TAX RESEARCH

· 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….”).

Note: Your research should focus on the tax law and related rules and regulations in effect prior to the enactment of the TCJA of 2017. In other words, use “old law” in answering these questions. However, if you so choose, you may address the effect any changes to the law under TCJA might have on your answer (may be relevant to only some of these cases). Any additional commentary regarding TCJA will be favorably considered during the grading process.

1) Janis is a senior software engineer for StarTrak, Inc. During 2017, she was transferred from San Jose, California to Chandler, Arizona by her employer. StarTrak has a written policy of reimbursing its employees for all costs and expenses associated with a job-required relocation. This reimbursement policy extends to any additional income taxes an employee may incur in connection with the move (a “make whole” policy). Janis incurred the

following costs in relocating from San Jose to Chandler: i) $25,000 paid to a relocation firm for packing and moving her household goods and personal items (delivered to her new apartment in Chandler); ii) an extra charge of $3,000 for moving Janis’ sailboat; iii) an $18,000 real estate commission Janis paid on the sale of her old home in San Jose; iv) $750 in travel costs incurred getting to Chandler (hotels, $450; meals, $125; gas/oil/parking charges en route for her personal car, $175). StarTrak will also reimburse Janis for her first two-month’s rent ($1,700) for her temporary apartment in Chandler. Janis began looking for a permanent home shortly after arrival and has located a suitable condominium in Gilbert. Janis expects to incur another $7,500 in purchase-related costs (legal fees, etc.) in connection with the acquisition of this condominium and StarTrak will reimburse her for these amounts as well. Assume Janis is in the 40% effective marginal tax bracket when State and federal taxes are combined. You may further assume that Arizona tax law follows federal law for purposes of any calculations (ignore California taxes for purposes of this exercise).

Primary Issues: How much of StarTrak’s payments to or on behalf of Janis be subject to income tax? Can Janis deduct/exclude all or a portion of the reimbursement? Will the “make whole” policy result in any additional tax liability? Hint: Start with IRC §§82, 132 and 217. The regulations under §217 may be particularly helpful.

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

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

3) Sergio is a Senior Tax Specialist with a large CPA firm in Los Angeles. He has been assigned to the State and Local Tax (SALT) group in his firm’s tax department. As Sergio desires to enhance his chances for success in his new position, he decides to obtain additional education not available through his CPA firm. Thus, Sergio enrolls in the law school of a local university that offers several advanced SALT courses. His CPA firm does not require him to take any additional courses, nor will it help defray the costs of the courses. The law school rules prohibit part-time attendance by persons seeking supplemental education or training. Thus, Sergio is enrolled as a regular law student (he had taken the LSAT previously on a dare from a friend) and in theory, if he continued to take courses, could graduate with a law degree. Sergio has no intention of pursuing a law degree. He merely wishes to take a few SALT courses and perhaps a corporate tax course or two. He’s confident this additional course work will speed his advancement up the CPA firm career ladder as he has always considered himself a “PIP” (Partner-in-Progress).

Primary Issue: Can Sergio deduct the costs of attending law school in the circumstances described above? Hint: Start with IRC §162 and Treas. Reg. §1.162-5. There are plenty of court cases too.