Analysis

Assignment Requirements

 

For your Applicable Law, use primary sources (which are not IRS publications, web sites, nor the text itself). You should have a primary resource for each issue (which may be a state�s law concerning a non-tax issue, such as the liability of a general partner. Yes, state law does affect tax issues.) My advice is not to blend the issues but to address each one separately. In the Analysis, tie together the law and facts of the question that will lead to the Conclusion. An exceptional Analysis will give an argument that the IRS could use to counter the conclusion (this assumes that you will be trying to come to a conclusion that is favorable to the client and the IRS will be trying to come to a conclusion that is favorable to the government).

Scenario

You are a CPA with an office in NearLakes City and clients consisting primarily of professionals, entrepreneurs, and small business owners. John Smith, Esq., a practicing attorney with offices near yours, walks in your office and wants advice from you relating to a recent influx of cash he received as a result of winning a large jury verdict on behalf of 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 900-1,500 words per page) to John and Jane Smith addressing the issues presented.

Players

 

John Smith, Esq.

Lawyer

 

 

Jane Smith

Professional

Deliverable
Given the scenario, your role and the information provided by the key players involved, it is time for you to make a decision.

For your Applicable Law, use primary sources (which are not IRS publications, web sites, nor the text itself).  You should have a primary resource for each issue (which may be a state’s law concerning a non-tax issue, such as the liability of a general partner.  Yes, state law does affect tax issues.)  My advice is not to blend the issues but to address each one separately.  In the Analysis, tie together the law and facts of the question that will lead to the Conclusion.  An exceptional Analysis will give an argument that the IRS could use to counter the conclusion (this assumes that you will be trying to come to a conclusion that is favorable to the client and the IRS will be trying to come to a conclusion that is favorable to the government).

You Decide Assignment

See the You Decide content item for details, instructions, and grading rubrics. For each issue, you should

1. state the issue;
2. explain and discuss the applicable law (IRC sections, regulations, court decision, and so forth.); and
3. present your answer in the form of a concluding paragraph that refers to specific language from the IRC sections, regulations, court decisions, and other sources (if applicable) to support the conclusion.

Prepare a three-page memo (at least 900-1,500 words per page) to John and Jane Smith addressing the issues presented:

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?
   4. Is it more beneficial to continue leasing the business space or to buy the building?
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-making equipment? How?
3. John and Jane Smith tax issue:
   1. Should John and Jane file separate or joint tax returns?

You Decide: It’s your turn as a tax professional to decide on the best course of action from a tax perspective on their issues as presented above.

For each issue, begin by restating the issue and numbering as shown above [i.e., 1(a), 1(b), etc.]. Next, explain and discuss the tax rules that apply to the issue, which you gleaned from your tax research. Then, conclude with a definitive answer to the issue, supported by citations to the sources used. So for each issue, you should

1. state the issue;
2. explain and discuss the applicable law (IRC sections, regulations, court decision, and so forth); and
3. present your answer in the form of a concluding paragraph that refers to specific language from the IRC sections, regulations, court decisions, and other sources (if applicable) to support the conclusion.

*A template has been provided in Doc Sharing for your use in preparing this activity. Please use it!

Citations

Citations are required. You must provide citations whenever you refer to the sources of tax law used in this memorandum. You may cite your sources in numbered footnotes, numbered endnotes, or in parentheses immediately after the sentence mentioning the cited source.

Grading Rubric

Category	Points	Description
Superior	100–125	Content and subject: Easily identifiable, clear; meets or exceeds page or word-length requirement; all required citations are provided Structure: Apparent, understandable, and applicable; excellent flow and well structured Analysis: Interesting and novel; provides different perspectives; demonstrates critical thinking and critical analysis at a high level Mechanics: Virtually devoid of errors in grammar, syntax, punctuation, and spelling

 

 

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