ACCOUNTING 315

TAX RESEARCH PROJECT #2

FALL 2013

INSTRUCTIONS:

1. Use RIA Checkpoint to research and complete this assignment.

2. Write a Tax Research Memorandum to convey your conclusions.

3. The memorandum must be in proper form:

- A concise statement of pertinent facts.

- An identification of all tax issues.

- Your conclusions.

- A thorough discussion of the reasoning upon which your conclusions are based.

- Citations, in proper form, to all primary authority relied on in reaching your conclusion,

e.g., code sections, reg. sections, court case, revenue ruling, etc.

4. Any primary authority discussed in your memorandum must be tied into the facts of this particular assignment. Do not merely recite the law without explicitly relating it to the facts at issue.

5. Secondary authority may NOT be cited in your memorandum. It should only be used to help you find relevant primary authority.

6. Your memorandum must be typed. Your paper must be double-spaced.

7. Your grade will be based on the following:

- How well you performed the research, e.g., did you locate, cite, and discuss the

relevant law.

- The quality of your written communication.

- The quality of your discussion of the issues.

- Your conclusions.

8. Please submit your project in an envelope (9” x 12” or larger). No folders please.

9.  At a minimum your memorandum should cite:

·  One internal Revenue Code section.

·  Two court cases At least one case should be a U.S. Court of Appeals case (Circuit Court). Since you are not given the residence of the taxpayer you may use a case from any Circuit Court.

·  One Treasury Regulation.

·  One other primary source, e.g., treasury regulation, revenue ruling, revenue procedure, notice, etc.

Important: You may discuss your conclusions and rationale for such conclusions with your classmates. However, you must perform your own research and write your own memorandum without input from other students. Do not allow other students to read your memorandum.

TAXPAYER INFORMATION

You are a senior manager at a large public accounting firm. One of your clients, Larissa Smith, calls you with a tax question. Larissa owes Waterbury State Bank $200,000. During the current year, she has discovered she is unable to make the required payment on the loan. Larissa tells you that she owns assets valued at $290,000 and her liabilities are $440,000. Since Larissa is unable to make her required debt payments she has negotiated the following terms with Waterbury to extinguish the debt:

1. Larissa will transfer to Waterbury ownership of investment property she owns with a value of $90,000 and a basis of $55,000 and common stock she owns with a value of $50,000 and a basis of $70,000,. Larissa will also pay Waterbury $5,000 cash.

2. Waterbury will forgive the remaining amount of debt.

Larissa would like you to advise her as to how much gross income she will have from the extinguishment of debt under the above terms. Specifically she wants to know whether her payment of part of the debt with the investment property and the stock constitutes a realization of income (and is taxable) or are transfers considered part of the extinguishment and shielded by the IRC Section 108 exclusion.

Please research Larissa’s question and write a Tax Research Memorandum detailing the results of your research.