ACCT $597$

Writing Assignment $1$

Background: When working in the tax department of a public accounting firm it is common to have to do tax research. The AICPA has guidelines as to how to communicate the results of tax research, which generally involve identifying the following:

$$ Facts

$$ Issue$($s$)$

$$ Discussion

$$ Conclusion

The discussion will involve the use and application of primary tax authorities, such as the Internal Revenue Code, Treasury Regulations, IRS administrative guidance, and court holdings. Your memo should be organized into the four sections shown above and should cite ONLY primary tax authorities.

This class is for CPAs. A CPA cannot draft legal documents. However, it is common that an attorney will ask for help in drafting tax clauses of agreements.

Assume that a real estate partnership will be formed by a sponsor, who will offer units to investors. The distribution of available cash will be in the following order:

$1.$ To the investors in the amount of their unreturned capital;

$2.$ To the sponsor in the amount of his unreturned capital;

$3.$ To the investors, a cumulative preference return of $8\%$ per year, based on original capital;

$4.$ To the sponsor, a cumulative preference return of $8\%$ per year, based on original capital;

$5.60\%$ to the investors and $40\%$ to the sponsor, until the investment has returned an internal rate of return of $14\%$;

$6.40\%$ to the investors and $60\%$ to the sponsor.

Write a memo to the attorney that explains why target allocations may be best suited to this partnership based on its $$distribution waterfall.$$ Then propose language for the allocation clause.

In doing the allocation clause, you may assume that the draft of the agreement already includes the above language for the distributions, and you may use a section reference $($for example, section $4\mathrm{.}02($a$))$ if you wish.

Beyond that, use the resources in the allocation section of D$2$L$.$ Look for sample target clauses. An attorney who often shares target clauses on the web is Terrance Cuff. I regularly steal from his language. He provides samples so that people can steal them.....it is a public service to his profession, but also benefits CPAs.