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 2

Section 121(a) of the IRC allows a taxpayer who has owned and used a property as their principal residence for 2 of the 5 years before sale to exclude $250,000 (single) or $500,000 (married filing joint) from income. If the property has been owned and used for less than 2 years the gain is generally recognized in full. However, there are several exceptions that may apply where the residence fails the 2-of-5 test for a specific reason.

A manager asks you to research one such (possible) reason. Jack and Barbara Branch live in Plano. They purchased a home in July 2020 for $385,000. The house was sold in March 2022 for $472,000. Barbaras mother lives in Scottsdale Arizona and has experienced increasingly severe dementia brought on by a series of small strokes. Barbara visits often, but in late 2021 decided that her mother needs a family member living nearby on a full-time basis. So Barbara talked to Jack and they decided that they would move to Scottsdale. Jack was an engineer for Texas Instruments and was able to get a job with Motorola in Phoenix. The Branchs purchased a home in Gilbert, Arizona for $445,000 in April 2022.

The question is whether the $87,000 gain from the sale of the Plano house can be excluded under Section 121. Your manager says that he thinks there is some rule for moves caused by medical reasons but he does not know (1) whether a medical reason of a family member will qualify and (2) how the exclusion would work even if it did apply.

Your assignment is to research the issue and write a memo. I would not expect that such a memo would be longer than 1500 words and it might be less.

Be sure to cite primary authorities. The manager says that he knows you will need to look at the Code as well as the Section 121 regulations.