...Research Memo Date: February 27, 2014 Preparer: Michele Reviewer: Brian Subject: Personal use of Delta Skymiles acquired from company purchased business trips Facts: Latrell recently used his Delta Skymiles to purchase a free roundtrip ticket to Milan, Italy (value $1,200). The frequent flyer miles used to purchase the ticket generated from Latrell’s business travel as a CPA. Latrell’s employer paid for his business trips, and he did not get taxed on the travel reimbursements. Issue: How much income, if any, does Latrell have to recognize because of the purchasing an airline ticket with Skymiles earned from business travel? Authorities: IRS Announcement 2002-18 Conclusion: According to the IRS Announcement 2002-18, Latrell does not need to recognize any of the frequent flyer miles ($1,200 value) used when he purchased his round trip ticket to Milan, Italy. The miles redeemed were for a free airline ticket and he did not convert the miles to cash; so there is no taxable income from the transaction. Analysis: The IRS Announcement 2002-18 states “these promotional benefits may generally be exchanged for upgraded seating, free travel, discounted travel, travel-related services, or other services or benefits. Inquiries centered on the taxability of frequent flyer miles or other promotional items that are received as the result of business travel and used for personal purposes. There are numerous technical and administrative issues relating to these benefits on...
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...October 24, 2012 Re: Craig - Structuring a cash transfer in the case of bankruptcy Facts Craig receives a $50,000 salary for running the day to day operations of Canterbury Corporation. He owns 100% of Canterbury’s stock, which is valued at $200,000. Canterbury currently needs $90,000 to meet short-term cash-flow needs, of which Craig is personally sending over to the business. We assume that when Canterbury goes bankrupt, there is no chance of further repayment of debt. Issues 1. How is debt treated at bankruptcy? 2. What are the tax consequences of contributing capital to a corporation when the company goes bankrupt? 3. If a loan is structured with the intent to protect investment, what are the tax consequences when the company goes bankrupt? 4. If a loan is structured to protect employment, what are the tax consequences at the time of bankruptcy? 5. Which of the above scenarios is the best way to structure a transfer for tax purposes? Conclusions 1. Debt will become wholly worthless upon bankruptcy. 2. The $90,000 capital contribution may be deducted as a capital loss to the extent of gains from such sales or exchanges, plus the lesser of $3,000 and the excess of such losses over such gains. 3. A nonbusiness bad debt may be deducted as a short term capital loss $90,000 in the year the loan becomes worthless to the extent of short term capital gains, plus the lesser of $3,000 and the excess of such losses over such gains. 4. The $90,000 loan will be considered...
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...No matter where you are born around the world or at what time one thing will always be inevitable of your ending; you will die. In all ways of life people have come accustomed to the practice of funerals, also known as death rituals. It has become common nature all around the world that when a person dies a ceremony will be held most likely involving their closest friends, family, or neighbors. It is understood that you live and die, but what funerals provide is a peace that can come with the inescapable end. However has anyone ever really stepped back and examined why we really do these ceremonies or death rituals? If at first we can understand the origins of the traditions, we can then see how different societies go about recognizing different people, and how these practices have been altered over time in our day and age. Funeral practices are as old as the human race itself, and this is made obvious in information found on the Neanderthals from 60,000 B.C. The ritual of a funeral starts when a persons heart stops or breathing ceases classifying them as dead. The time followed after a person is declared dead consists of various treatments of the body, time for disposing of the remains, and a period of mourning for all who knew the person. Neanderthals are considered the first people to perform death rituals/ funeral practices. According to one scholar Max Gluckman the origins of the traditions of funerals started with the Neanderthals and was developed as a way to “secure...
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...To: Mr. Keith’s Estate Facts: 1. Mr. Keith and Mr. Lars were business partners for 30 years. 2. Each partner had a life insurance policy on the other partner so that the insurance proceeds could be used to purchase the deceased partner’s interest in partnership from his estate. a. Each partner was allowed veto power over any beneficiary that was chosen or changed on the life insurance policy that was on his own life. 3. Mr. Keith died recently and Mr. Lars received the $500,000 life insurance proceeds. a. Mr. Lars did use the proceeds to purchase Mr. Keith’s interest in their partnership from Mr. Keith’s estate. Issues and Analysis: Did Mr. Keith’s veto right over the beneficiary designation give him “incidents of ownership”? Reg. §20.2042-1 (c)(4) Proceeds of life insurance (being capable of changing the beneficial ownership in the policy gives Mr. Keith “incidents of ownership” based on this Reg. and IRC 2042) Would this require Mr. Keith’s estate to include the insurance proceeds of $500,000 in his gross estate? §2042 Proceeds of life insurance. (If Mr. Keith has incidents of ownership the proceeds will be included in his gross estate) Is there a problem with the life insurance proceeds being used to purchase the deceased individuals interest in the partnership from the deceased’s estate? §2042 Proceeds of life insurance (this would cause the life insurance proceeds to be included in gross estate if life insurance proceeds, even if owned by another...
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...Memorandum-to-the-File Date: May 25, 2011 From: Brenda Hall Re: How many dependency exemptions John and Janet Baker can claim for the year? Facts John and Janet Baker are husband and wife and maintain a household of 7, including Janet and John. Calvin and Florence Carter are Janet’s parents, who are retired. During the year, they received $19,000 in nontaxable funds (disability income, interest on municipal bonds and Social Security benefits) from which $8,000 was equally spent between them on clothing, transportation, and recreation. The remaining $11,000 was invested in tax-exempt securities. Janet Baker paid $1,000 for her mother’s dental work and $1,200 premium on her father’s own life insurance policy. Janet’s father, Calvin, incurred medical expenses that he paid for himself. Darin is the Bakers’ 18-year-old son who is not a student. Darin earned $14,000 from his pool-cleaning business. The cash earned is placed in a savings account. Andrea is the Bakers’ 19-year-old daughter who does not work or go to school. During the year, Andrea purchased a Camaro for $21,000 with her own funds. Morgan is the Bakers’ 23-year-old daughter who obtained a student loan of $20,000 and used the full amount to pay her college tuition at a local university. The Bakers’ fair rental value of their residence, including utilities, is $14,000, while their total food expense for the household is $10,500. Issues Do Calvin and Florence qualify for a dependency exemption as qualifying...
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...Tax Research Memorandum To: Lauren Smith From: Date: May 18, 2012 Re: Tax Treatment of MBA education expenses Facts You incurred $15,000 in educational expenses in the course of earning a MBA. You want to deduct these expenses as an employee business expense in your tax return since your employer does not have an education expense reimbursement program. Issue The issue is (1) whether the education was required to keep your present salary, status or job and/or the education maintains or improves skills needed in your present work, and (2) whether the education was needed to meet the minimum educational requirements of your present trade or business, and (3) whether the education is part of a program of study that will qualify you for a new trade or business. Rule It has been established that education expenses can be deducted as business expenses when the education maintains or improves skills needed in your current work but the education was not needed to meet minimum requirements and did not qualify you for a new trade or business. Publication 970 (2011) Tax Benefits for education Federal Tax Regulations, Regulation, §1.162-5., Internal Revenue Service, Expenses for education Singleton-Clarke v. Commissioner, T.C. Summary Opinion 2009-182, Allemeier v. Commissioner, T.C. Memo. 2005-207 Blair v. Commissioner, T.C. Memo. 1980-488 Sherman v. Commissioner, T.C. Memo. 1977-301 Link v. Commissioner, 90 T.C. 460, 463-464 (1988) Schneider v. Commissioner...
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... Include in your analysis comparisons with our principal rival(s), an analysis of the strategic factors leading to the financial performance, and, if relevant, an analysis of the strategic implementation. Please provide make specific, actionable recommendations based on your analysis of the facts. Provide a physical copy of your memo on or before April 18, 2012. As part of your analysis, please complete the following tables and append them to your two page memo in response to this request. Please use percentages for each of the criteria. Fiscal year ending | | 2010 | 2009 | 2008 | 2007 | 2006 | Net sales | 100% | 100% | 100% | 100% | 100% | Cost of sales | | | | | | Gross margin | | | | | | Operating expenses | | | | | | Selling, General and Administrative | | | | | | Restructuring | | | | | | Design and research | | | | | | Total operating expenses | | | | | | Other expenses (income) | | | | | | Interest expense | | | | | | Interest and other investments | | | | | | Other, net | | | | | | Earnings before interest and taxes | | | | | | Income tax expense | | | | | | Minority interest | | | | | | Net earnings | | | | | | Fiscal year ending | | 2010 | 2009 | 2008 | | HM | Steelcase | HM | Steelcase | HM | Steelcase | Revenue | 100% | 100% | 100% | 100% | 100% | 100% | Cost of sales | | | | | | | Gross profit | | | | | | | Operating...
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...Tax Research – Expensing versus capitalization of business expenditures Sally Jones - McIntire School of Commerce University of Virginia smj7q@virginia.edu Memo to the tax file In 2003, Connor Inc. (a calendar year C corporation) announced its intention to construct a manufacturing facility in the Shenendoah Valley. In order to convince the corporation to locate the facility in Augusta County, the county contributed a six-acre tract of undeveloped municipal land to Connor Inc. The appraised value of the land at date of contribution (December 6, 2003) was $475,000. During 2004, Connor Inc. paid $9,300 to an attorney to do a title search to make sure that the corporation had uncontested ownership of the land. The corporation also paid $3,850 2004 real property tax on the land, $16,400 for a complete survey and detailed site map of the six acres, and $7,900 for two water wells drilled on the land. In January 2005, the attorney discovered that the Estate of Elsa Reynolds claimed title to the six acres and was preparing to file suit in Virginia state court to regain ownership and possession. The attorney advised Connor Inc. that the estate’s claim appeared valid and would be upheld by the court. Consequently, the corporation informed Augusta County that it was renouncing all claim to the land and would build its new manufacturing facility in Rockingham County. In August 2003, Connor Inc. purchased 115 acres of land in the Tidewater area of Virginia for a total...
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...Research Problem 3. Millie owns a large home on the East Coast. Her home is surrounded by large, mature oak trees that significantly increase the value of her home. In August 2014, a hurricane damaged many of the trees surrounding her home. In September 2014, Millie engaged a local arborist to evaluate and treat the trees, but five of the largest trees were seriously weakened by the storm. These trees died from disease in 2015. Millie has ascertained that the amount of the casualty loss from the death of the five trees is $25,000; however, she is uncertain in which year to deduct this loss. Prepare a Tax File memo and a client letter to discuss whether the casualty loss should be deducted in the calculation of Millie’s 2014 or 2015 taxable income. Partial list of research aids: Reg. § 1.165–1. Oregon Mesabi Corporation, 39 B.T.A. 1033 (1939). Dear Millie, This letter provides you with our firm’s opinion regarding the tax consequences of the casualty loss from withstanding the severe hurricane damage as determined by the Internal Revenue Service. More specifically, does the casualty loss entitle Millie a deduction for the five oak trees in 2014 or 2015? In my research, I found that Millie is entitled to claim a deduction for the casualty loss resulting from hurricane damage (2014) in 2015. I found a case that had circumstances that were almost identical to your situation. In that case the casualty loss was deductible throughout each year it was ascertain there was...
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...Tax Research Memo #1 Martin Coldiron ACCT390-VIFF-F14 Annette Hoeltzer August 28, 2014 Tax Research Memo #1 Memo DATE: August 28, 2014 TO: Mr. Brent Ouray FROM: Martin Coldiron RE: Advising on filing status Facts: Brent and Kathy Ouray have been married since 1996. Starting in 2010 until current they both have been experiencing marital issues. They are presently not legally separated, but consider themselves to be estranged. Do you to be financial difficulties of Brent and Kathy they have not been able to go through with a divorce. They have three sons together that they both want to remain in their sons lives. So based on the financial concerns of both Kathy M Brent they are unable at this time to financially support to separate homes for them and the children, so they currently all still live in a single-family home in Chicago, Illinois. Brent and Kathy are both financially supporting their three sons and maintaining the upkeep of the house that they are all currently reside. While comparing Brent and Kathy’s annual income, Brent substantially earns more annually than Kathy. They both agree that even though they both support the children and maintain the home that Brent contributes more. In the current tax season Brent has stated that he would like to file a separate Federal Income Tax from Kathy and he would like to claim head of household as his status on the current year’s return. Brent feels that, if he and Kathy keep separate households while under the same...
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...to neighborhood grocery stores throughout the country. Thomas Foods has asked you to implement a hedging strategy to mitigate the risks associated with any unexpected increase in price they would have to pay farmers for their harvested crops. Thomas Foods asks that you provide examples of how various hedging strategies could be implemented. The Controller of the company has no experience in this area and would need to understand the accounting treatment for whichever hedging strategy you select. Of significant importance to management is how any hedging strategy would impact operating income. =================================================================================== Case 2 You have been hired as a consultant for XYZ Research Co. XYZ Research Co. incorporated in 2010. XYZ ‘s business centers on developing new technology for interplanetary exploration. The company has many patents and has historically expensed all of the costs associated with obtaining their patents. The owners of XYZ Labs are unsure whether or not if any or all of its patent costs can be capitalized. They also are unsure if any impairment testing should be done periodically on their patents. You have been asked by the owners to look into these issues and provide the appropriate accounting treatment for patents. =================================================================================== Case 3 You have been hired as a consultant for ABC Investment Group. ABC incorporated in 1999 and manages...
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...Subject: Income tax treatment I appreciate that you choose me to deal with the questions for you, these are really good questions which we should pay attention to. In this memo, I would answer your questions about the specific treatment of your company’s income taxes according to my research in FASB Accounting Standard Codification and other sources. First, you ask about if the income taxes should be considered as an expense for financial reporting purpose. According to my research, I found that most accountants now agree that corporate income tax is an expense. Treating income tax as an expense is required under GAAP. This treatment is consistent with proprietary theory because the earnings that accrue to owners are reduced by corporate obligations to the government. Also, because the income tax does not result from transactions with owners, expensing corporate income tax is consistent with the SFAC No. 6 definition of comprehensive income. Thus, on the surface, accounting for income taxes would appear to be a nonissue. So for your company’s financial reporting, you should treat income taxes as an expense. Your second question is about the difference between intraperiod and interperiod tax allocation and how to differ these two, as well as the effect on financial reporting of these two methods. This is really a good question, because new start-up company would always be confused at this part. Intraperiod tax allocation method that allocates total income tax expense or benefit...
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...Tax Research Memo TO: John Bonham FROM: RE: Alex and Aubrey Jones (tax year 2010) Facts: Alex Jones is a computer engineer living in Phoenix, AZ with his wife Aubrey, who is an attorney. He is an independent contractor at ABC Inc, a small software company. His contribution is on an application that can locate donut shops. The Jones family owns a Christmas tree farm in Oregon. They own the farm since they report the joint federal income tax return about this farm as a sole proprietorship. The Jones also has a home in Honolulu, Hawaii, and put 2 million dollars on remodeling the house. Now the house is leased. The couple who leased Jones' house is running the bed and breakfast business in it. The Jones also have a house in Aspen, Colorado where they stay occasionally when skiing season comes. The family owns a personal jet which costs them 4 million dollars in 2000 for their different types of convenience. It costs about half million every year for them to operate the jet including depreciation. Alex and Aubrey have the records and of the usage of the jet in 2000. They had 15 times flying to Oregon farm, twice to Hawaii home, 8 times to Colorado home, and twice to computer conferences, which happened in San Jose, CA and Seattle, WA. The Jones family reported in 2010 Joint Federal Income Tax Return, the jet expense of half million dollars as a business expense, so that this item is eligible for a tax deduction. However IRS agent Robert Plant, disallowed...
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...CHAPTER 1 INTRODUCTION TO PROFESSIONAL RESEARCH Discussion Questions 1. Research in general involves the investigation and analysis of an issue in question. The researcher usually applies reasonable and reflective thinking to develop an answer to the issue or problem at hand. Research requires a clear definition of the problem, using professional databases to search the authoritative literature, reviewing and evaluating the data collected, drawing conclusions and communicating your results. 2. Accounting, auditing, or tax research involve a systematic and logical investigation of an issue or problem using the accountant’s professional judgment. Furthermore, accountants approach this problem using critical-thinking skills to obtain and document evidence underlying a conclusion relating to an issue or problem currently confronting the accountant or auditor. 3. Accounting, auditing, or tax research are necessary in order to determine the proper recording, classification, and disclosure of economic events; to determine compliance with authoritative pronouncements; or to determine the preferability of alternative accounting procedures. 4. The objective of accounting, auditing, or tax research is a systematic investigation of an issue or problem utilizing the researcher’s professional judgment to arrive at appropriate and timely conclusions regarding the issues at hand. 5. Research plays an important role within an accounting firm or department. It is critical...
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...Statement of problem: John and Susan plan to marry December 12, 2012, and want to maximize their tax returns for the year 2012 however tax concerns came along such as effect on tax liabilities and marriage penalty tax. Following calculation of taxes owed for the current year a higher tax penalty was determined. It was suggested by the clients that they individually file single until the day before they married, terminate their tax years and subsequently file a “short period” joint tax return for the time that they are married. Conclusion: On the Donald R. Pierce, TC Memo 1980 - 563. , Code Sec(s) 143 it states how “no matter what is the taxpayer’s status during the year, the law will only use taxpayer’s status on the last day of the year December 31.” The approach that the couple wants to take is illegal according due to the fact that once a “man and woman are legally married they are considered married for the entire year” per IRS Sec 7703-1. Furthermore, John and Susan will not be able to file as they suggested, and will have to accept the “marriage penalty tax.” Ultimately they could face severe penalty taxes by the IRS either for negligence at the time of filing their return or any other applicable reason. Supporting Evidence: As evidence to my conclusion, to determine the situation of the couple and if they could file their return as they suggested I used Donald R. Pierce, TC Memo 1980-563. , Code Sec(s) 143. On it is clearly stated the situation of marital status of taxpayers...
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