...September 21, 2013 TAX FILE MEMORANDUM FROM Latisha Gooley SUBJECT Peaceful Pastures Funeral Home, Incorporated prepaid income for services. Today I spoke with the owners of Peaceful Pastures Funeral Home Incorporated’s owners, with respect to their July 28, 2013 letter requesting tax assistance. Peaceful wishes to know if they could include their prepaid income in the year that the services were rendered. FACTS Peaceful Pastures is an accrual basis taxpayer who provides a full line of prepaid funeral services and sells goods related to those services to its clientele that will be provided to the customer when the customer becomes deceased. Peaceful Pastures goods and services are refundable upon the purchasers request, up until the purchaser uses the services. Peaceful Pastures wants help determining when they are to claim taxes for earnings in their prepaid program for their funeral home. ISSUE Does Peaceful Pastures Funeral Homes Inc. claim their prepaid income in the period in which it was received or can Peaceful Patures claim the income in the period in which the services are rendered? CONCLUSION Peaceful Pastures, reported the income correctly on their taxes the year that the services were rendered. Peaceful Pastures Funeral Homes Inc. must realize the income in the year that it receives prepaid income from a buyer and not in the year the goods and services are rendered. Therefore the IRS is correct and Peaceful may owe back taxes as well as penalties and interest...
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...TAXPAYER ------------------------------------------------- HEADQUARTER CHANGE Facts Company X, a calendar-year corporation, currently owns the ten-story building where they are headquartered. Recently, Company X decided it would be in their best interest to relocate their headquarters. As a result Company X has identified two properties that are more suitable but whose fair market values slightly exceed that of the current ten-story building: 1. Single-story building on a large, attractive lot. (If the company were to select this property it intends to demolish the building and build a specially designed building on the lot), or 2. Two-building complex with retail shops on the ground floor of one building and residential rental property in a portion of the other building. Both sellers of the listed properties appeared to be interested in entering an exchange transaction whereby the company’s property would be exchanged for one of the other properties. After careful consideration Company X decided to exchange its existing property for the retail and residential building complex. Details of the exchange were as follows: 1. Both parties agree to use a “middleman” corporation to initially convey each of their respective properties. 2. Company X would sell its property to the middleman. Within 45 day of initial closing, Company X would formally identify which of the two new properties it intends to acquire. 3. The identified property’s, which was also...
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...related to those services. Peaceful has attempted to design an approach that allows customers to prepay for their funeral goods and services. Issue: IRS sent Peaceful an audit notice. It contends that the amount prepaid under Peaceful’s program constitutes prepaid income that must be included in Peaceful’s income (and therefore subject to tax) in the year in which it’s received. Conclusion: Peaceful should pay the audit based on the facts. The IRS is correct according to the tax code and laws. Analysis: Peaceful receive prepay from their customers for funeral goods and service, so Peaceful have to pay taxes on the prepaid sales. According to The Strategic CFO, prepaid income tax is a form of prepaid expense. The most common reason why prepayment on income taxes occurs is due to over-estimation of tax deposits. In this situation, taxes are estimated from the financial records of the previous year. These estimated taxes are paid. Then, when the year-end taxes are found to be less than the taxes paid earlier, prepayment on income taxes has occurred. This prepayment can create one of two results: a tax refund or the credit written off towards the tax ability of the next period. According to the case of Perry Funeral Home, Inc. v. Commissioner, TC Memo 2003-340 , Code Sec(s) 451. PERRY FUNERAL HOME, INC., Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent Case, Time for reporting income—accrual method—refundable deposit vs. advance payments—pre-need funeral contracts. Accrual-method...
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...February 5, 2013 TAX FILE MEMORANDUM To : Prof. C. Cruz From : Vidia Mamesah Subject: Research Problem 1 Murray Today, I spoke with Mr. Murray with respect to his letter regarding tax assistance. He wants to know that his recent award for damages to his personal and professional reputation is taxable. Mr. Murray reported to the Environmental Protection Agency that his employer was illegally dumping chemicals into a river. His charges were true, and Mr. Murray’s employer was fined. In retaliation, Mr. Murray’s employer fired him and made deliberate efforts to prevent Murray from obtaining other employment. Mr. Murray sued the employer, claiming that his reputation had been damaged. Mr. Murray won his lawsuit and received an award for damages to his personal and professional reputation and for his mental suffering. He argues that he was awarded damages as recovery of his human capital and a recovery of capital is not income. Therefore the Federal government does not have the power to tax the award. ISSUES: Is the recent award taxable? Income exclusions: damages on account of personal injury or sickness-physical vs. emotional injury. CONCLUSION: Section 104(a) (2) provides that excludes from gross income the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness. Emotional distress is not considered a physical...
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...Tax Research Memorandum Peaceful Pastures Funeral Homes, Inc. Prepared by: May 25, 2014 May 25, 2014 TAX FILE MEMORANDUM FROM SUBJECT Peaceful Pastures Funeral Home, Inc. Peaceful Pastures Funeral Home, Inc. has contacted me for advice in regards to an audit notice rendered to them by the IRS. The incorporated funeral home wants to know if the IRS is correct when stating that Peaceful’s program has prepaid income that must be included in the company’s income and is subject to tax. FACTS Peaceful is an accrual basis taxpayer that offers funeral services together with products related to the services. The company created a program, after experiencing bad debts and losses, that gives customers the opportunity to pay for goods and services in advance that will be incurred by them at the time of death. The contract included a promise to the purchasers to refund payments at any time up until the goods or services are rendered to them. Because peaceful is an accrual basis tax payer, the pre payments from the customers and income gained from them are subject to tax. ISSUE Are the payments made in advance by the customers for Peaceful’s program considered prepaid income that is taxable at the end of the year? CONCLUSION The prepaid income from the customers is realizable as income only in the year that Peaceful receives the pre-payments. This means that income is not realizable at the time that the goods and services are rendered. Because of this, the IRS was correct in...
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...Facts Mr. Smith lives in his principle residence in Indianapolis. The present balance on his home mortgage that was incurred after October 13, 1987 in acquisition and secured by such residence is $300,000. Mr. Smith has no other mortgages and no other residence. He is planning to take out a loan of $240,000 to purchase a condo, close to Northwestern, for his daughters to live and planning to sell the condo when the girls graduate from Northwestern University. The loan of 240,000 will be secured by the condo. Mr. Smith’s filling status remains head of household. He itemizes his deductions. And Mr. Smith has neither net investment income nor disallowed investment interest expense from previous year in the year when he purchases the condo. He will not pay points and mortgage insurance premium on this loan. Issues Can Mr. Smith deduct interest expense on his loan for a condominium? Conclusion Mr. Smith can fully deduct his interest expense as qualified residence interest. Analysis Code §280A(d)(2)(A) holds that the unit used for personal purpose by members of the family of the taxpayer is deemed to be used by the taxpayer for personal purpose. Code §280A(d)(1) states that a dwelling unit is used as the taxpayer’s residence if he uses it for personal purposes more than the greater of 14 days or 10 percent of the number of days during such year for which such unit is rented at a fair rental. Code §163(h)(4)(A)(ii) provides that besides the principal residence, one other...
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...his client in a personal injury case. His wife Jane Smith accompanies him during your meeting because she has some additional tax planning advice to ask of you. Role After reviewing John and Jane Smith’s points of view, it will be your turn as a tax professional to decide on the best course of action from a tax perspective on their issues. Prepare a three page memo (at least 300 words per page) to John and Jane Smith addressing the issues presented. Prepare a three page memo (at least 300 words per page) to John and Jane Smith addressing whether the issues presented above: 1. John Smith tax issues: 1. How is the $300,000 treated for purposes of Federal tax income? 2. How is the $25,000 treated for purposes of Federal tax income? 3. What is your determination regarding reducing the taxable amount of income for both (a) and (b) above? 2. Jane Smith tax issues: 1. What are the different tax consequences between paying down the mortgage (debt) and assuming a new mortgage (debt) for Federal income tax purposes? 2. Can John and Jane Smith utilize a 1031 tax exchange to buy a more expensive house using additional money from John`s case? 3. Does Jane have a business or hobby? Why is this distinction important? 4. Would Jane (and John) realize better tax benefits if she had a separate business for her jewelry making activities? 5. What tax benefits would John realize if he invested $15,000 in Jane`s jewelry making? 6. Can Jane depreciate her vehicle or jewelry ...
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...Standard Federal Tax Reporter (2014), Sec. 109. IMPROVEMENTS BY LESSEE ON LESSOR'S PROPERTY Click to open document in a browser Gross income does not include income (other than rent) derived by a lessor of real property on the termination of a lease, representing the value of such property attributable to buildings erected or other improvements made by the lessee. Federal Tax Regulations, Regulation, §1.109-1., Internal Revenue Service, Exclusion from gross income of lessor of real property of value of improvements erected by lessee Click to open document in a browser (a) Income derived by a lessor of real property upon the termination, through forfeiture or otherwise, of the lease of such property and attributable to buildings erected or other improvements made by the lessee upon the leased property is excluded from gross income. However, where the facts disclose that such buildings or improvements represent in whole or in part a liquidation in kind of lease rentals, the exclusion from gross income shall not apply to the extent that such buildings or improvements represent such liquidation. The exclusion applies only with respect to the income realized by the lessor upon the termination of the lease and has no application to income, if any, in the form of rent, which may be derived by a lessor during the period of the lease and attributable to buildings erected or other improvements made by the lessee. It has no application to income which may be realized by the...
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...September 30, 2012 Mr. Don Dewey 4321 Mount Vernon Road Dover, DE 19901 Dear Mr. Dewey: This letter is in response to your inquiry regarding the benefits and feasibility of allowing your daughter to be classified as a qualified child of your eldest son for this tax year. My conclusion is based upon the facts as provided by you at the Chamber of Commerce meeting on Wednesday, September 26, 2012. FACTS You are legally married to Mary Dewey and reside in the same abode. Both you and Mary file your income tax returns jointly as married. You and Mary are anticipating an approximate Adjusted Gross Income (AGI) of $400,000 this year. In your same abode, you have two children in residence; Debra, who is currently 16 years of age, and Van, who is currently 23 years of age. Currently, Van is not a student and works part-time, with an anticipated income of $16,000 per annum. QUESTIONS PRESENTED Can Van Dewey, age 23, deduct his sister, Debra Dewey, age 16, as a qualified child, where both siblings live in their parents’ abode? What are the tax advantages and disadvantages for Don and Mary Dewey if Debra Dewey became a deduction for Van Dewey vis-à-vis remaining a deduction for them? SHORT ANSWER Mr. Van Dewey cannot claim his sister, Debra Dewey, as a qualified child, and thus receive a Qualified Child Credit or a Head of Household deduction status. ANALYSIS Under § 152(c) of the IRC, Mr. & Mrs. Don Dewey (the “Dewey’s”) can qualify for a dependency...
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...The Kudler Fine Food Company will be having new registers installed in three of their stores. This is the main piece of information being communicated in the memo that was sent from Yvonne Reynolds to Brenda Wagner. Based on the criteria of organization, clarity, tone, and style this memo is not a very good example of what a memo should be. The organization of this memo is done in a way that you can understand that they are going to be getting new registers. However, the clarity of the memo makes it difficult to understand. Yvonne informs Brenda that the vendor of the new registers will give some training materials and train the company’s trainer. She then states, “We need to determine the best way to train the cashiers in the three stores, the management team in each store and the computer support specialists.” This makes is confusing to understand who is suppose to be doing the training in the store. It leaves questions as to why the vendor id training someone if it is then up to the stores to find a way to train the employees. The clarity also comes into question when Yvonne says to, “have someone evaluate the various means we could use to deliver the training and make a recommendation of how we should proceed.” This leaves Brenda to try to figure out where to look for someone and to figure out when exactly the training is suppose to happen. The tone and style are on the casual style for a business memo. The whole thing is typed in one paragraph that is not as informative...
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...DATE: January 12, 2012 TO: All Employees of Denver Branch FROM: Leonard Schwartz, Branch Manager SUBJECT: New Loss-Prevention System As you may have recently heard, lately we received news from the corporate headquarters of the company that it would be in the best interest of the entire company to pay more attention to matters of preventing accidents and any other safety-related measures that affect the workplace, including both office and field activities related to all types of jobs that we complete. Every single employee in each office at every branch needs to be ever mindful in this regard so that they are more efficient and effective in the daily performance of their everyday tasks that relate to their job responsibilities so that safety is always of paramount concern. With this goal of safety ever present in our minds, I believe the bottom line of the emphasis on safety could be considered to be the training that each of us receives in his first, initial weeks on the job as well as the training provided on a regular basis throughout each year of our employment with M-Global, so that we are always aware of how to operate in a safe manner. The training vehicle gives the company the mechanism to provide each of you with the means to become aware of the elements of safety that relate to the specific needs and requirements of your own particular job. Therefore, at this point in time I have come to the conclusion in the process of contemplating the relevance of the new corporate...
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...misleading expressions (euphemisms) such as “meet our Creator” which means death and “Policy of Disinformation” which means lying to the public. Weak phrases should be avoided also. Weak phrases are ones such as; “wealthy business person”, “Carrying a child” and “one year old boy”. Instead, what can be used are phrases such as “tycoon”, “pregnant” and “one year of age boy”. Police officers must NEVER discriminate because of gender. Neutral terms should be used to manifest, fairness and equality between sexes. Examples are; “If a woman drives” to “if a person drives”, “man-made” to “artificial” and “manpower” to “human power”. A memorandum is a note, or reminder that one wishes to preserve for future use. Its various tense forms may be done by shortening memorandum to memo. Memorandum is definitely singular while its plural form is memoranda. The tone of a memorandum from a subordinate must always be formal, whereas official of equal positions the...
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...Business Memos A memo, short for the word memorandum, comes from the Latin word memorandus, which means, "to be remembered." It is a compact written message designed to help someone remember something. Unlike letters, the external communications of a company, business memos are an internal form of communication and it is standard practice to save them. Their objective is to deliver information or instructions and writing them in a sensible manner that the information is delivered with more meaningful note and its impact on its reader is also serious. Confined to a single topic, each interoffice, interdepartmental and company - wide memo becomes part of the institutional memory of an organization. They record daily activities and eliminate the need for time-consuming meetings. As historical documents they are often referred to when writing reports or resolving disputes regarding past activities. In short, they speed up the daily business of doing business; they keep people who need to be kept in the know, in the know. When a business organization designs an official letterhead it often also designs an official memo sheet, complete with a company logo featured at the top of the page. Besides having a professional look and feel, preprinted memo sheets often provide specialized information fields that accommodate specific procedures for expediting in-house communications. Memos Types 1. Informational Memos 2. Instructional Memos Informational Memos is an in-house...
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...Memorandum To: Management and staff of O’Charley’s From: Jacqueline Kinuthia Date: 7/28/2014 Re: Overhead Cost Confidential Problem: Over the past three months, the company has exceeded its proposed budget for this quarter. Most locations have reported an increase in associates’ turnover rate. The problem has a common key factor caused by under staffing. During the complete exit interview, most associates cited total burnout during their work shifts. An attempt to remedy this problem has been unsuccessful. New associates hired to correct this problem of maintaining a full staff at all shifts have turned most locations into a revolving door as the problem persists. Analysis: Each location has a set budget for hiring and retention of associates. A planned orientation for new associates is detailed, time consuming, and costly. During this training period the new associates are usually over burdened with filling in for an absent associate. In most cases the orientation is interrupted resulting inadequate training and education. Essential skills such as learning to deal with and handle difficult customers are not relayed. Proposed Solution: To improve the hiring and retention at these locations, the district managers held several meetings with their fellow associates. During the open forum, associates proposed ways to improve their workplace to make it more favorable. Most of the ideas proposed ranged from having uninterrupted work breaks, having a buddy system, an incentive...
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...MEMORANDUM Heading Segment The heading segment follows this general format: TO: (readers' names and job titles) FROM: (your name and job title) DATE: (complete and current date) SUBJECT: (what the memo is about, highlighted in some way) Make sure you address the reader by his or her correct name and job title. You might call the company president "Maxi" on the golf course or in an informal note, but "Rita Maxwell, President" would be more appropriate for a formal memo. Be specific and concise in your subject line. For example, "Clothes" as a subject line could mean anything from a dress code update to a production issue. Instead use something like, "Fall Clothes Line Promotion." Opening Segment The purpose of a memo is usually found in the opening paragraph and includes: the purpose of the memo, the context and problem, and the specific assignment or task. Before indulging the reader with details and the context, give the reader a brief overview of what the memo will be about. Choosing how specific your introduction will be depends on your memo plan style. The more direct the memo plan, the more explicit the introduction should be. Including the purpose of the memo will help clarify the reason the audience should read this document. The introduction should be brief, and should be approximately the length of a short paragraph. Context The context is the event, circumstance, or background of the problem you are solving. You may use a paragraph or a few sentences to establish...
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