Hi Team,

I have been contacted by one of our long-time clients, Wilkie Inc. They need to know when and how much of a deduction Wilkie Inc. will receive for a donation made to a qualified nonprofit organization. Here are the facts:

On December 10, 20X2, a representative of a national charitable organization contacted the CEO of Wilkie, Inc., a calendar year, accrual basis corporation, to solicit a $100,000 donation. The CEO presented the solicitation to the Wilkie Inc. board of directors on December 19th, and the board unanimously authorized the donation. Pursuant to this authorization, Wilkie transferred ownership of 3,973 shares of Gydo, Inc. common stock to the charity on March 20, 2023. Wilkie purchased the Gydo stock in 1998 for $71,800 and held it as an investment. On March 20th, Gydo common was selling on the NYSE for $25.17 per share. Before consideration of this donation, Wilkies taxable income for both 20X2 and 20X3 exceeded $8,000,000.

Again, the client would like to know - in which year is Wilkie allowed a charitable deduction for this donation, and what is the amount of the deduction? Please prepare a tax memorandum on the issue and send it to me by Sunday night at 11:59 PM.

Unfortunately, I do not have time to research this issue myself, but I do know that you will need to research Internal Revenue Code Section 170 (a)(1) and Reg. Sec. 1.170A-1(c)(1) to determine which year the donation is deducted.

As always, I know I can trust you to research this issue thoroughly for our client and will provide me with you tax memorandum including a conclusion in a timely manner.

Respectfully,

Tax Manager

(Utilize, Internal Revenue Code Section 170 (a)(1) and Reg. Sec. 1.170A-1(c)(1) to determine which year the donation is deducted.)

Here is an example of a tax memo, please follow a similar format:

As per conversation with Joe Smith at Highland Golf Club on April 1, the facts are as follows: Highland Golf Club restructured their golf course's greens after withstanding severe hurricane damage. The improvements included installing computer-controlled irrigation and drainage systems. The prior cost of constructing the golf course's "natural" greens, without any dedicated irrigation system or other technology, was capitalized to the cost of the land and therefore has not been depreciated for either book or tax purposes. Issue How should Highland Golf Club account for the recent greens restructuring costs for tax purposes? Authorities 167 168 Federal Tax Regulation $1.167(a)2 Rev. Rul. 2001-60, 2001-51 I.R.B. 587 Rev. Rul. 55-290, 1955-1 C.B. 320 Conclusion The irrigation and drainage systems installed by Highland Golf Club are technological improvements that will deteriorate over time. Therefore, they should be capitalized and depreciated as equipment and not capitalized as part of the cost of the land. The depreciation should be calculated using MACRS. Other costs associated with preparing and replacing the land itself should continue to be added to the cost of the land and will not be depreciated. 167(a) allows for the deduction of depreciation that reflects the normal use of and wear and tear on a business's property. $1.167 (a)-2 distinguishes that 167 applies to land improvements but not to the cost of the land itself. Land has an unlimited useful life and is therefore not depreciated. Rev. Rul. 55-290 determined that the construction costs for golf course greens should be accounted for as land rather than as land improvements. However, this ruling does not address greens with an embedded technology. Rev. Rul. 2001-60, which modified and superseded Rev. Rul. 55-290, distinguishes between two types of golf course greens: "natural" greens with no belowground technology and "modern" greens with belowground irrigation or drainage systems. Rev. Rul. 2001-60 indicates that natural greens should continue to be accounted for per Rev. Rul. 55-290 and therefore not be depreciated. In restructuring its greens and adding belowground irrigation and drainage systems, Highland Golf Club has installed modern greens and replaced their previously natural greens. Rev. Rul. 2001-60 discusses the deterioration of the equipment associated with drainage systems used in modern greens (tiles, pipes, etc.) and goes on to define a 20-year useful life for these components of modern greens. However, the costs of moving, grading, and shaping the soil to install the drainage system should continue to be added to the value of the land and not be depreciated, consistent with $1.167( (a)-2 and Rev. Rul. 55-290. Per 168(b)(1). Highland Golf Club should depreciate the drainage/irrigation equipment costs using MACRS (i.e., 200% declining-balance depreciation). As per conversation with Joe Smith at Highland Golf Club on April 1, the facts are as follows: Highland Golf Club restructured their golf course's greens after withstanding severe hurricane damage. The improvements included installing computer-controlled irrigation and drainage systems. The prior cost of constructing the golf course's "natural" greens, without any dedicated irrigation system or other technology, was capitalized to the cost of the land and therefore has not been depreciated for either book or tax purposes. Issue How should Highland Golf Club account for the recent greens restructuring costs for tax purposes? Authorities 167 168 Federal Tax Regulation $1.167(a)2 Rev. Rul. 2001-60, 2001-51 I.R.B. 587 Rev. Rul. 55-290, 1955-1 C.B. 320 Conclusion The irrigation and drainage systems installed by Highland Golf Club are technological improvements that will deteriorate over time. Therefore, they should be capitalized and depreciated as equipment and not capitalized as part of the cost of the land. The depreciation should be calculated using MACRS. Other costs associated with preparing and replacing the land itself should continue to be added to the cost of the land and will not be depreciated. 167(a) allows for the deduction of depreciation that reflects the normal use of and wear and tear on a business's property. $1.167 (a)-2 distinguishes that 167 applies to land improvements but not to the cost of the land itself. Land has an unlimited useful life and is therefore not depreciated. Rev. Rul. 55-290 determined that the construction costs for golf course greens should be accounted for as land rather than as land improvements. However, this ruling does not address greens with an embedded technology. Rev. Rul. 2001-60, which modified and superseded Rev. Rul. 55-290, distinguishes between two types of golf course greens: "natural" greens with no belowground technology and "modern" greens with belowground irrigation or drainage systems. Rev. Rul. 2001-60 indicates that natural greens should continue to be accounted for per Rev. Rul. 55-290 and therefore not be depreciated. In restructuring its greens and adding belowground irrigation and drainage systems, Highland Golf Club has installed modern greens and replaced their previously natural greens. Rev. Rul. 2001-60 discusses the deterioration of the equipment associated with drainage systems used in modern greens (tiles, pipes, etc.) and goes on to define a 20-year useful life for these components of modern greens. However, the costs of moving, grading, and shaping the soil to install the drainage system should continue to be added to the value of the land and not be depreciated, consistent with $1.167( (a)-2 and Rev. Rul. 55-290. Per 168(b)(1). Highland Golf Club should depreciate the drainage/irrigation equipment costs using MACRS (i.e., 200% declining-balance depreciation)