Simon is single and self-employed, reporting $400,000 of receipts from his busin
ID: 2490559 • Letter: S
Question
Simon is single and self-employed, reporting $400,000 of receipts from his business. His schedule C includes significant entertainment expenses and an office-in-home deduction. During the year, he gave a $50,000 contribution to his undergraduate university for them to name a scholarship after him. Harold is married and files jointly with his wife. they claim six additional dependents, four children under the age of 15, Harold's father and his wife's mother. Their return includes salary income of $400,000, significant itemized deductions for mortgage interest and real estate taxes, and a $30,000 loss from raising cattle. Which return is more likely to be selected for audit? Which tye of audit would taxpayer most likely be subject to? Explain.
Explanation / Answer
Solution:
According to the IRS, tax returns are selected for audit based on computer scoring. The IRS states in Publication 556 that it uses a computer program called the Discriminant Inventory Function System (DIF). The Discriminant Inventory Function System assigns a numeric score to each individual and some corporate tax returns after they have been processed.
Simon is a Single Self-Employed $ 4,00,000
He gave a Contribution Scholarship $ 50,000
Total he Won the Single Person = $ 4,50,000
(B).
Harold is Married and Files is Jointly
Harolds Salary Return is $ 4,00,000
Deduction of Motragage Interest 30,000
After Deductions His Income Return is $ 3,70,000
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