AC312 Tax Research Memo #1

You provide tax consulting services for Oh Gnome You Didnt, Inc. (Gnome), a C-corporation that designs and constructs whimsical gnome gardens for its clientele. On May 25^th, 2018, Gnome acquired substantially all the tangible and intangible business assets of an unrelated company named You Better Duck, Inc. (Duck).

Duck bathed and groomed pet ducks prior to selling its business assets to Gnome. It is well-known that 75% of duck aficionados own a gnome garden because ducks love to quack up at the funny-looking gnomes, so this was a very strategic business decision for Gnome. The transition was seamless, and no duck was forced to stay unkempt for a moment after the asset sale.

Gnome paid $2,525,000 to acquire Ducks assets; $1,010,000 of the total purchase price was allocated to Ducks bathing and grooming equipment, with the remaining purchase price allocated to Ducks intangible assets. Duck originally purchased the bathing and grooming equipment for $1,750,000 brand new back in 2016 from Elmer Fudds Emporium.

Your friend Millie who also happens to be Gnomes CFO is familiar with how to depreciate the equipment for GAAP purposes but would like your input on how to properly depreciate the equipment on Gnomes income tax return (Form 1120). She has asked you to complete the table below and has supplied you with the GAAP depreciation expense details in case you need them.

Asset Description	Cost Basis	Cost Allocation Method GAAP	2018 GAAP Depreciation Expense	Cost Allocation Method Tax	2018 Tax Depreciation Expense
Ducks bathing and grooming equipment	$1,010,000	Depreciate over 48 months, beginning with June 2018	$1,010,000/48 months * 7 months in 2018 = 147,292	???	???

Millie believes that Gnomes 2018 income tax return is likely to be audited by the IRS, so she has requested you document your findings in a professional tax research memo using proper citations to substantiate your cost allocation method conclusions for the equipment.

Your very wise senior tax manager told you that 100% of the cost of the equipment will be deductible as a special allowance on Gnomes 2018 Form 1120 but has asked that you confirm this in writing using a professional tax research memo format per Millies request.

TIPS:

The key to becoming a well-respected leader in the tax field, or any business/accounting/finance field, is to be able to accurately and efficiently communicate technical concepts, issues, and proposed resolutions using laymans terms.

Facts

The Facts section should ONLY include facts required for the reader to make an informed decision about the accuracy of your research conclusions. You should not include any facts that are inconsequential.

When the facts include numerical details such as multiple dates or amounts, you should consider using a bulleted format or table layout to enhance comprehension of the details.

Issue

The Issues section is where you will list the questions your client has asked you to address. When there is more than one issue to resolve, using a numbering format is an effective way to organize the memo.

Avoid creating issues that arent relevant to the matter at hand; but on the other hand, you should be all-inclusive with your issue identification.

Conclusion

The Conclusion section is where you will provide the solutions to the clients issues. If you used a numbered format in the Issues section, you should follow the same format. Do not provide conclusions for any issues not identified in the Issues section. You should INCLUDE the solution but EXCLUDE the reason for the solution.

Example: if the solution to an issue is 4 and the computation was 8 + 12 7 + 32 41= 4, you would state The answer is 4 in the Conclusion section. The computation belongs in the Analysis section.

Analysis

The Analysis section is where you will defend your conclusion(s). You should analyze each issue separately; if you used a numbered format in the Issues section, you should follow the same format.

Your analysis of each issue should begin with relevant Internal Revenue Code statutory/regulatory cites.

If you require further support for your conclusion, you may then refer to weaker defenses (i.e. revenue rulings/procedures, court cases, IRS web site references, etc.)

It is extremely important to SUMMARIZE the authoritative guidance information for the client using PLAIN LANGUAGE and EXPLAIN how the guidance applies to the clients issue in YOUR OWN WORDS.

Other Advice for Professional Tax Memos

Throughout the memo, be as succinct as possible. The tax rules and regulations are difficult enough to analyze as it is; there is no need to include fluffy language; there is no need to include inapplicable authoritative guidance; there is no need to create issues that the client isnt interested in resolving now.

Directions

1. Your client Millie has asked you to prepare a tax research memo to help her understand some complex tax issues. In the Word document titled AC312 Tax Research Memo #1 you will find a summary of what Millie would like you to research along with the pertinent facts you require to reach a proper conclusion.

2. You have also been provided the relevant primary authorities in pdf format. You will NOT need to reference any additional source of authoritative guidance to provide a complete and accurate analysis for your client.

3. Closely study the Tax Research Memo - Helpful Tips Word document as well as the grading rubric for this research memo assignment as you complete your tax research memo for Millie using Microsoft Word.

4. Upload your completed memo to Canvas. Do not forget to save a copy of your memo to your computer for back-up.