Your CPA firm has a new tax client, Tantalizing Travels (Tantalizing), which was incorporated on April 25, 2022, and is in the timeshare sales business. The expectation is that Tantalizing will sell about 45 four-week timeshares each year. All timeshares are located in the United States. Each timeshare sells for $70,000 to $80,000. As a sales tactic, Tantalizing typically agrees to take a down payment followed by payments over a three-year period. Even though the timeshare units are Tantalizings inventory, Tantalizing is looking for a way to defer recognition of the gain on sales for as long as possible. You have been provided with a sample contract to review. In the sample contract, Jason Ng (buyer) purchased a four-week timeshare on September 30, 2022, for $75,000. He paid $30,000 down and agreed to make $15,000 payments on September 30, 2023, 2024, and 2025. Each payment is to be increased by the interest on the unpaid balance at the date of the payment. The agreement carries a 7% rate of interest (market rate for this type of loan). Jason is not a U.S. tax resident for Federal tax purposes. During 2023, Jason sells the timeshare to his sister, Jenna. Tantalizing s original basis in the unit sold to Jason is $35,000.

Your responsibilities:

Prepare a tax research memorandum to the Tantalizing Escapes Tax File that provides your conclusion on what method(s) might be available to defer recognition of the gain on the sale of the timeshare. A copy of your memo should go to the clients tax partner in your firm, Mike Moreno.

You will need to support your conclusion using primary sources of tax law. Use only statutory (i.e., legislative) Sources of tax law to respond to this question. You may research ANY tax authority (primary or secondary), but your solution must be derived and supported using only primary authority in this case, statutory only.

Be sure to include any relevant information and calculations related to your conclusion that Tantalizing should know regarding the tax treatment of the sale to Jason.

You must use proper citation form in your memo (see the inside front cover of your text).

The memo should be whatever length you feel is appropriate to resolve the issues. In general, at least two pages are required to fully answer the question. Do not use a bibliography or list of authorities in this tax research memo. Citations should be within the text of the document.