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ACCOUNTING 483 – FEDERAL TAX
2nd (and final) Research Paper
Printed paper due on or before class Friday, December 11, 2015
Jimmy Counts, a Certified Public Accountant, gave advice to a client which turned out to be wrong. As a result, the client incurred additional costs of $29,372. Jimmy Counts reimbursed the client and, although he has errors and omission (malpractice) insurance, he has not filed a claim with the insurance company for fear of either having his insurance canceled or having the insurance premiums drastically increased. He has already had three claims the insurance company paid, and he has been informed that another claim would result in cancellation of insurance coverage. He is also concerned that the insurance company would take the position that he was not negligent and, therefore, would deny the claim. The client is one of his better, and more important, clients which he does not want to lose or antagonize.
Jimmy wants to deduct the $29,372 payment he made to the client on either his 2015 or 2016 U.S. Individual Income Tax Return (IRS Form 1040). He paid the client the $29,372 in September 2015. He operates the accounting practice as a sole proprietorship and is a cash basis calendar year taxpayer. Jimmy also informs you that because of delayed billings for several large clients, his expenses will probably exceed his income for 2015, and he may, in fact, have a loss from his practice for the year 2015 of about $25,000 – without taking into account the deduction of this $29,372 claim. Because of the delayed billing’s, he expects substantial net income in 2016. Jimmy had taxable income but was in low tax brackets in the tax years of 2012, 2013, and 2014. Jimmy expects to be in much higher income tax bracket in 2016 and expects that Congress will substantially increase income taxes in 2016.
Required: Write a letter to Jimmy Counts advising him as to whether the $29,372 payment is a deductible expense he should deduct on his 2015 U.S. Individual Income Tax return (IRS Form 1040). He also wonders if the expected 2015 loss of about $25,000 (or $54,372 if the claim is deductible) can be deducted on his 2016 income tax return, because he expects to have sizable net income in 2015 and a higher tax rate. If the $29,372 payment is deductible, you will also need to set forth the authority allowing such deduction and how it should be deducted.
The address of Jimmy Counts is as follows:
Jimmy Counts, CPA
Professional Building, Suite 1040
1120 Highrisk Avenue
Joel, Idaho 83844
Comments on writing your paper
(not part of the office memo)
1. Your letter should follow proper recognized and acceptable business letter form. There are several acceptable business letter forms, but you must follow the requirements of any
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acceptable business letter form you choose. Such acceptable forms should have been covered in your business writing class (Eng 317 at the University of Idaho). Such business letter forms generally can be found in any good secretarial book.
2. The required letter is your opinion as to the proper treatment of a particular factual situation. The purpose of your opinion is very similar to the purpose of an opinion written by a judge in a court proceeding. Therefore, you can use court opinions as a guide in writing your paper. The principal difference, of course, is that the form of your opinion is a business letter and the principal form that courts use is a report form. Your opinion letter is not an essay nor is it merely a review of the court opinions you have read.
3. You will need to research the law, regulations, revenue rulings, cases, and other relevant materials to prepare your opinion letter. You should use only primary authority. Use the assigned Richmond book (Federal Tax Research – Richmond) to guide you through the research tools (sources) available and the proper procedure to apply the law to your assigned problem. Do not rely on Google sources to give you the “answer”, it will not work. Your client is not interested in the answers provided by others, but only interested in your opinion and the reasons for arriving at your opinion. Always think about who you are writing your letter to. It may not be the addressee of your letter.
4. You must support your argument with controlling, and current, law. If you use a court opinion as support for your argument, you must insure that the opinion used is still the current law. You should avoid using conclusions in your paper, as conclusions do not help a reader to understand how and why you arrived at your opinion. If the reader of your letter or report does not understand how and why you arrived at your opinion, it is unlikely that the reader will agree with you and/or follow your advice.
5. It is the court’s reasoning that will support your argument and not the holding in the case. Therefore, you need to explain how the court’s reasoning applies to your facts and your argument.
6. If you immediately start this research project, you should have sufficient time to properly complete the assignment. If you wait until the last week or two to begin the assignment, you will not have sufficient time to write an acceptable opinion letter. If your letter is deemed to be unacceptable, you will not receive a passing grade in the course.
7. The College has a former English professor, D’Wayne Hodgin, on staff to assist you in writing your letter. Dr. Hodgin will be in room ALB 336, on Tuesdays, Wednesdays, and Thursdays, from 10:00 a.m. to 1:00 p.m., He may make appointments to meet with you at different times, if you so request. You are required to have Dr. Hodgin review both your draft paper and your final paper before I will either review your papers or accept your papers. Dr. Hodgin will present me with a list of the students he has met with and papers he has reviewed and has determined to be acceptable. Your name must be on the list before your draft and/or final paper is turned in to me. I will not read your paper until Dr. Hodgin has signed-off after reviewing your paper and has determined your paper is acceptable. This means that you may have to have your paper reviewed by Dr. Hodgin sever times before he has determined your paper is acceptable. If you wait until the week before the paper (either draft or final) is due, you may not be able to meet with Dr. Hodgin. Make use of Dr. Hodgin early and often.
8. I am willing to review a draft of your letter. However, if you wait until the last couple of
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weeks, the waiting lines to see me tend to get very long and you may not be able to get into my office to see me. Also by waiting to see me, you may not have sufficient time to do any necessary additional research and/or make the necessary changes to your paper.
9. The key to any good writing is to rewrite, rewrite, rewrite, rewrite, rewrite and then rewrite. Every time you rewrite, you should be making changes to your manner of presenting your argument, making better use of your authority, emphasizing the point you are making, etc.
10. Good guides to writing an opinion letter are Judges’ court opinions. After all, what is expected of you is the same as judges are doing in their opinions. The form and manner of presenting your argument is the same as judges use.
11. All citations should follow The Bluebook, A Uniform System of Citation, published by the Harvard Law Review Association.
12. You must also follow all of the requirements of Circular 230 (§§ 10.34 through 10.37) and Treas. Reg. § 1.6662-4(d). The Treasury regulation and Circular 230 require that you use only primary authority to support your argument. Primary authority is set forth in each of the publications.
13. Again, make sure that your opinion letter is in proper business letter form. Improper grammar, sentence and/or paragraph construction, improper use of a word or misspelling will result in a non-acceptable paper.
14. Late papers will not be accepted nor graded.
(NOTE: this assignment may take a substantial amount of time to do properly.)
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