FACTS:
George Muzak is a celebrated violinist with the Los Angeles Philharmonic who recently acquired an early eighteenth century violin constructed by Giuseppe Guarneri (1) for $70,000. George intends to play upon the violin to earn his living and he believes that over time it will reflect the wear and tear of daily use. Its value as a performance instrument, therefore, should decline. Its value as a collector's item, however, is
likely to increase due to a flourishing market among non-musicians for early eighteenth century stringed instruments. As non-players, collectors of these pieces do not concern themselves with the physical condition or tonal quality of an instrument; rather their interests lie solely in the appreciating prices
which such items command in the antique market. George estimates that as a collector's item, the violin may be worth as much as $120,000 in five years.
As a musician who will play upon the violin as his livelihood, George believes he is entitled to treat it as an asset used in his trade and, hence, to claim depreciation deductions against its cost. Another musician with the Houston Symphony, however, has told him otherwise.
ASSIGNMENT:
Use Checkpoint to research the tax situation of George Muzak. After completing your research, prepare a memo for the tax files. Include in your memo:
1. The client
2. Relevant facts
3. Specific issues
4. Conclusions
5. Support
6. Actions to be taken
7. Preparer
(1) Giuseppe Guarneri was a skilled violin maker who lived in Italy from 1687 to 1745 and his violins are widely regarded as second only to those of Antonio Stradivari.