THE REVISION PROCESS. Revising, Editing and Proofreading for Accounting Michelle Doss, 2006. THE WRITING PROCESS. Prewriting. Writing. Revision. WRITING THE TAX MEMO. The tax memo contains the following: Client Relevant facts Specific issues Conclusions Support Actions to be taken
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Revising, Editing and Proofreading for Accounting
Michelle Doss, 2006
The tax memo contains the following:
Not a question and vague:
A question arises as to how much the taxpayer can deduct for the payment he made for the expense.
Question and specific:
Can part or allof the$13,000 payment be deductedand, if so,what is the character of the deduction?
Unclear tax concept
What is the tax treatment for a company under Reg. §1.162-5(c)(1)when it pays its employee’s tuition?
Explicit tax concept
Can Borden Company deduct the $2,300 it pays to Smith to cover his tuition?
Emphasize tax concepts rather than financial accounting concepts:
Can Bikes-R-Us, Inc. expensethe rental payment to its chief financial officer?
Can Bikes-R-Us, Inc. deductthe rental payment to its chief financial officer?
The theft loss is deductible in 2006 according to IRC §165(e).
IRC §165(e) indicates that theft losses are deductible in the taxable year sustained. Thus, the theft loss is deductible in 2006.
Expenses incurred by a taxpayer during a given year in regard to the conduct of a trade or business can be deducted from net income according to Internal Revenue Code Section 162 and Treasury Regulation Section 1.162.
Active Voice:the subject does the action of the verb
The committee is looking into the matter.
Passive:the subject does not do the action of the verb.
The matter is being looked into by the committee.
Active:I think your farming activity is a hobby and, thus, disallow your deduction.
to be a hobby and, thus, disallows your deduction.
In addition to the above mentioned Code Section in the event that education expenses maintain or improve skills required of the taxpayer in hisemployment or education expenses are required in order to retain his position or rate of compensation an expense is allowed by Regulation §1.162-5.
Additionally, Reg. §1.162-5(a) allows a deduction if education expenses either (1) maintain or improve skills required of the taxpayer in his/her employment or (2) are required in order to retain his/her position or rate of compensation.
Parallel structures: two or more phrases or sentences that have the same grammatical structure and use the same parts of speech
NOTE: You must have a coordinating conjunction with a comma to separate two independent clauses.
NOTE: Be careful that you do not separate your subject and verb with a comma!
Incorrect: The hurricane heading our way, caused some to panic.
Correct: The hurricane heading our way caused some to panic.
TIP:Use the search function to find all your commas. Evaluate your use, and edit where necessary.
Ross Lambeth owns a corner lot on which a dilapidated rental building is situated. The building, which has been fully depreciated using the straight-line method, has a tax basis of zero. Recent flooding in the area has damaged the building to such an extent that it can no longer be rented without renovation, and Ross believes it is about to be condemned by municipal authorities as unsafe.
Donation = Tax savings
Land value = $40,000 increase
Internal Revenue Code
The tax memo contains:
October 19, 2006
Ross Lambeth, Deductibility of Contribution of The Right To Use Property The Donor Owns To Local Fire Department.
Focuses on contribution of
right to use property
contribution of property
Set means “to place something in position”
Sitmeans “to be situated or located”
Ross Lambeth owns a rental building and the land it sets on. The building is worth $20,000 and a formal appraisal has been done. The building has a fully depreciate, tax basis of zero. Ross wants to donate the building to the fire department for use in the testing of new fire equipment and training.
Too brief; fails to
include all relevant facts.
Can Ross receive a tax deduction from the donation?
Does not clarify whether
the donation would be
for the building or lot
Does not address
the amount of
Ross’ contribution of the right to use his building is nondeductible.
Reaches wrong conclusion
§ or Sec.
IRC §170(a) and Reg. 1.170A-1 allows for a deduction of any charitable donation given within the year of contribution of an individual. Additionally, IRC §170(c) defines qualified charitable contributions, including a contribution to a subdivision of the government for public use. Additionally, ¶K-305 of IRC §170(e) and Reg. §1.170A-1(c) defines the deduction in the case of a charitable contribution to include a capital asset’s deduction which is the fair market value of that property.
Cite to RIA, not IRC
Reg. §170A-7 disallows the deduction of a partial interest in property. A partial interest in property includes the usage of the property free of rent. The rent free contribution is not deductible.
In Ottawa Silica Co., 82-1 USTC, an individual donated land for the use of a public school. The donation was disallowed because the individual received some economic benefit from the increase in the value of his property by the construction of roads by the donee.
Prepare letter, review results with client.
October 19, 2006
Ross Lambeth, Deductibility of Building Donation
Ross Lambeth owns a lot on which a dilapidated rental building is situated. They are appraised at $20,000 and $70,000, respectively. The rental building has a zero tax basis and is severely damaged. The land would increase in economic value if the building was removed. Ross wants to donate the the building to the fire department that will destroy the building while in use.
Lot is appraised at $70,000; building at $20,000
Can the building be donated and a deduction taken for the charitable contribution to the local fire department? If the building alone can be donated, without the land (fee simple) then technical issues arise as to how to structure the title to the building such that the ownership of the foundation and chimney remain with Mr. Lambeth. Or is this more properly considered a use of the building rather than a donation? Additionally, is the building, having been severed from the land for the purpose of the donation, now considered tangible personal property?
too many minor issues identified
facts, the building is
appraised for $20,000
Ross Lambeth can deduct the $200,000 donation in the nature is a long-term capital asset distribution, treated as an itemized deduction and limited to the lesser of 30 percent of his adjusted gross income, or an amount equal to 50 percent of adjusted gross income, reduced by contributions qualifying for the 50 percent limitation.
No support for conclusions
What is a long-term capital asset distribution?
Can a donation qualify?
IRC Section 170(b)(1) defines the contribution rules for individuals. IRC Section 170(a)(3) defines the timing of contribution of a future interest and the unwinding of all rights to what, given the definition of “severability” in the code, in this case becomes tangible personal property – the building, having been severed from the foundation and masonry of the structure. At the time of final resolution of all the ownership interests and options of any conceivable “fee simple” possible ownership transfer to and back from the fire department of the building, the donation would have a value of zero for the building, and a cost associated with removing the foundation and the rubble. Though it is not the question under discussion, there will be a tax treatment for the cost to prepare the land for use, with which we would be happy to assist our valued client.
IRC 170(f)(3) also would deny the deduction if the IRS took the position that the building is an undivided portion of the taxpayer’s entire interest in the property.
§ or Sec.
not IRC §170
In Morris, TC Memo 1973-265, petitioners were permitted to deduct the fair market value of the partially damaged building donated to a volunteer fire department for use in its fire drills because even though the drills resulted in razing of building making property more marketable, the primary benefit was to the community. This case appears to be the most applicable authority for Lambeth’s situation because even though Lambeth would benefit from the increase in value of his lot, the primary benefit of his donation was to the community.
No support for conclusion
regarding 30% limitation
Prepare letter and review results with client.
Suggest that client attach appraisal to his tax return when he files for the deduction.
October 19, 2006
Ross Lambeth, Deductibility of Charitable Donation of Dilapidated Building to Fire Department
Ross Lambeth owns a rental building in a state of disrepair, as well as the lot on which it is located. The building is fully depreciated and has a tax basis of zero. To clear the lot of the building, and thereby to increase the value of the lot, Ross plans to donate the building to the local fire department for use in testing fire equipment and conducting fire drills and rescue training. After the building is destroyed by the fire department, Ross plans to push in the chimney and remove the remaining debris. The lot and building are appraised at $70,000 and $20,000, respectively. After removal of the building, the lot will be worth $110,000.
Can the donation of the building be deducted and if so, what is the amount of the deduction?
The donation of the building qualifies as a charitable contribution, deductible if Ross itemizes his deductions. The deduction is $20,000, the fair market value of the building at the time of the donation. However, because the building is capital gain property, the annual deduction will be limited to 30 percent of AGI, with a five year carryforward of excess amounts .
relevant Code, regulations
IRC §170(c)(1) and Reg. §1.170A-1 allow a deduction for a charitable contribution to or for the use of a political subdivision of the State, but only if the contribution is made for exclusively public purposes. The local fire department is a political subdivision and, hence, a qualifying charitable organization. As for the use test, the taxpayer’s donation of a building in Morris Scharf, T.C. Memo 1973-265, for use in conducting fire drills was considered exclusively public purposes. As such, Ross’ donation of the building appears to meet the requirements of IRC §170(c)(1).
Provides complete cite
the first time
case is mentioned
Includes related cases,
and highlighting their
Omits citation when
the second time
for others to understand
relevant tax law
In John G. Allen, 57 T.C. 12 (1971), the Tax Court held that where a charitable contribution is made in property other than money, the allowable deduction is measured by the fair market value of the property at the time of the contribution. This valuation rule was followed in Scharf, a case very similar to that of Ross Lambert, in which the taxpayer donated a building to a volunteer fire department for the conduct of fire drills. The court held in Scharfthat the charitable donation was the fair value of the building when donated. Accordingly, Ross should be entitled to deduct the $20,000 appraised value of the building before the donation to the fire department. Moreover, under Reg. §1.170A-1(a), the deduction would be treated as an itemized deduction.
of the deduction and
supports that amount
with supporting Code
Reg. §1.170A-4(b)(4) states that for purposes of a charitable deduction, property used in a trade or business, as defined in IRC §1231(b), is treated as a capital asset except for any depreciation recapture. Since the tax basis of Ross’ donated building is zero, the full $20,000 value would, therefore, be considered as arising from the sale of a capital asset. IRC §170(b)(1)(C), however, imposes an annual AGI ceiling on the amount of a charitable deduction. In the case of property that would result in the recognition of long-term capital gain if sold, that ceiling is 30 percent of AGI if contributed to a public charity. Applying these limitations to Ross’ situation, the $20,000 charitable deduction would be limited to 30 percent of his AGI, with any excess carried forward for five years under IRC §170(d)(1)(A) and Reg. §1.170A-10(c).
Prepare letter, review results with client.
Suggest client obtain multiple appraisals of building prior to donation and adequate documentation from the fire department regarding its intended use of the building and benefit from the donation.
Attach appraisal to client’s tax return when he files for the deduction.