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Serena operates a gift shop. To reduce costs of credit card transactions, she offers customers a discount if they pay in cash. For the holiday rush, she hires some short-term workers, but pays them cash and does not add them to the payroll.

a. What are some of the tax problems Serena might have?

b. Assess Serena's chances of audit by the IRS.

Rank the items below from most reliable to least reliable:

a. Letter Ruling.

b. Legislative Regulation.

c. Code Section.

d. Revenue Ruling.

e. Proposed Regulation.

f. Interpretive Regulation.

g. Recent Temporary Regulation.

Determine how many dependents are identified in each of the following independent situations. Specify whether each would come under the qualifying child or the qualifying relative category. a. Andy maintains a household that includes a cousin (age 12), a niece (age 18), and a son (age 26). All are full-time students. Andy furnishes all of their support.

b. Mandeep provides all of the support of a family friend's son (age 20) who lives with her. She also furnishes most of the support of her stepmother, who does not live with her.

c. Raul, a U.S. citizen, lives in Costa Rica. Raul's household includes his friend Helena, who is age 19 and a citizen of Costa Rica. Raul provides all of Helena's support.

d. Karen maintains a household that includes her ex-husband, her mother-in-law, and her brother-in-law (age 23 and not a full-time student). Karen provides more than half of all of their support. Karen is single and was divorced last year.

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