Mr. Lucky is the sole owner of Bar Nothing Corporation. The IRS is questioning some of the items on the joint return of Joe Lucky and Mary Lucky.

Mrs. Lucky lost her job from another firm and received state unemployment benefits. A state court held that $7,000 was over paid and $7,000 was owed to the state. The state sent a notice to the IRS of the overpayment. The IRS reduced the couples tax refund by $7,000. The taxpayer does not agree.

Bar Nothing Corporation outsources their payroll tax duties to Sure Fire Corporation, a third-party payroll firm. The owner of the third-party firm never paid the payroll taxes as the funds were used on a dating website involving Russian brides. The IRS says Mr. Lucky owes $100,000 in unpaid payroll taxes. Mr. Lucky did some research and cites the recent case of Preimesberger to prove he does not owe the tax.

Required: Prepare a memo to Mr. and Mrs. Lucky. You may have to add more facts. If you add more facts state results if facts are different than the ones you add.