Homework answers / question archive / Tax Research Project for spring 2021 Project Outline is due March 4, 2021 & Final Project is due April 6, 2021 When the Internal Revenue Code is silent or unclear on a particular tax issue or issues, the CPA must consult other authorities such as Treasury Regulations, Revenue Rulings and/or court decisions

Tax Research Project for spring 2021 Project Outline is due March 4, 2021 & Final Project is due April 6, 2021 When the Internal Revenue Code is silent or unclear on a particular tax issue or issues, the CPA must consult other authorities such as Treasury Regulations, Revenue Rulings and/or court decisions

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Tax Research Project for spring 2021

Project Outline is due March 4, 2021 &

Final Project is due April 6, 2021

When the Internal Revenue Code is silent or unclear on a particular tax issue or issues, the CPA must consult other authorities such as Treasury Regulations, Revenue Rulings and/or court decisions. Sometimes it may be necessary to support your position by using information from several tax authorities.

Problem #1 – Kicking it Around

In 2018, Austrian Werner Hoppe was a professional soccer player. In 2018, Werner was visiting his brother Klaus Hoppe who had immigrated to the United States in 210 and was living in Dallas Texas. During his time in the United States, Klaus became an avid Dallas Cowboys fan. During the 2018 season the Cowboys kicker got hurt and the replacement picked up on waivers was not kicking that well. Klaus took his brother to the Cowboys training facility and convinced the Cowboys to give Werner a tryout. Werner’s kicking was so good that he was offered a contract with the Cowboys. Werner was supposed to go back and play soccer professionally in Austria. He wasn’t sure that he wanted to play for the Dallas Cowboys, so the Cowboys offered Werner a signing bonus of $100,000. Werner signed the contract and Klaus served as his interpreter and negotiator. Werner told the Cowboys to pay Klaus $15,000. Klaus was paid $15,000 by the Cowboys and he reported the $15,000 on his income tax return as other income.

After examining Werner’s 2018 tax return, the IRS field agent has proposed a deficiency against Werner claiming that the $15,000 paid to Klaus was in fact income to Werner and should have been included as income on his tax return under IRC § 61(a)(1).

As Werner’s tax advisor, you must advise him as to whether he should accept the IRS examining agent’s proposed deficiency or appeal the proposed deficiency. Perform the necessary tax research. Teams need to make arguments for both sides of this case, support your arguments with some type of tax authority and then make a conclusion as to whether Werner should proceed with litigation.

Problem #2 – Monkee Business

Mickey Dolenz owns the copyrights to several classic The Monkees songs. In 2018, he became aware that Columbia Records was selling several of his songs without his permission. He sues Columbia seeking $1,000,000 in damages. In 2019, the court awards Dolenz $500,000 in compensatory damages, $50,000 in prejudgment interest, post-judgment interest to the date of payment, and court costs. Columbia is aware that Dolenz is likely to appeal the judgment and offers to settle for $600,000 with no payment of post-judgment interest or court costs. On the advice of his attorney, Dolenz rejects the settlement offer.

On December 29, 2019, Dolenz receives a check for $600,000 from Columbia. An accompanying letter notes that the payment is in full settlement of the order of the court. Dolenz believes that the payment is in full settlement of the order of the court. Dolenz believes that if he cashes the check, he will forfeit his right to appeal the judgment, the post-judgment interest and court costs. He immediately returns the check to Columbia via overnight mail, stating in a letter that his appeal rights are not exhausted, and he is returning the check until such time as the issue is settled. Columbia re-mails the check on December 31, 2019. Included with the check is a letter advising Dolenz that Columbia intends to deduct the $600,000 in 2019 and that the funds ae available for his unrestricted use. On January 15, 2020, Dolenz files an appeal seeking an increase in the damage award. The next day he deposits Columbia’s check into his business account. On June 5, 2020, the Appeals Court rejects Dolenz’s appeal for higher damages. Dolenz is a cash basis taxpayer. In what year should he report the payment of $600,000 as income.

Perform the necessary tax research and write a memorandum to the tax file and advise Dolenz in a client letter as to your research findings and in what year he should include the $600,000 in income. See Exhibits 2.9 & 2.10, Chapter 2 for the memorandum format.

Problem #3 – Getting Dumped

McCann, Inc. is in the business of garbage collection and disposal. The company began in 1980 as a partnership with assets of only two garbage trucks. In 1998, the company has incorporated and reported annual revenues of $29,000,000 and serves much of northern Illinois.

The company has encountered repeated difficulty in access to public landfills, to the point of limiting the ability to accept new business. Robert Johnson, Chief of Operations, has proposed that the company consider purchasing landfills. His projections indicate that, over the long-term, owning land for disposal purposes is not expected to be more expensive than the fees typically paid for access to others’ land.  McCann, Inc. is contemplating the purchase of several acres of landfills in the Chicago area. The acquisition cost is $3,000,000. The salvage value of the land after its use as a landfill is estimated to be $500,000.

 On April 16, 2021, Robert Johnson calls you, the tax manager of CPP CPAs, LLP, to determine the tax treatment of this land. You and he both are well aware that the cost of land is not depreciable. He makes the case that this land can be distinguished from the “usual” land because rather than buying land, McCann is actually buying the space above the land to use for business purposes. You ask Mr. Johnson to give you time to investigate and promise him a reply within the week.

Perform the necessary tax research and write a memorandum to the tax file and advise Johnson in a client letter as to your research findings and in what year he should include the $600,000 in income. See Exhibits 2.9 & 2.10, Chapter 2 for the memorandum format and sample letter.