Taxation Accounting Problem:

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Problem /:10-55 The Morris Corporation is a very successful and profitable manufacturing corporation. The corporation just completed leasehold improvements of its corporate offices, primarily for its top executives. The president and founder of the corporation, Mr. Timothy Couch, is an avid collector of artwork and has instructed that the lobby and selected offices be decorated with rare collections of art. These expensive works of art were purchased by the corporation in accordance with Couch's directives. Couch justified the purchase of these works of art on the premise that (1) they are excellent investments and should increase in value in the future, (2) they provide an appropriate and impressive atmosphere when current and prospective customers visit the corporation's offices, and (3) the artwork is depreciable property and the corporation will be able to take sizable write- offs against income. The financial vice-president of the corporation has requested your advice as to the depreciably of the leasehold improvements and the art. Prepare a research memorandum for the financial vice-president on this issue. Include a discussion on the different depreciation methods permitted and the availability of those methods of depreciation for leaseholds and the art. 1. Explanation of the taxpayer's business and issue at hand (heading: Facts). 2. Summary of what the research should accomplish (also part of Facts and should be no more than 2 sentences). 3. Conclusion as to the recommendations to the company (heading: Conclusion or Recommendations). 4. Tax laws and applicable court cases to support the deductions, where applicable (heading: Analysis) A partial list of research sources includes: Sections 167 and 179 Rul. 68-232, 1968-1 C.B. 70 Shauan C. Clinger, 60 T.C.M. 598 (1990). Simmon v. Comr., 103 T.C. 247 (1994), aff'd 95-2 USTC 50,552 (2d Cir. 1995) nonaca. 1996- 2 C.B.I. Liddle v. Corm., 103 T.C. 285 (1994), aff'd, 95-2 USTC 50,488 (3rd 1995)