Effective and efficient tax research
The preparation of an effective and efficient tax research memorandum requires a thorough analysis of the issue, facts, and authoritative rule, statement, or regulation to determine an appropriate conclusion, just as with a traditional research paper. During your time at Franklin, you have undoubtedly become very familiar with the “IRAC” method or format for research papers consisting of four general parts:
Issue(s)
Rule(s)
Analysis
Conclusion
Utilizing this type of structured analysis helps you to focus on your writing, resulting in a more effective and well-reasoned paper.
You will be using a slightly modified version of the IRAC model or structure in completing this assignment. While the type of structured, rules-based analysis you will be doing is the same, it will be structured in a format more traditionally used by accountants and other professionals.
Research Problem
Cory and Matt are equal members in Capri, LLC. Capri, LLC purchased equipment subject to a lease. Capri also partially financed equipment purchased using promissory notes. Part of the notes were recourse, the remaining were nonrecourse. Neither Cory nor Matt signed any of the notes or otherwise guaranteed repayment of the notes. In addition, Capri, LLC owns the building in which their business is located, subject to a mortgage. Cory and Matt personally guaranteed the mortgage.
In 2017, Capri LLC reported a very large loss.
The LLC operating agreement contained the following provision:
If any Member has a deficit Capital Account following the liquidation of his, her or its interest in the LLC then he, she or it shall restore the amount of such deficit balance to the LLC by the end of such taxable year or, if later, within 90 days after the date of such liquidation, for payment to creditors or distribution to Members with positive capital account balances.
On his 2017 individual tax return, Matt took into account the leases, the promissory notes and the mortgage in calculating his amount at-risk, allowing him to report his entire portion of the LLC loss. In November, 2018, the IRS audited Matt’s 2017 tax return and disallowed all of the loss, claiming that Matt was not at-risk for any of the debt.
Matt has now come to you as his accountant to refute the IRS’ position.
Action Items
Read the research problem above. Prepare an effective and efficient tax research memorandum providing a thorough analysis of the issue, facts, and authoritative rule, statement, or regulation to determine an appropriate conclusion.
The analysis is the substantive portion of your memorandum and is worth the majority of the points on the assignment. It is where you present all of the analysis that is required to support your conclusion. Once you have identified the issue or issues that you have to resolve to answer, you will need to perform tax research to identify tax authorities to establish the controlling “rule” that resolves those issues. Your analysis for each of these issues should review these authorities and then apply them to the facts of the case to draw conclusions.
Apply the IRAC method or format for research papers.
The memo should be 2-3 pages, double-spaced, size 12 font.
Sample Solution
The American Revolution
The American Revolution was a time when the British colonists in America rebelled against the rule of Great Britain. There were many battles fought and the colonies gained their freedom and became the independent country of the United States. The American revolutionary war lasted from 1775 until 1783. The main reason the revolution was a mistake is that the British Empire, in all likelihood, would have abolished slavery earlier than the US did, and with less bloodshed. The main benefit of the revolution to colonists is that it gave more political power to America’s white male minority. For the vast majority of the country, its women, slaves, American Indians, the difference between disenfranchisement in an independent America and disenfranchisement in a British-controlled colonial America was negligible. To be sure, many of the founders, among them Thomas Jefferson, Benjamin Franklin, and John Adams owned slaves. But they asserted their hostility to slavery in principle while tolerating it temporarily [as they hoped] in practice.
