Research Assignment #1:

Understanding of the Facts:

Russell owns a building that is leased to VRH, a virtual reality gaming company.The lease has five (5) years remaining.Due to the specialized electrical and internal networking needs of VRH, VRH requests that Russell rewire the building.The rewiring would cost $80,000.Whether the work would increase the building's value is in dispute because the rewiring would be specifically designed for VRH's requirements, and may not be usable by a future tenant.Rather than lose VRH as a tenant, Russell agrees to forego one month's rent of $20,000 if VRH pays for the wiring.Because the cost of breaking the lease and relocation would be much more than the cost of wiring, VRH agrees.VRH has the building rewired in 2017.

Assignment

In a properly structured tax research memorandum, document the advice you will be giving Russell regarding the tax treatment related to the rewiring VRH paid for.Your analysis should include a discussion regarding the amount, if any, that should be included in Russell's 2017 gross income.

Hint:In your memo, you should cite only primary sources such as the Internal Revenue Code, Regulations, Court Cases, etc.Keeping that in mind, the following would be good places to start your research:

Editorial Sources - Found in Checkpoint:

oWG&L Treatises: Bittker & Lokken: Federal Taxation of Income, Estates, and Gifts (WG&L): 16.1.1 Lessee's Improvements on Lessor's Property

oFederal Tax Coordinator Analysis (RIA)

J-2250 IntroductionImprovements to Leased Property by Lessee.

J-2251. Exclusion from lessor's gross income of improvements made by lessee.

J-2255. Leasehold improvements as a rent substitute.

Primary Sources:

oInternal Revenue Code 109 Improvements by lessee on lessor's property.

oReg 1.109-1. Exclusion from gross income of lessor of real property of value of improvements erected by lessee.

Research Assignment #1: Understanding of the Facts: Russell owns a building that is leased to VRH, a virtual reality gaming company. The lease has five (5) years remaining. Due to the specialized electrical and internal networking needs of VRH, VRH requests that Russell rewire the building. The rewiring would cost $80,000. Whether the work would increase the building's value is in dispute because the rewiring would be specifically designed for VRH's requirements, and may not be usable by a future tenant. Rather than lose VRH as a tenant, Russell agrees to forego one month's rent of $20,000 if VRH pays for the wiring. Because the cost of breaking the lease and relocation would be much more than the cost of wiring, VRH agrees. VRH has the building rewired in 2017. Assignment In a properly structured tax research memorandum, document the advice you will be giving Russell regarding the tax treatment related to the rewiring VRH paid for. Your analysis should include a discussion regarding the amount, if any, that should be included in Russell's 2017 gross income. Hint: In your memo, you should cite only primary sources such as the Internal Revenue Code, Regulations, Court Cases, etc. Keeping that in mind, the following would be good places to start your research: Editorial Sources - Found in Checkpoint: o WG&L Treatises: Bittker & Lokken: Federal Taxation of Income, Estates, and Gifts (WG&L): 16.1.1 Lessee's Improvements on Lessor's Property o Federal Tax Coordinator Analysis (RIA) J-2250 IntroductionImprovements to Leased Property by Lessee. J-2251. Exclusion from lessor's gross income of improvements made by lessee. J-2255. Leasehold improvements as a rent substitute. Primary Sources: o Internal Revenue Code 109 Improvements by lessee on lessor's property. o Reg 1.109-1. Exclusion from gross income of lessor of real property of value of improvements erected by lessee