Unit 3 - Discussion Board Taxation

Unit 3 Discussion Board Taxation

Introduction

The paper attempts to understand relevant tax laws in the given situation. Firstly, the paper provides a brief overview of tax regulations and gray areas in the current tax mechanism. Then, the paper details out a situation in order to find answers to three questions, which are backed with the evidence from the relevant tax laws. Finally, the paper creates conclusive remarks on taxation.

The US Tax Regulation and Gray Areas

In the US, IRS has the power to interpret the tax law via a set of IR regulations that provide an illustration with regard to the application of tax codes in various situations (Nolo, 2013). However, the right to declare final verdict is still in the hands of the US Court and justice system. Despite refinement and numerous amendments in the tax regulation system, there are countless situations with ambiguity on tax coding and application of the right tax clauses. These situations are recognized as gray areas where dispute between the taxpayer and the IRS may arise (Slemrod & Yitzhaki, 2002). However, assistance from AICPA's Statements on Standards for Tax Services might provide a resolution to such disputes or potential problems in applying the right tax law (Nolo, 2013).

Scenario

Mr. X is a client of ABC organization. In the year 2013, Mr. X records unsubstantiated amount of gambling losses. He approaches ABC Company and asks them to deduct this unsubstantiated amount. Doing so will have considerable impact on the tax liability of the client.

Q1. Address the Situation

In the given situation, if the client has clean past record on the tax return filing and compliance with IRS regulations, then the unsubstantiated amount will be deducted from his taxable income. In this way, the total tax liability of the client will reduce. Such claim ...