Explain Why the Taxpayer in Each of the Following Situations

question 2

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.
a.Thomas works as a purchasing agent for Local City Government. During the current year, 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.
b.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. 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.
c.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 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.

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Definitions:

Rotary International

An international service organization that brings together business and professional leaders to provide humanitarian service and to advance goodwill and peace around the world.

Circulatory System

Organ system consisting of a heart or hearts and vessels that distribute circulatory fluid through a body.

Tracheal Tubes

A system of air-filled tubes in insects and some other arthropods that allow for gas exchange directly with body cells.

Spiracles

Small openings found on the surface of some animals, such as insects and spiders, that lead to their respiratory systems.