Instructions: Memos should be written in standard tax memo format. It should include a summary of facts, issue(s), law & analysis, and conclusion. The memo should not be longer than two pages. You must include a copy of the tax code(s), regulations, letter rulings, and/or cases used to support your work. Your response will be graded for technical content and writing skills. Technical content will be evaluated for information that is helpful to the intended audience and clearly relevant to the issue. Writing skills will be evaluated for development, organization, and the appropriate expression of ideas in a professional correspondence.

Memo #3

You are the Principal Accounting Officer (PAO) of Carvana, a digital automotive retail dealer that was impacted by ransomware in January 2022, the company was impacted a ransomware attack. The company incurred $2,000,000 in IT expert consulting fees in relation to the attack. In addition, the attackers requested $4,000,000 in bitcoin which the company paid. Luckily, most of these costs will be covered by a corporate insurance policy but as PAO you must explain the GAAP and Tax effects of these excess costs to your external auditors, PWC.

In a memo to PWC, summarize the 1) GAAP reporting of the excess costs on the financial statements, 2) the effect these excess costs have (if any) on deferred income taxes, and 3) the federal tax deductibility of these excess costs. You may use tax code(s), regulations, letter rulings, and/or case law to support your conclusion.