Hi Team,

We were contacted by Mary Smith, the owner of Smith Magazine World Inc. with a question regarding the taxability of refunds they have made in January of 2023 for sales made in December 2022. Smith Magazine World Inc. operates on a calendar year and is on the accrual basis of accounting. As you know, Smith sells Smith Magazine which is published 8 times a year. Smith has a sales agreement with the retail sellers of the magazine that Smith will refund the retailer for any unsold magazines for a one-month period after purchase. Smith commits to refund fifty percent of the purchase price of each returned magazine. During December 2022, Smith sold $5,000,000 of magazines. During January 2023, Smith refunded $475,000 of the $5,000,000 of sales from December. Specifically, Mary wants to know if her company can reduce Smiths 2022 income by $475,000 that it refunded in January 2023 for the December 2022 sales? 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 458 to determine whether this is includible or excludible from the 2022 income. As you know, Smith Magazine World Inc. is a valued client of ours and as such I indicated we would get back to them quickly.

Please create a tax memo with the relevant information and your conclusion on this matter.

Respectfully,

Tax Manager

Here is an example of a sample 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, 19551 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