THIRD Writing Assignment: Draft a PROTEST
To: Your Name, Attorney at Law, University of Oklahoma, College of Law, 300 Timberdell Road, Norman, Oklahoma73019
Attached are some facts pertaining to Walt and Ernestine Taylor. Your assignment is to draft a formal protest for the Taylors and request an Appeals conference. The completed protest and request may not exceed three pages single-spaced. You may assume that a Form 2848 is already on file for you to represent the Taylors.
I am interested primarily in your ability to comply with the instructions for filing a protest. But unlike Assignments 1 and 2, I also want you to raise all pertinent legal issues that you feel should be raised at the Appeals level. In that regard, the page limit will, of necessity, limit your legal analysis. Furthermore, you may only cite to material actually appearing in your Selected Federal Taxation Statutes and Regulations (2008 or 2009 version) and such other routine IRS publications as might be appropriately cited in connection with the filing of a protest. Forge any signatures that you need for the mock protest, and make up any facts that you need.
Students may help each other with this assignment; however, each student must personally draft and submit his or her own protest. Among other things, this means that each student must personally type (or capture from library resources) each and every word of his or her protest (or have his or her protest typed by a nonstudent from a document, each and every word of which is handwritten by the student). Basically, students can compare their results, but they cannot share files or copy from one another.
This assignment must be turned in no later than 5:00 p.m. on the appropriate date. This assignment counts for 15 percent of your final grade. Please submit the protest by personally handing the original to Professor Forman or by ensuring that the original is put in his mailbox at the Law Center.
THE FACTS
Walt Taylor owns and operates, as a sole proprietorship, a public relations and advertising agency using the name Taylor Productions. One of his clients is Bittles’ Bunion Pads, Inc. The officers of Bittles’ asked Walt, a few years ago, to come up with a promotional idea which would improve Bittles’ public image and market among more affluent customers than Bittles’ had enjoyed in the past.
Walt’s daughter, Francine, is a very attractive and somewhat shy 13-year-old who enjoys and is very proficient at horseback riding. She previously had one riding lesson a week and rode about twice a week, which was all Walt could afford. Francine very much wanted to increase the number of riding lessons she took and compete in various horse shows as many of her friends were doing.
Walt, considering Bittles’ request and Francine’s desire to increase her riding activities, realized that, since many affluent people frequently attend horse shows, one of the ideal places to advertise would be at such shows. Walt discussed this idea with the president of Bittles’, who frequently rode horses in his spare time. The president of Bittles’ liked the idea and authorized Walt to purchase a horse to be named Bittles’ Bunions and to enter Francine, riding this horse, in the Beginner and Class II events at all the local horse shows during the coming season.
Francine won trophies at a number of horse shows and Bittles’ market research indicated that sales receipts had increased meaningfully and that their product had been purchased, in many cases, by a more influential clientele. Bittles’, in addition to paying Walt his usual fee for services, reimbursed Walt for all the expenses incurred by Francine riding Bittles’ Bunions at the various horse shows. Walt and his wife took the reimbursement of expenses into income and then deducted, on their 2006 income tax return, the expenses incurred.
Recently, the Taylors received the following 30-day letter from the Internal Revenue Service, and they now want you to prepare a formal protest on their behalf.
Taxpayer Identifying Number: 007-00-2002
Date of this Letter: October 6, 2008
Form 1040
Person to Contact: John Smith
Telephone Number: 888/654-8210
Tax Year Ended: December 31, 2006
Deficiency: Increase in tax $8,800
PENALTIES:
IRC 6651(a)(1) $2,200
IRC 6651(a)(2) $ 220
IRC 6654 $ 880
Walt R. & Ernestine A. Taylor
1720 North 16th Street
Sulphur, Oklahoma 73086
Dear Mr. & Ms. Taylor:
We have enclosed a report showing proposed changes to the amount of your tax for the year(s) shown above. Please read this report, decide whether you agree or disagree with our findings, and respond within 30 days from the date of this letter. (Our report may not reflect the results of later examinations of partnerships, S corporations, trusts, etc. in which you may have an interest. Changes to those accounts could also affect your tax).
If you agree with the proposed changes--
• Sign and date the enclosed agreement form. If you filed a joint return, both taxpayers must sign the form.
• Return the signed agreement form to us.
• Enclose payment of the tax and interest and any penalties due. Make your check or money order payable to the United States Treasury. You can call the person identified above to find out the total amount due as of the date you intend to make payment.
It is to your advantage to pay the full amount you owe as soon as possible in order to reduce additional interest and penalties charges. If you can agree with our findings but can only pay part of the bill, please contact the person identified above to discuss different payment options. You can also write to us or visit your nearest IRS office to explain your circumstances.
After we receive your signed agreement form, we will close your case. If you did not enclose payment for the additional tax and interest and any penalties, we will bill you for any unpaid amounts.
If you do not agree with the proposed changes--
1. You may request a meeting or telephone conference with the supervisor of the person identified on the first page of this letter. If after the meeting or telephone conference, you do not agree with the proposed changes, you may
2. Request a conference with our Appeals Office. If the total proposed change to tax (including penalties) is:
• $25,000 or less for each referenced tax period, send us a letter requesting consideration by Appeals. Indicate the issues you do not agree with and why you do not agree. If you do not wish to write a separate letter, you can complete the Statement of Disputed Issues at the end of this letter and return it to us.
• More than $25,000 for any referenced tax period, you must submit a formal protest. The requirements for filing a formal protest are explained in the enclosed Publication 5, Your Appeal Rights and How to Prepare a Protest if You Do Not Agree.
If you request a conference with our Appeals Office, an Appeals Officer, who has not examined your return previously, will take a fresh look at your case. The Appeals Office is independent of the Examination Function. Most disputes considered by the Appeals Office are resolved informally and promptly. By requesting a conference with our Appeals Office, you may avoid court costs (such as the Tax Court $60 filing fee), resolve the matter sooner, and prevent interest and any penalties from compounding.
Even if you cannot resolve this matter with an Appeals Officer, certain procedures and rights in court (for example, the burden of proof and potential recovery of litigation costs) depend upon your full participation in the administrative consideration of your case, including consideration by the Appeals Office. The Appeals Officer will call you and, if necessary, arrange an appointment.
You should mail your signed agreement form, a copy of this letter with the completed Statement of Disputed Issues, or your formal protest to us within 30 days of the date shown on this letter. If you decided to request a conference with the examiner’s supervisor, this request should also be made within 30 days of the date shown on this letter.
If you do not reach an agreement with the Appeals Office, or if you do not respond to this letter, we will send you another letter that will tell you how to obtain Tax Court review. If you decide to bypass the Appeals· Office and petition the Tax Court directly, your case will usually be assigned to an Appeals Office first to try to resolve the issue.
If you have any questions, please contact the person whose name and telephone number appear on the first page of this letter. We will be glad to discuss your options with you.
Sincerely yours,
Joe Blough
Joe Blough
Director, Compliance Area 12
Wage and Investment Division
Enclosures:
Examination Report
Agreement of Waiver Form [not enclosed or needed]
Publication 5 [not enclosed]
Envelope [not enclosed or needed]
Form 4549 Department of the Treasury-Internal Revenue Service
Income Tax Examination Changes
PROPOSED CHANGES TO DEDUCTION – AMOUNT DUE IRS
We are proposing changes to your 2006 tax return because certain deductions claimed on such return are not properly deductible. The proposed changes are described below.
We would appreciate hearing from you within 30 days of the date of this notice (or 60 days if addressed to you outside of the United States).
Explanation of Changes
Claimed Business Expenses
The following claimed business expenses are not deductible because said expenses resulted in the acquisition of an asset with a life greater than one year and must therefore be capitalized.
Purchase of the horse, Bittles’ Bunions $15,000
Construction of stall and practice area at
1720 North 16th Street $10,000
Purchase of horse trailer equipped with
a lounge and bar area $ 7,000
Purchase of saddle and other tack for the
horse $ 3,000
Certain expenses claimed as business expenses are not deductible because they constituted personal expenses.
Riding lessons for the taxpayers’ daughter,
Francine, to prepare her to ride at horse shows $ 1,000
General travel expenses from the taxpayers’
home to horse shows $ 1,400
Three riding outfits for the taxpayers’ daughter,
Francine $ 1,000
Tranquilizers and antihistamines prescribed by
the taxpayer's family doctor because of his
anxiety at horse shows and his allergy
to horses $ 300
Entry fees to compete in 10 horse shows $ 1,500
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