Mr. Ramirez may be subject to a tax return preparer penalty because the error made on Mr.
Daly’s return reflected an unreasonable legal position.
d. Because no compensation was received for preparing Mr. Daly’s return, Mr. Ramirez is not a
tax return preparer within the meaning of the tax law and is not subject to penalty for this
error.
12. Mr. Nugent may have acted rationally. Contesting the penalty may have controlled the damage
to Mr. Nugent’s professional reputation resulting from imposition of the penalty.
13. If Mrs. Emmet’s tax dispute is such that people would tend to identify and sympathize with the
circumstances, it may be a good choice to litigate in a U.S. district court because it is the only
trial court in which a jury trial is possible. On the other hand, Mrs. Emmet might prefer the Tax
Court because of the expertise of the judges and because the taxpayer is not required to pay the
deficiency before initiating the lawsuit. Of course, if either court has considered Mrs. Emmet’s
issue in previous cases, this legal precedent would be a very important factor in the selection. A
favorable precedent may motivate Mrs. Emmet to select that court. The opposite is true for a
precedent that is unfavorable to Mrs. Emmet.
14. Mr. Braun certainly benefited from the income that was omitted from their joint tax return.
Consequently, it is equitable for Mr. Braun to pay the tax deficiency despite no knowledge of the
omission. Thus, Mr. Braun is not entitled to relief as an innocent spouse.
Application Problems
1.
a. The unextended due date of a 2025 corporate income tax return is April 15, 2026.
b. The unextended due date of a 2025 individual income tax return is April 15, 2026.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution permitted without the prior written
consent of McGraw Hill LLC.
18-2
, 2.
a. The last date for filing an extension for an individual income tax return with a fiscal year
ending July 31, 2025, is November 15, 2025 (15th day of the fourth month following the close
of the year).
b. The extended filing date for the return is May 15, 2026, six months after the unextended due
date.
3.
a. The filing date for Zucker’s corporate tax return for its fiscal year ending March 31, 2025, is
July 15, 2025, and the extended filing date (six months later) is January 15, 2026.
b. The filing date for Zucker’s corporate tax return for its fiscal year ending June 30, 2025, is
September 15, 2025 (15th day of the third month following the close of the year), and the
extended filing date (seven months later) is April 15, 2026.
4.
a. The after-tax cost of the corporation’s deductible business interest is $3,397 ($4,300 – $903
tax savings at 21%).
b. The after-tax cost of Leslie Collin’s nondeductible personal interest is $4,300.
5.
a. The Gomez’s return was delinquent for one full month (April 16 through May 15) and for part
of a second month (May 16 through May 29). Consequently, their late-filing and late-
payment penalty is $1,976 ($19,758 balance due with return 10% [5% for two months]).
b. The Gomez’s have no penalty for filing late because there is no balance of tax due with the
return. By filing late, the Gomez’s simply delayed the receipt of their $7,098 refund.
6.
a. The Wickhams have no penalty for filing late because there is no balance of tax due with the
return. By filing late, the Wickhams simply delayed the receipt of their $1,160 refund.
b. The Wickhams’ return was delinquent for two full months (April 16 through June 15) and for
part of a third month (June 16 until July 14). Consequently, their late-filing and late-payment
penalty is $1,095 ($7,300 balance due with return 15% [5% for three months]).
7. Keyshawn’s return was delinquent for a part of one month. Consequently, his late-filing and late-
payment penalty is $181 ($3,612 balance due with return 5%).
8.
a. Ms. Schmidt’s return was delinquent for three full months (April 16 through July 15) and for
part of a fourth month (July 16 through August 8). Consequently, her late-filing and late-
payment penalty is $476 ($2,380 balance due with return 20% [5% for four months]).
b. If Ms. Schmidt did not file a return until November 21, the return was delinquent for seven
full months (April 16 through November 15) and for part of an eighth month (November 16
through November 21). In this case, her penalty is $631.
$2,380 25% (5% for five months) $595
$2,380 1.5% (one-half of 1% for three months) 36
Total penalty $631
© McGraw Hill LLC. All rights reserved. No reproduction or distribution permitted without the prior written
consent of McGraw Hill LLC.
18-3
Taxation for Business and
Investment Planning 2026 (2025
Release) By Sally Jones, Shelley
Rhoades-Catanach (All Chapters 1-
18, 100% Original Verified, A+
Grade)
All Chapters Arranged Reverse: 18-1
This is the Only Original and
Complete Instructor Manual for
2026 Edition (2025 Release), All
Other Files in The Market are
Fake/Old/Wrong Edition.
,Chapter 18 The Tax Compliance Process
Questions and Problems for Discussion
1. The federal government charges interest on tax deficiencies regardless of the reason for the
deficiency, just as a bank charges interest on a loan regardless of the borrower’s reason for the
loan. The interest charge simply acknowledges the time value of money.
2. If the IRS concludes that GNT’s treasurer filed false or fraudulent returns with the intent to evade
tax, there is no statute of limitations on the time period during which the IRS can initiate an audit
of the returns.
3. A good tax law is certain in application and convenient for taxpayers. Without a statute of
limitations, the IRS could audit returns reflecting transactions and events that occurred many
years in the past and of which the taxpayer (or anyone else) has no accurate recollection.
People could never be certain that their tax payments for prior years settled their account with
the government. Finally, people would be required to keep a lifetime of records supporting the
information reported on their annual tax returns.
4. The return with a relatively small AGI and no itemized deductions would probably yield minimal
additional revenue if audited. In contrast, the return with a relatively large AGI and substantial
itemized deductions reflects a richer, more complicated, financial situation and is more likely to
contain errors. Consequently, an audit of this return would have an above average probability of
yielding additional revenue.
5. The return with AGI from the sole proprietorship has a much greater chance of audit because the
IRS knows that a self-employed individual has more opportunity for aggressive tax avoidance
than an employee.
6. The fact that both a national CPA firm and the SEC monitor the financial information on which
Vitronix’s tax returns are based suggests that the return accurately reflects the corporation’s
income. Because Wilson is closely held, its financial records may not even be audited.
Moreover, Vitronix’s managers may be more interested in maximizing the corporation’s reported
earnings per share than minimizing tax costs at the shareholder level. In contrast, Wilson’s
managers are more likely to engage in tax avoidance schemes that directly benefit the
corporation’s shareholders.
7. Because NK has so much more taxable income than CS, an audit of the former should generate
more revenue than an audit of the latter.
8.
a. Because Mrs. Merrick can provide written substantiation of the charitable contribution, the
IRS will certainly allow the deduction, and Mrs. Merrick will have no change in tax liability.
b. Because Mrs. Merrick ignored the request for substantiation, the IRS may disallow the
deduction and assess additional tax.
9. There is no right or wrong answer to this question. The IRS’s ability to cross check information
returns (Form W-2s, Form 1099s, Schedule K-1s) filed by payers of income against Form 1040s
that should report the income make it easier for the IRS to discover an omission of income.
However, many cash transactions in which individuals receive income do not leave a “paper
trail.” The omission of such income from a return may be almost impossible for the IRS to
discover.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution permitted without the prior written
consent of McGraw Hill LLC.
18-1
, The IRS has no systematic way to cross check many individual tax deductions. However, many
deductions are allowed only if the individual can provide written substantiation of the expense or
loss on which the deduction is based. Moreover, overstated or questionable deductions must
actually appear on the tax return, and their inclusion may be the red flag that triggers IRS
scrutiny.
10.
a. The IRS bears the burden of proof in demonstrating by a preponderance of evidence that
the taxpayer was negligent in preparing the tax return and is liable for the accuracy-related
penalty.
b. The IRS bears the burden of proof in demonstrating by clear and convincing evidence that
the taxpayer committed fraud in preparing the tax return and is liable for the civil fraud
penalty.
c. The IRS bears the burden of proof in demonstrating beyond a reasonable doubt that the
taxpayer committed criminal fraud in preparing a tax return and is guilty of a felony.
11.
a. Mr. Daly is liable for the $8,900 deficiency plus interest.
b. Mr. Daly apparently did make a significant effort to ensure the accuracy of the tax return.
Because of this good faith effort, the IRS should not impose an accuracy-related penalty on
Mr. Daly.
c. Mr. Ramirez may be subject to a tax return preparer penalty because the error made on Mr.
Daly’s return reflected an unreasonable legal position.
d. Because no compensation was received for preparing Mr. Daly’s return, Mr. Ramirez is not a
tax return preparer within the meaning of the tax law and is not subject to penalty for this
error.
12. Mr. Nugent may have acted rationally. Contesting the penalty may have controlled the damage
to Mr. Nugent’s professional reputation resulting from imposition of the penalty.
13. If Mrs. Emmet’s tax dispute is such that people would tend to identify and sympathize with the
circumstances, it may be a good choice to litigate in a U.S. district court because it is the only
trial court in which a jury trial is possible. On the other hand, Mrs. Emmet might prefer the Tax
Court because of the expertise of the judges and because the taxpayer is not required to pay the
deficiency before initiating the lawsuit. Of course, if either court has considered Mrs. Emmet’s
issue in previous cases, this legal precedent would be a very important factor in the selection. A
favorable precedent may motivate Mrs. Emmet to select that court. The opposite is true for a
precedent that is unfavorable to Mrs. Emmet.
14. Mr. Braun certainly benefited from the income that was omitted from their joint tax return.
Consequently, it is equitable for Mr. Braun to pay the tax deficiency despite no knowledge of the
omission. Thus, Mr. Braun is not entitled to relief as an innocent spouse.
Application Problems
1.
a. The unextended due date of a 2025 corporate income tax return is April 15, 2026.
b. The unextended due date of a 2025 individual income tax return is April 15, 2026.
© McGraw Hill LLC. All rights reserved. No reproduction or distribution permitted without the prior written
consent of McGraw Hill LLC.
18-2
, 2.
a. The last date for filing an extension for an individual income tax return with a fiscal year
ending July 31, 2025, is November 15, 2025 (15th day of the fourth month following the close
of the year).
b. The extended filing date for the return is May 15, 2026, six months after the unextended due
date.
3.
a. The filing date for Zucker’s corporate tax return for its fiscal year ending March 31, 2025, is
July 15, 2025, and the extended filing date (six months later) is January 15, 2026.
b. The filing date for Zucker’s corporate tax return for its fiscal year ending June 30, 2025, is
September 15, 2025 (15th day of the third month following the close of the year), and the
extended filing date (seven months later) is April 15, 2026.
4.
a. The after-tax cost of the corporation’s deductible business interest is $3,397 ($4,300 – $903
tax savings at 21%).
b. The after-tax cost of Leslie Collin’s nondeductible personal interest is $4,300.
5.
a. The Gomez’s return was delinquent for one full month (April 16 through May 15) and for part
of a second month (May 16 through May 29). Consequently, their late-filing and late-
payment penalty is $1,976 ($19,758 balance due with return 10% [5% for two months]).
b. The Gomez’s have no penalty for filing late because there is no balance of tax due with the
return. By filing late, the Gomez’s simply delayed the receipt of their $7,098 refund.
6.
a. The Wickhams have no penalty for filing late because there is no balance of tax due with the
return. By filing late, the Wickhams simply delayed the receipt of their $1,160 refund.
b. The Wickhams’ return was delinquent for two full months (April 16 through June 15) and for
part of a third month (June 16 until July 14). Consequently, their late-filing and late-payment
penalty is $1,095 ($7,300 balance due with return 15% [5% for three months]).
7. Keyshawn’s return was delinquent for a part of one month. Consequently, his late-filing and late-
payment penalty is $181 ($3,612 balance due with return 5%).
8.
a. Ms. Schmidt’s return was delinquent for three full months (April 16 through July 15) and for
part of a fourth month (July 16 through August 8). Consequently, her late-filing and late-
payment penalty is $476 ($2,380 balance due with return 20% [5% for four months]).
b. If Ms. Schmidt did not file a return until November 21, the return was delinquent for seven
full months (April 16 through November 15) and for part of an eighth month (November 16
through November 21). In this case, her penalty is $631.
$2,380 25% (5% for five months) $595
$2,380 1.5% (one-half of 1% for three months) 36
Total penalty $631
© McGraw Hill LLC. All rights reserved. No reproduction or distribution permitted without the prior written
consent of McGraw Hill LLC.
18-3
