Tax Case Study

Facts:

Juan Alvarez is president of Alvarez Tech Corporation, a C corporation based in Palm Beach, Florida. He plans to purchase a new corporate jet that will be used by corporate officers and other employees to attend business meetings around the country. He said that too much time is now lost due to the airport security measures that have been implemented in the last several years and he believes that he could get a good price on the aircraft if he purchases it this year.

When the jet is not being used for business trips, it will be made available to the top four corporate officers for their personal use. Each of these officers is also a shareholder owning at least 5% of the corporate stock. Juan is looking forward to being able to fly to Aspen, Colorado on the new jet when he takes his family there to his favorite ski lodge. Juan wants to make sure that all of the expenses for the aircraft will be fully deductible by the corporation. He is aware that the officers may have some taxable compensation on their personal use of the jet. He wants to know what type of records he needs to set up to be able to determine the value of personal travel on the new jet and what methods are acceptable in determining that valuation. For example, can the corporation use the cost of a first-class ticket on a commercial aircraft as the amount that should be taxed to employees for their personal use?

Juan wants to make sure that if the corporation is audited by the IRS, he will have all of the required documentation. So he needs your assistance in determining if any limits will be placed on the company’s deduction for the jet (he wants to maximize the deduction for the corporation) and how to determine the amount of taxable compensation to the employees for their personal use of the job

Required:

Research the above issues and prepare a “memo to file” as shown in your textbook on pages 88-89. Your memo should have four sections: (1) facts, (2) issues (stated as questions), (3) conclusions (short answers to each issue), and (4) discussion of your reasoning and authorities.

When writing the discussion section of your memo, start with the Internal Revenue Code section, then the Regulation section, then any relevant IRS rulings or other pronouncements, and finally any relevant court cases. Please be sure to include appropriate citations for any primary sources you cite. You can use secondary authority to assist you in locating primary authorities, but you cannot cite any secondary authorities in your memo to file (you must find the appropriate primary authority and cite only that). You do not need to prepare a client letter—only the memo to file. Submit one memo per group.

Resources:

Checkpoint:http://checkpoint.riag.com

Checkpoint includes a complete library of federal tax research materials. It includes primary sources of authority and secondary sources of authority. Contents).

Checkpoint has a topical index that you may find easier to use than doing a keyword search.

Primary sources of authority that you can cite in your research memo include:

  • Internal Revenue Code
  • Regulations
  • Court Cases
  • Revenue Rulings
  • Revenue Procedures
  • Private Letter Rulings
  • Technical Advice Memoranda
  • Actions on Decisions
  • IRS Notices

You cannot cite any editorial sources such as explanations, analysis, annotations, or similar summaries. These editorial sources may help you locate the above primary sources of authority, but you can only cite primary sources.

You also cannot cite instructions for tax forms. IRS will not accept its instructions for tax forms or general publications (such as IRS Pub. 17) as primary authority because they are intended only to assist the general public in filling out forms. These general publications do not go through the same detailed level of review at a national level as their other pronouncements listed above under primary sources.

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