The firm’s client has several transactions and is questioning the tax treatment. This client is very detail oriented. Your manager has asked you to write a memo for the files stating the tax issues/facts, relevant law, and tax treatment. Identify two tax issues (there may be more but only two are required) with related facts, law citation(s), brief summary y of the relevant law, and finally the tax treatment for that tax issue.

The manager emphasized only tax issues are to be included in the memo. The client is Tons of Fun Toys, Inc. (TFT), which Marco opened for business in 2008 as a corporation. TFT produces wooden toys – spinning tops and block sets. Business hase business very well for him, and he has provided the following information relating to his business and is concerned about how these transactions will affect his 2022 taxable income.

In March 2022, TFT sold 5,000 toys to Big Box Stores, Inc. (BBS), a large national retailer, for $75,000 on credit.

On August 1, TFT purchased a 12-month insurance policy that covers its business property for accidents and casualties through July 31 of next year. The policy cost TFT $3,600.