Tax Research Exercise

Five assorted tax research problems follow below (each problem is worth up to seven (7) points thirty (35) points possible for the entire exercise). You should present (on regular copy/printer paper and an electronic file see instructions) your answers to these problems using the following format:

Issue: Restate the primary issue(s) in the problem (you can copy and paste from the facts provided below) and if appropriate, list any additional issue(s) you determined were relevant from your research.

Conclusion: Answer the basic issue or issues in concise yet meaningful terms. These should be plain-language statements not technical jargon.

Arguments and Authorities: Explain the basis for your conclusions above. Include appropriate technical citations with related analysis (e.g. IRC 172 provides that a business may carry forward a Net Operating Loss generated before 2018 for twenty years or In Gregory v. Helvering, 293 U.S. 465, the United States Supreme Court held that there must be a valid business purpose.). In general, one or two explanatory paragraphs should be sufficient, but you can be a bit longer if you deem it necessary.

Note: Unless otherwise indicated in the case facts, all research should focus on the tax law and related rules and regulations in effect as of December 31, 2018 (current law). In other words, since the default in most cases in CCH Cheetah and RIA Checkpoint is to current law and rules, drilling-down for older materials is not generally appropriate or needed.

4) Your client, Dora Downer, has an accounting degree but did not become a CPA. Dora generally likes to enjoy life she has never been motivated to work as hard as some of her classmates to become successful in public accounting. Accordingly, Dora has worked a series of ad-hoc or temporary accounting jobs since graduation. Recently, Dora prepared individual income tax returns for Taxes--Us Financial Services during the tax season. Taxes--Us deemed Dora an independent contractor and promised her an hourly rate of $25 plus a hefty 20% retention bonus if she made it through tax season. This was harder work than Dora really wanted, but she stuck with the assignment and worked under this arrangement from early February until April 15. At the end of the tax season, Dora submitted her invoice her accrued compensation amounted to $14,600 plus a $2,920 bonus. When Dora went to collect her earnings from Taxes--Us, she found only a vacant office with a sign on the door reading Nothing is certain but death and taxes.

Primary Issue: Can Dora take a bad debt deduction for the compensation and bonus she was unable to collect from Taxes--Us? Hint: Start with Treas. Reg. 1.166-1(e).