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.

Typically a manager or a partner will assign the research task to you. He or she will share whatever knowledge they have as they are not looking to make your job difficult. The facts and discussion below will do the same thing.

ASSIGNMENT 1

Section 453 of the tax law provides for installment sales of property. Rex Rogard owns a building that he acquired for $3,200,000. Rex has claimed $540,000 of straight-line depreciation on the building. Rex sold the building in November 2022 for $5,800,000. The buyer will pay $800,000 as a down payment in 2022 and will then make five equal payments of $1 Million per year from 2023 to 2027. Write a memo explaining the timing and character of gain reported by Rex in each year. Your manager explains that this is fairly straightforward so it should be about 2 pages in length, but that he is concerned that the depreciation claimed will cause an acceleration of gain in 2022. He cannot recall the rule but directs you to Section 453 to see how depreciation recapture affects the timing of an installment sale. He is uncertain of the answer so he needs you to prepare a memo that makes clear to Rex how his gain will be reported in each year.