Premium Essay

Tax Memorandum

In: Business and Management

Submitted By tiffanyly162002
Words 1055
Pages 5
Fact: Peaceful Pastures Funeral Home, inc. (Peaceful). Peaceful, an accrual basis taxpayer provides a full line of funeral service and sells goods 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 funeral home corp. properly reported monies received for Massachusetts regulated pre-need funeral service contracts in year services were actually rendered, rather than in payment year as IRS contended: following Supreme Court…...

Similar Documents

Premium Essay

Tax Memorandum

...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 making equipment? How? 3. John and Jane Smith tax issue: 1. a. Should John and Jane file separate tax returns......

Words: 346 - Pages: 2

Premium Essay

Tax Memorandum

...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......

Words: 986 - Pages: 4

Free Essay

Tax Memorandum

...limit. Company X’s basis in the ten-story building is only $2,000,000. As of now the Company is unsure as to how they will account for the $8,000,000 gain. Issues 1. Will Company X have to report the $8,000,000 gain? 2. Is Company X in constructive receipt of the sale proceeds? 3. If Company X does have to report the $8,000,000 gain are there any alternative options in which Company X can defer recognition? 4. If Company X does have to report the $8,000,000 gain are there any alternative options that will allow Company X to not have a gain to report? 5. Can Company X receive its initial property back from the middleman corporation because the other party backed out of the deal? 6. In the future, are there any tax strategies that Company X can initiate to avoid a similar situation? Conclusions 1. ljslafdj 2. lskjafd 3. lksjdsfl 4. lkjfs 5. lkj;lkj Reasonings and Authorities Issue 1...

Words: 484 - Pages: 2

Free Essay

Memorandum

...MEMORANDUM To: Galadriel and John, owner of Marietta Horse Supplies From: Subject: Potential Liability for Accumulated Earnings Tax, and Level of Salaries FACTS Galadriel and John, under you, are owners of Marietta Horse Supplies, C Corp. The company has garnered enough earnings enabling the owners to pay reasonable salaries, although research revealed that the salary level is about one-half or two-thirds of salaries paid by other horse supply businesses with similar size. Owners claim that the lower compensation level was to satisfy the needs of business, i.e., inventories. Past two years, the owners set up lines of credit with two local banks. The owners claim they never had time to review the level of their salaries. PROBLEMS An IRS agent contacted Galadriel and John about items in their tax returns. Having three past tax returns have been examined, the IRS agent proposed a settlement for the items in question. The IRS agent’s concern is Marietta Horse Supplies has unreasonable accumulated earnings. Galadriel and John may be subject to the accumulated earnings tax. ANALYSIS The fact that Marietta Horse Supplies has paid the owners with salaries and lack of presence of compensations paid in forms of dividends may be deemed as contrary to reasonable accumulation of earnings and as tax avoidance attempt, as stated in Sec. 532 (a). However, Galadriel and John shall provide proof to justify the business needs of its accumulation of earnings......

Words: 425 - Pages: 2

Premium Essay

Tax Research Memorandum

...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......

Words: 441 - Pages: 2

Premium Essay

Memorandum

...Memorandum HRM/531 Human Capital Management April 8, 2013 Dr. Laurene Collins Memorandum To: From: Date: April 8, 2013 Re: Human Resources (HR) officer Analysis: In the past, we have lacked the component of internal and external customer service skills in our employment opportunity for a human resources (HR) officer. In order to do this, we will restate the position, with this important feature included ("Human resources job," 2012). Purpose: The HR officer is expected to provide complete support to the various duty functions to include recruitment, enrollment, guidance, instruction, performance and growth of the organization, salary disbursement, negotiation with external organizations, and the maintenance of the right conditions in the work place and is responsible for internal and external customer service training. They also are required to monitor employees and also counsel them if this is required. HR officers develop and advise on organizational policies, and ensure their proper implementation. These policies are related to the effective employment of employees within the organization. They are to ensure that the employees are all rightly balanced in skills and knowledge. For this reason, they conduct training programs. The HR officer works consistently towards the enhancement of an employee’s performance so that they achieve or exceed their targeted goals. Typical Work Requirements: The HR officer should have a clear understanding of the......

Words: 496 - Pages: 2

Premium Essay

Tax Memorandum

...Week 7 Research Project (Set #1) DeVry University Acct 429 TAX RESEARCH MEMORANDUM ASSIGNMENT 2 It appears as though a couple of your clients have encountered an unfortunate development in their financial situation. Cindy and Ralph Edmonds own TidyCo., Inc. TidyCo, in turn, owns and operates several coin Laundromats in and around Dubuque, Iowa. Over the last two years, the Edmonds made weekly deposits of the Laundromat receipts to corporate and personal bank accounts. However, it now also appears (unknown to you!) they also siphoned off a portion of the weekly collections and took them home rather than depositing them. These amounts, which appear to total about $200,000 were hidden in shoeboxes around the house and (surprise!) were not reported as income. The IRS found out about these amounts and has notified them that it intends to bring criminal tax evasion charges against them under Section 7201 of the Code. The IRS has made quite clear that it believes that the Edmonds’ actions constitute prima facie evidence that they intended to defraud the government and should therefore be liable under the statute. As their accountant, you know that TidyCo has a deficit in both its accumulated and current E&P accounts and that this deficit has existed over the entire...

Words: 637 - Pages: 3

Free Essay

Memorandum

...Memorandum Facts: Fred Hamilton had a traditional IRA account with an investment company for approximately 15 years and the value of the IRA account was $90,000. He meets a new financial advisor who actually not associated with the company for almost one year. So Fred Hamilton withdrew all of the $90,000 and transferred all of the money into a newly established IRA account. And then he wrote a check in the amount of $90,000 to XYZ Investment Company. Fred Hamilton did all of the above as advised and gave the check to the new financial advisor. However, the new financial advisor endorsed the check and deposited the money into her personal account. And Fred did not know Sally Smith had not been associated of XYZ Investment Company for almost one year. Then Fred Hamilton discovered the loss and hired an attorney to represent him on this matter at current taxable year. Issue: If the distribution $90,000 as rollover nontaxable and how much the actual distribution can be deductable or not? Discussion: 1. The trustee must be a bank or another person who can assure that trust will be administered safely according to a certain manner (Reg Sec 408-2(b)(2)(i)). The new financial advisor was no associated with the company for almost one year. She does not have the authority to advise the taxpayer since she is not qualified as a trustee. 2. There are two kind of distribution. One is direct another one is indirect. According to Instructions for Forms 1099-R and 5498, the......

Words: 752 - Pages: 4

Premium Essay

Tax Memorandum

...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......

Words: 367 - Pages: 2

Free Essay

Tax Research Memorandum

...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...

Words: 495 - Pages: 2

Premium Essay

Memorandum

...Assignment 1/Memorandum Tahanni Ragland University of Phoenix HRM 531 CERTIFICATE OF ORIGINALITY: I certify that the attached paper is my original work and has not previously been submitted by me or anyone else for any class. I further declare I have cited all sources from which I used language, ideas, and information, whether quoted verbatim or paraphrased, and that any assistance of any kind, which I received while producing this paper, has been acknowledged in the References section. I have obtained written permission from the copyright holder for any trademarked material, logos, or images from the Internet or other sources. I further agree that my name typed on the line below is intended to have, and shall have, the same validity as my handwritten signature.   Student's signature (name typed here is equivalent to a signature):  ______Tahanni Ragland ____________ ___ to: Merger Supervisory Team, Interclean, Inc. FROM: TAHANNI RAGLAND SUBJECT: MANAGEMENT BEHAVIOR MEMORANDUM DATE: NOVEMBER 29, 2010 CLASS: HRM/531 GROUP: MBAA0KZ1X9 DUE TO THE RECENT RUMBLINGS AND RUMORS FLOATING AROUND CONCERNING THE UPCOMING INTERCLEAN-ENVIRO TECH MERGER, I FELT THAT IT WAS NECESSARY TO DRAFT THIS MEMO ABOUT WHAT SHOULD AND SHOULD NOT TAKE PLACE. IT IS IMPERATIVE THAT THE SUPERVISORY STAFF EXHIBIT COMPLETE DISCRETION AND REMAIN SUPPORTIVE DURING THIS TRANSITION. AS MANAGEMENT, YOU MUST BE A POSITIVE EXAMPLE TO OUR STAFF DURING THIS PROCESS. AS......

Words: 687 - Pages: 3

Premium Essay

Tax Memorandum 3-63

...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...

Words: 1728 - Pages: 7

Premium Essay

Memorandum

...Memorandum To: Congressman Howard Hughes From: , Chief of Staff Date: January 18, 2015 Subject: Medicare Crisis Congressman Hughes, You have been asked to participate in a panel discussion concerning the Medicare crisis and how expenditures can be reduced. One proposal that is being considered is enrolling participants in HMOs. This memorandum contains information about the Medicare crisis and it will assist you in answering questions that the panel may have, and also aid you in making decisions concerning enrollment in HMOs. PROBLEM IDENTIFICATION The Medicare and Medicaid programs were signed into law on July 30, 1965, by President LBJ. When it was first implemented, Medicare covered most people aged 65 or older. "In 1973, the following groups also became eligible for Medicare benefits: persons entitled to Social Security or Railroad Retirement disability cash benefits for at least 24 months, most persons with end-stage renal disease (ESRD), and certain otherwise non-covered aged persons who elect to pay a premium for Medicare coverage." (Annual Statistical Supplement, 2011 - Medicare Program Description and Legislative History, 2011 para 2) Medicare consists of four parts: Hospital Insurance (HI), also Medicare Part A. Medicare part B is helps pay for physician, outpatient hospital, home health agency and other services. Medicare is Medicare Advantage Program which is a program that expands beneficiaries' options for participation in private-sector health......

Words: 1668 - Pages: 7

Free Essay

Memorandum

...Memorandum TO: Mr. Brett Cohn FROM: John Doe CC: Charles Brides, Betsy Turtz DATE: January 25, 2012 SUBJECT: Clean Bright Cleaning Company Industry Background The cleaning industry like other professions is extensive and diverse. The industry is segmented into commercial and residential cleaning services. The sectors are dramatically different, but demand for each has been equally affected by the recession. Price-based competition is now more prevalent after this point in time, which reduced the willingness of clients to pay full rates for contracted janitorial services. “The majority of revenue is derived from the commercial and retail sectors. These are the mainstays of the industry, although they remain very price competitive” (Moldvay, 2011). In regards to competitive analysis, the industry primarily operates in the domestic market, given that it is a service industry. The regions with the greatest concentration of janitorial service companies include: the Southeast followed by the Great Lakes, the West and the Mid-Atlantic regions. “The Great Lakes is another common destination, the region has 16.2% of the industry’s companies” (Moldvay, 2011). In the last five years the market share concentration has been on the rise. “The majority of industry operators are small firms that specialize in specific regions or industries. According to the US Census and IBISWorld estimates, 93.3% of industry establishments have five or less employees. Less than 1...

Words: 2562 - Pages: 11

Premium Essay

Tax File Memorandum

...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......

Words: 663 - Pages: 3