The facts for your Tax Research Assignment are as follows:
Michael Jones, better known as "Magic Mike" is a nationally celebrated magician. He performs all over the country, on TV, and locally (in the DC area). He hires you as his new CPA to prepare his 2015 federal income tax returns. He explains that in 2015 he spent $15,000 on clothing that he wears on stage and that is designed to dazzle the audience. Some of his clothing items include sequined capes, top hats, "magic" canes, tuxedos, and glittery matching cummerbunds and ties. He usually pairs his tuxedo/cummerbund/tie ensemble with a plain white shirt. Most of his tuxedos are plain black tuxedos like you would see at wedding or prom. He has included all of the above-mentioned items in this $15,000 estimate.
Although he makes a decent living as a magician, $15,000 is a lot of money. Therefore, he would like to know under what circumstances and to what extent he can deduct the cost of these clothing items.
Instructions:
Please research the tax law and write Magic Mike a brief memo of no more than two pages, in which you communicate the results of your research. Use the format for communicating research findings discussed in the Learning Resources for Week 1: "Tax Research - Federal," and "Locating Tax Authority," as well as under "Syllabus":"Tax Research Assignment How to Complete" in the Content area of LEO.
Identify relevant statutory, administrative, and judicial authorities and discuss how these authorities affect your conclusion concerning the deductibility of Peter's clothes.
Remember: while IRS publications are useful as secondary sources, they are not primary sources that can be cited and relied upon in a tax research memorandum. You must find, cite to, and discuss primary tax sources.
Your research assignment will be graded using the following criteria:
1. Recognition of the important facts and issues
2. Correct conclusion
3. Clarity of writing
4. Proper use of relevant sources to support your conclusion and analysis.
5. Proper citation of relevant sources
6. Proper format, spelling & grammar
The five steps in tax research are:
- understand the facts
- identify issues
- locate relevant authorities
- analyze the tax authorities
- communicate research results.
The two types of tax services that tax professionals use in tax research are annotated tax services, arranged by code section, and topical services, arranged by topic.
Research questions often consist of questions of fact or questions of law.
- The answer to a question of fact hinges upon the facts and circumstances of the taxpayer's transaction.
- The answer to a question of law hinges upon the interpretation of the law, such as interpreting a particular phrase in a code section.
When the researcher identifies that different authorities have conflicting views, she should evaluate the "hierarchy," jurisdiction, and age of the authorities.
Once the tax researcher has identified relevant authorities, she must make sure that the authorities are still valid and up to date.
The most common end product of a research question is a research memo, which has five basic parts: (1) facts, (2) issues, (3) authority list, (4) conclusion, and (5) analysis.