Reference no: EM13177970

Mr. Not So Upstanding, a United States citizen, has embezzled $175,000 from his employer, a corporation located in the United States, during the year 2010.

Required: Answer the following.

a. Assume Mr. Upstanding does not report the $175,000 on the income tax return that he files for the year 2010 and that he has no expenses to match against the embezzlement income (i.e., it's all taxable). What are the code sections (United States Code sections), including title numbers (e.g., Title 18, Title 26) that apply and why do they apply?

b. What is, most likely, the tax bill (excluding interest on underpayments but including penalties other than the underpayment penalty of IRC § 6654; assume that Mr. Upstanding met the safe harbor exception to the underpayment penalty by paying in 110% of his prior year tax as estimated payments). Assume a marginal income tax rate of 28%, that the Service sends a Notice and Demand for Payment with a date of August 31, 2011, and that Mr. Upstanding did not pay the assessment until October 30, 2011? Provide and your label calculations. (Assume all amounts are material and ignore state income taxes.)

c. Assume Mr. Upstanding does report the $175,000 and calls it "consulting income" on his Schedule C. Discuss the ramifications of his actions from a tax standpoint; cite any applicable code sections (cite title and section numbers). What, if any, other option(s) does Mr. Upstanding have for legitimately reporting this income? (Assume all amounts are material and ignore state income taxes.)

d. What is the statute of limitations and when does it begin for any criminal and civil actions if (1) Mr. Upstanding files a return or (2) doesn't file a return? (Cite applicable code sections, including title and number.)