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MEMORANDUM #1

TO: Tax Associate FROM: Partner SUBJECT: Research Memorandum for Hoku Smith

Tax Memorandum: The memo should include the relevant facts that I will provide you, discussion of the applicable Internal Revenue Code, case law, U.S. Treasury regulations, and IRS authorities for me to read from CCH AnswerConnect, and your conclusion. Please ensure that your memo is clear, and concise.

The format of the memo should follow our firm's tax research guidelines provided in this assignment. The goal is to completely answer my questions.

Facts:

Our client performs bookkeeping work for her clients. She performs most of her client work at the client's office. She has about ten clients and spends about 4 hours per client each week at the client's office. She also has a dedicated office at her home where she does all of her administrative work for her business. The administrative work she performs is at her home office to include billing, record keeping, and training. Facts Continued:

Area of her home used for business - 500 square feet Total area of home - 5,000 square feet Annual indirect costs o o Gross income from business - $100,000 o o Deductible mortgage interest - $25,000 o o Real estate taxes - $1,500 o Utilities - $2,500 Ignore depreciation for this assignment.

Questions:

1. What she wants to know is whether she can deduct expenses related to her home office based upon her facts? (YES or NO) and how much, if any? Answer after you have competed the questions below.

2. I remember there was a famous Supreme Court case in this regard, please find the case and provide a quick summary to include facts, analysis and ruling. a. What was the ruling in this case? b. How did congress react to this ruling? c. Please attach the Supreme Court case and highlight the pertinent areas of the case that outlines the facts and reason for ruling. 3. Is there a code section that applies to our fact pattern? a. If so, what it is it? b. Provide a summary of the requirements of the code section. c. Please provide an analysis of the application of the law and compare/contrast to our client's fact pattern on proving whether she is entitled to a deduction or not. d. Attach a copy of the code section and highlight the pertinent areas that applies to your summary. 4. If she can take a home office deduction? a. What is the amount of the home office deduction? b. Are there different options to calculate the deduction? c. If so, provide the calculations for each option. 5. I also recall the IRS issuing guidance on this as well in a Revenue Procedure. Please cite the relevant Revenue Procedure. a. Explain how the Revenue Procedure differs from the law. b. Please attach the revenue ruling and highlight important aspects of the ruling. 6. Does the IRS provide a publication on this topic? If so, please cite. Do not attach the publication as support for this memorandum. 7. If she is entitled to a deduction what forms are used to compute the deduction? Please attach the completed forms that should be attached to her Form 1040 for the various options. 8. Since she has a business what other tax savings ideas she we would propose to her?