Explain Why the Taxpayer in Each of the Following Situations

question 9

Essay

Explain why the taxpayer in each of the following situations either does or does not have a Claim of Right to the income received. Thomas works as a purchasing agent for Local City Government. During the current year,
a. he takes a $5,000 kickback from a supplier seeking a lucrative contract with Local City.
The kickback is illegal under State law and will have to be repaid to Local City if it is ever
discovered.
Bernice is an agent for Drew, quarterback of the LA Tigers. During the current year, Bernice negotiates a new contract for Drew that includes a $5,000,000 signing bonus.
b. Bernice receives the signing bonus from the Tigers and places it in her business account.
As per her contract agreement with Drew, Bernice writes a check for $600,000 to Drew's
mother, gives Drew a check for $3,900,000 and retains the remaining $500,000 as her standard 10% fee.
Karl, an attorney, is hired by Dominic Manufacturing Company to represent it in a lawsuit.
Because the lawsuit will likely drag out for a number of years, Karl requests that Dominic
c. Manufacturing pay him a retainer representing two years of services. Dominic Manufacturing agrees to pay the $150,000 retainer; however, Dominic insists that Karl
agree to refund, pro-rata, any of the retainer fee not yet earned should Dominic decide to terminate their relationship.

Recognize the significance and structure of the income pyramid in a global economy.

Acknowledge operational and structural risks faced by companies in global markets.

Comprehend the concept of debits and credits and their impact on account balances.

Recognize the structure and significance of T accounts in accounting.

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Definitions:

Board of Directors

A group of individuals elected by shareholders to oversee the management and direct the affairs of a corporation.

Shareholders

Individuals or entities that own one or more shares of stock in a corporation, giving them ownership interests and rights such as voting on corporate matters.

Business Combination

The coming together of separate companies or entities to form a single economic entity through various forms of financial transactions.

Income Tax Implications

The effects of current and future taxation policies on business transactions and operations, involving both expenses and liabilities.