Scenario 1: Up to Par Company operates a number of indoor miniature golf courses in Minnesota. During the current year, 2020, the company constructed five new courses described as mall" greens. Mall greens are constructed inside very large suburban shopping malls and include buffers between shots like streams, landscaping and elevation changes. The courses use living plant material and grass and as a result require irrigation. As a result, the courses require complex drainage systems using many linear feet of copper tubing. This tubing need to be replaced every 20 years. The company is expecting taxable income for the year of $150,000 and they want to maximize all favorable tax treatments available. Below is the breakdown of the total cost of each mall green: Cost Category Amount Earth moving and grading of land area $20,000 Plant materials 10,000 Copper tubing and hole props 45,000 Construction labor 50,000 Total Cost $125,000 Required: Write a short tax research memo describing the correct tax treatment of the total cost of the company. Be sure to cite your primary sources properly. When drafting your memo be sure to address the following: 1. Determine from a tax perspective, if the costs are deductible expenses or capitalized costs. Explain. 2. If capitalized cost, determine the asset classes, cost recovery periods for book and tax. Are they different? Explain. 3. If the asset is depreciable, determine the first year depreciation amount for book and tax. Method used. Are the amounts different, why? 4. What is Sec 179 Expensing election? Are the properties eligible? Explain. 5. What is bonus depreciation? Are the properties eligible? Explain. 6. If the properties qualify for both Section 179 and bonus depreciation, explain the criteria and order of application. Scenario 1: Up to Par Company operates a number of indoor miniature golf courses in Minnesota. During the current year, 2020, the company constructed five new courses described as mall" greens. Mall greens are constructed inside very large suburban shopping malls and include buffers between shots like streams, landscaping and elevation changes. The courses use living plant material and grass and as a result require irrigation. As a result, the courses require complex drainage systems using many linear feet of copper tubing. This tubing need to be replaced every 20 years. The company is expecting taxable income for the year of $150,000 and they want to maximize all favorable tax treatments available. Below is the breakdown of the total cost of each mall green: Cost Category Amount Earth moving and grading of land area $20,000 Plant materials 10,000 Copper tubing and hole props 45,000 Construction labor 50,000 Total Cost $125,000 Required: Write a short tax research memo describing the correct tax treatment of the total cost of the company. Be sure to cite your primary sources properly. When drafting your memo be sure to address the following: 1. Determine from a tax perspective, if the costs are deductible expenses or capitalized costs. Explain. 2. If capitalized cost, determine the asset classes, cost recovery periods for book and tax. Are they different? Explain. 3. If the asset is depreciable, determine the first year depreciation amount for book and tax. Method used. Are the amounts different, why? 4. What is Sec 179 Expensing election? Are the properties eligible? Explain. 5. What is bonus depreciation? Are the properties eligible? Explain. 6. If the properties qualify for both Section 179 and bonus depreciation, explain the criteria and order of application
