Sarah Jane Smith has a successful career as the CFO of a small biotech company in San Diego, California earning approximately $350,000 each year. Her two children have graduated from college, and she and her husband are now “empty nesters”. Her son took a job at a marketing firm in Seattle, WA, and her daughter is a doctor in Philadelphia, PA. She and her husband enjoy beer and have brewed beer at home as a hobby for several years. With more time to devote to other activities, they decided to open up a craft brewery, and they invested $500,000 to get it started. However, they believe that it will be 5 to 6 years before the brewery is profitable. Ms. Smith would like your advice as to any potential tax problems with the brewery investment.

1. Are all of the given facts pertinent? Which (if any) are irrelevant?

2. What is the primary tax issue in this case? (Your response should be a research question.)

3. What other information might you want to help research the primary tax issue? (Consider questions you would ask the taxpayer.)

4. What other research questions / tax issues might be relevant to this situation?

5. What keywords might you use in an online tax research query to find relevant authorities for one or more of these questions?