VP International Corporate Tax Research Memo Assignment Help In a IRS memo to file (including sections delineated by issue, facts, legal analysis, and conclusion), please research the issue and summarize whether the statute of limitations still open for the 2012 tax year as it relates to Company’s withholding tax liability. Please attach the type written memo. no more than 2 pages single spaced. please summarize your research trail 1. Dan Adelson, the VP International Tax of Emoji Corp. (“Emoji”; EIN: 99-111111), located at 1 Pace
Plaza, New York, NY 10038, a U.S. domestic corporation (with over $10 million in assets at all relevant
times) informs you that since 2012 the company makes two annual payments of interest: (i) one in
the amount of $10 million to its 50% owner, World Emoji Financial Corp (WEF), a Hong Kong
corporation; and (ii) another in the amount of $10 million to Einkhuizensbank B.V., an unrelated
Dutch financing company. Mr. Adelson assures you that the interest payments are on registered
obligations that meet the portfolio debt requirements under I.R.C. sections 871 and 881. Emoji
reported the payment to WEF on a timely-filed Form 1042, Annual Withholding Tax Return for U.S.
Source Income of Foreign Persons, for each year since 2012 but did not withhold tax on the interest
payments (attached to quiz). Emoji did not report the payments to Einkhuizensbank B.V. Last week,
Mr. Adelson received a letter from the IRS indicating the Emoji’s Form 1042 for only the 2012 tax year
was being placed under examination (and not its Form 1120). Emoji also receives a burdensome IDR
asking for many (in some cases, irrelevant) documents (attached to quiz). Weirdly, the letter indicates
that the IDR is due within 7 business days. The IRS also asks Emoji for office space to conduct the
audit. Emoji occupies three rooms and two gallery spaces where they exhibit products to customers.
The office rooms are full and they would have to vacate one of the gallery spaces, which means sales
(A) In a memo to file (including sections delineated by issue, facts, legal analysis, and conclusion),
please research the issue and summarize whether the statute of limitations still open for the 2012 tax
year as it relates to Emoji’s withholding tax liability. Please attach the type written memo (no more
than 2 pages single spaced) to the quiz. In the space below, please summarize your research trail
Lubin School of Business
Midterm Sample Memo
Whether an exception to the three-year statute of limitations on assessment from
the date of filing applies to either Andrew Scotts tax years ending December 31, 2010
Andrew Scott (Scott) filed a Form 1040 for the tax year ending December 31,
2010 (the 2010 tax year) on April 15, 2011. Scott filed a Form 1040 for the tax year
ending December 31, 2011 (the 2011 tax year) on April 15, 2012.
For the 2010 tax year, he was living in Switzerland and purchased a $35,000
interest in Diebsfund, a managed fund located, incorporated, and managed in in Zug,
Switzerland. Diebsfund is treated as a corporation for U.S. federal tax purposes. At the
end of 2010, his interest was valued at $30,000 and the fund made a distribution of
$10,000. (It was a very profitable year). Scott did not disclose his interest in Diebsfund
on a Form 8938, Statement of Specified Foreign Financial Assets. He told his
accountant about the interest in the foreign fund but the accountant opined in writing
that he didnt think the foreign distribution was taxable. Scotts accountant had been
preparing his returns for many years and despite occasional audits by IRS agent, his
returns were never the subject of a successful IRS adjustment.
By the end of 2011, Scott had moved back to the U.S. and the value of his
interest in the foreign fund increased to $100,000; however, the fund made no
distributions during that time. His old accountant had retired and a new accountant had
prepared the return. Andrew has intended to ask about the tax treatment of the foreign
fund but was in a coma when the return was being prepared. (The accountant signed
the Form 1040 pursuant to a valid Power of Attorney that was attached to the return).
Scott has requested advice as to the statute of limitations on assessment (SOL)
for his 2010 and 2011 tax years. The issue is whether there is an exception to the
general three-year SOL from the date of filing of his returns for the 2010 and 2011 tax
years. Generally, under Internal Revenue Code 1 (I.R.C.) §6501(a), there is a threeyear SOL from the date of filing. However, under I.R.C. §6501(c)(8)(A), the SOL does
not begin to run until the taxpayer provides information under I.R.C. § 6038D. 2 This
section generally requires taxpayers to disclose specified foreign financial assets valued
in excess of $50,000 on a Form 8938, Statement of Specified Foreign Financial Assets,
that is attached to a taxpayers return. See I.R.C. § 6038D; Treas. Reg. § 1.6038D-2. If
a taxpayer can show reasonable cause for the failure to file a Form 8938, then the SOL
runs from the date of filing with respect to all items except those which relate to the
undisclosed specified foreign financial assets. See I.R.C. § 6501(c)(8)(B). 3
Reasonable cause is not defined but long-standing jurisprudence has equated it with
ordinary business care and prudence. See U.S. v. Boyle, 469 U.S. 241 (1985). There
is another exception to the three-year SOL which extends the SOL to six years from the
date of filing in cases where a taxpayer omits more than $5,000 in taxable income from
an undisclosed foreign financial asset that would have been subject to disclosure on a
Form 8938 but for the threshold. See I.R.C. § 6501(e)(1)(A)(ii). In the instant case,
Scotts interest in Diebsfund is not required to be reported on a Form 8938 for the 2010
tax year. Still, the distribution of $10,000 from Diebsfund may be taxable income such
that the six-year SOL applies. As a result, the SOL for Scotts 2010 tax year expired (at
the latest) on April 15, 2017. In contrast to the 2010 tax year, Scotts interest in
Diebsfund is required to be reported on a Form 8938 attached to his Form 1040 for the
2011 tax year. Although Scott did not file a valid Form 8938 for the 2011 tax year, the
SOL should still be treated as starting to run on the date he filed his 2011 tax return.
This is because Scotts failure to file the Form 8939 is due to reasonable cause. As a
result, the SOL for Scotts 2011 tax year expired on April 15, 2015.
Scotts interest in Diebsfund is a specified foreign financial asset for purposes of
I.R.C. § 6038D. The term specified foreign financial asset is defined to include any
interest in a foreign entity within the meaning of I.R.C. § 1473. See I.R.C. §
6038D(b)(2)(C). This section states foreign entity includes any entity which is not a
United States person. See I.R.C. § 1473(5). In this case, Scotts interest in Diebsfund
satisfies the definition of a specified foreign financial asset. Thus, if its value satisfies
the threshold, it must be reported on a Form 8938.
The value of Scotts interest in Diebsfund during the 2010 tax year is not high
enough such that it is subject to reporting on a Form 8938. For an unmarried individual,
the threshold is $50,000 on the last day of the tax year. See Treas. Reg. § 1.6038D-
Unless otherwise stated, all references to Code, section, or § are to the Internal Revenue Code of
1986, as amended.
I.R.C. § 6038D also imposes a penalty for the failure to file a Form 8939 but that is beyond the scope of
this memorandum. See I.R.C. § 6038D(d)(1).
Based on the facts, this memorandum assumes there are no items of income associated with the
undisclosed interest in Diebsfund for the 2011 tax year, that is, the year to which I.R.C. § 6501(c)(8)
2(a)(1)(i). 4 Once the threshold is satisfied, a taxpayer must provide certain information
about the specified foreign financial asset on a Form 8938, Statement of Specified
Foreign Financial Assets. Ibid. The required information is set forth under I.R.C. §
6038D(c). Here, Scotts interest in Diebsfund was valued at $30,000 on the last day of
the 2010 tax year. As a result, he need not provide a Form 8938 with the required
However, Scotts tax year 2010 may be subject to a six-year SOL from the date
of filing. Scott received a distribution of $10,000 from Diebsfund in 2010. To the extent
this represents income, it exceeds $5,000 and thus the six-year SOL may be triggered
under I.R.C. § 6501(e)(1)(A)(ii).
By contrast, for the 2011 tax year, Scott should have filed a Form 8938 with
respect to his interest in Diebsfund. The $100,000 value at the end of the year clearly
exceeds the $50,000 threshold. Unless Scott can show his failure to file a Form 8938
with his Form 1040 for the 2011 tax year was due to reasonable cause, the SOL for the
2011 tax year has not begun to run.
Scotts failure to file a Form 8938 was due to reasonable cause. The term
reasonable cause is not defined in the either Code section 6501 or 6038D (or the
relevant Treasury Regulations). The term is widely used in the context of penalties. For
instance, under I.R.C. § 6664(c), penalties may be abated where the taxpayer can show
reasonable cause. The applicable Treasury Regulations state that in determining
whether the taxpayer has reasonable cause, the most important factor is the extent of
the taxpayers efforts to ascertain the taxpayers proper tax liability. See Treas. Reg. §
1.6664-4(b). The Supreme Court has held the term reasonable cause means ordinary
business care and prudence. U.S. v. Boyle, 449 U.S. 241, 246 (1985). Both the
Treasury Regulations and the Internal Revenue Manual (I.R.M.) address when a
taxpayers reliance on a tax advisor constitutes reasonable cause. See Treas. Reg.
§1.6664-4(c); I.R.M. 188.8.131.52.3.4.3. Finally, various factors affecting ordinary business
care prudence including circumstances beyond the taxpayers control; this includes a
serious illness. See I.R.M. 184.108.40.206.2.2.1.
As a threshold matter, Scotts failure to file a Form 8938 contrasts to Boyle in
which the Supreme Court held a taxpayer, an executor of an estate, who missed a tax
filing deadline did not have reasonable cause merely because he had hired an attorney
to prepare the estates tax return. This is because one does not have to be a tax
expert to know that tax returns have fixed filing fates and that taxes must be paid when
they are due. Boyle at 251. Unlike the taxpayer in Boyle, Scotts failure was not due to
the neglect of a deadline but rather to an inadvertent mistake (i.e. the requirement to
report his interest in Diebsfund) where he had specifically asked his CPA whether the
The value threshold is increased to $200,000 on the last day of the taxable year in the cases of
individuals living abroad within the meaning of I.R.C. § 911. See Treas. Reg. § 1.6038D-2(a)(3)(i). This
memorandum assumes Scott is not living abroad within the meaning of I.R.C. § 911 during the 2011 tax
fund had any consequences for federal income tax purposes. In stark contrast to the
taxpayer in Boyle, Scott did not assume his CPA would take care of things but rather
made a specific inquiry and received written advice. Even the tax provision in the
instant case contrasts to the filing deadline in Boyle. Estate returns have long since
been required to be filed whereas the requirements under I.R.C. § 6038D is relatively
new mandate the filing of a Form that did not exist less than ten years ago.
Scotts failure to file a Form 8938 is due to reasonable cause because he relied
on the advice of a competent tax advisor. In Neonatology Associates v. Commissioner,
115 T.C. 43 (2000), the Tax Court held reliance on a tax adviser constitutes reasonable
cause where (i) the adviser is a competent professional who had sufficient expertise to
justify reliance; (ii) the taxpayer provided the necessary and accurate information to the
adviser; and (iii) the taxpayer actually relied in good faith on the advisers judgment.
Here, Scott provided all the necessary information and acted in good faith on his CPAs
judgment. First, it is beyond question that a CPA should be considered a competent
professional. Scotts reliance was in good faith since the CPA had long since advised
him and his tax returns had survived IRS scrutiny in the past.
Additionally, Scotts failure to file a Form 8938 is due to reasonable cause. The
IRM makes clear that death or serious illness may establish reasonable cause. See
I.R.M. 220.127.116.11.2.2.1. In instant case, the grounds for reasonable cause are two-fold.
First, there was the death of Scotts long-time CPA thus precluding the CPAs review of
the interest in Diebsfund in light of the increased value. Second, because Scott fell into
a coma, the new CPA could not be advised of Diebfunds increased value. Based on
the I.R.M, Treas. Reg. § 1.6664-4, and Boyle and its progeny, these are exactly the
types of circumstances beyond the taxpayers control that establish reasonable cause.
Because Scott did not have to file a Form 8938 for the 2010 tax year and it is
unclear whether the funds distribution resulted in taxable income in excess of $5,000,
the SOL for Scotts 2010 tax year expired (at the latest) on April 15, 2017. Because this
memo concludes that Scotts failure to file a Form 8938 for the 2011 tax year was due to
reasonable cause, the SOL for Scotts 2011 tax year expired on April 15, 2015.
Department of the Treasury Internal Revenue Service
(Rev. September 2006)
Information Document Request
To: (Name of Taxpayer and Company Division or Branch)
Emoji Corp. (the Taxpayer)
Standard Audit Commencement
Dates of Previous Requests
Please return Part 2 with listed documents to requester identified below
Description of documents requested
Forms 1120 filed since 2000
Forms 1042 filed since 2000
General Ledgers since 2000
Names, Titles, contact information, salary data, dates of employment for all employees since 2000
Organizational Chart for Taxpayer
Organizational Documents for Taxpayer
Organizational Documents for World Emoji Financial Corp
Organizational Documents for Einkhuizensbank B.V
Substantiation of all payments (e.g. wire transfers) to Einkhuizensbank B.V
Substantiation of all payments (e.g. wire transfers) to World Emoji Financial Corp
Contemporaneous Documentation for any transactions subject to I.R.C. § 482 (transfer pricing )
All communications between Einkhuizensbank B.V and the Taxpayer
A detailed explanation of all interest payments made in 2012.
A detailed legal analysis as to why the Taxpayer didnt withhold on interest payments made in 2012.
Information Due By
At Next Appointment
Name and Title of Requester
Employee ID number
Catalog Number 23145K
Part 1 – Taxpayer’s File Copy
Form 4564 (Rev. 9-2006)
Annual Withholding Tax Return for
U.S. Source Income of Foreign Persons
Department of the Treasury
Internal Revenue Service
OMB No. 1545-0096
Information about Form 1042 and its separate instructions is at www.irs.gov/form1042.
If this is an amended return, check here .
Employer identification number
Name of withholding agent
Number, street, and room or suite no. (if a P.O. box, see instructions)
1 Pace Plaza
City or town, province or state, and country (including postal code)
New York, NY 10038
If you will not be liable for returns in the future, check here ?
Check if you are a: QI/Withholding foreign partnership or trust
For IRS Use Only
Enter date final income paid
Record of Federal Tax Liability (Do not show federal tax deposits here.)
Tax liability for period
(including any taxes assumed Line
on Form(s) 1000)
Tax liability for period
(including any taxes assumed Line
on Form(s) 1000)
Tax liability for period
(including any taxes assumed
on Form(s) 1000)
5 Jan. total
25 May total
10 Feb. total
30 June total
15 Mar. total
35 July total
20 Apr. total
40 Aug. total
No. of Forms 1042-S filed: a On paper
For all Form(s) 1042-S and 1000: a Gross income paid
63a Total tax liability (add monthly total lines from above) .
b Adjustments (see instructions) . . . . . . . . .
c Total net tax liability (combine lines 63a and 63b)
Total paid by electronic funds transfer (or with a request
extension of time to file) for 2012 . . . . . . . .
45 Sept. total
50 Oct. total
55 Nov. total
60 Dec. total
10,000,000 b Taxes withheld or assumed
. . . . . . . . . . . ? 63c
Enter overpayment applied as a credit from 2011 Form 1042 .
Credit for amounts withheld by other withholding agents (see instructions)
Total payments. Add lines 64 through 66 . . . . . . . . . . . . . . . . ? 67
If line 63c is larger than line 67, enter balance due here . . . . . . . . . . . .
If line 67 is larger than line 63c, enter overpayment here . . . . . . . . . . . .
Apply overpayment on line 69 to (check one):
Credit on 2013 Form 1042 or
Excise tax on specified federal procurement payments included on line 63a.
(Total payments made
x 2% =
. . . . . . . . .
Third Party Do you want to allow another person to discuss this return with the IRS (see instructions)?
Yes. Complete the following.
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and
belief, it is true, correct, and complete. Declaration of preparer (other than withholding agent) is based on all information of which preparer has any knowledge.
Capacity in which acting ? VP Tax
Daytime phone number ?
Print/Type preparers name
Firm’s EIN ?
Firms address ?
For Privacy Act and Paperwork Reduction Act Notice, see instructions.
Cat. No. 11384V
Form 1042 (2012)
Purchase answer to see full
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