Reference no: EM132889464

Problem 1: Taylor sold a capital asset on the installment basis for $1 million in total payments and did not charge interest on the deferred payment due in three years. The sale generated a gain that Taylor reported using the installment method.

a. Interest will be imputed, thus increasing the total gross income from the transaction.

b. Interest will be imputed, thus decreasing the total gross income from the transaction.

c. Interest will not be imputed because the contract is for less than five years.

d. Interest will be imputed, decreasing the capital gain from the transaction but not affecting the total gross income from the transaction.

e. Interest will be imputed, thus increasing the buyer's basis in the asset.

Problem 2: Which of the following persons is subject to tax return preparer penalties for the return(s) mentioned?

a. Meredith is the director of Federal taxes for a C corporation, and prepares her mother's return for $50.

b. Sammy is a volunteer who prepares returns at the retirement home under the IRS Tax Counseling for the Elderly program.

c. Abbie prepares her mother's tax returns for free. A CPA, Abbie would charge a client $750 for completing a similar return.

d. Lizzie, a tax return preparer company's administrative assistant, makes copies of returns and assembles the returns.

e. John, the head of a corporation's accounting department, prepares the corporation's return.