Question:
1. Prepare a Tax Research Memorandum to convey your conclusions.
2. The memorandum has to be in proper form:
- A concise statement of pertinent facts.
- An identification of all tax issues.
- Your conclusions.
- A thorough discussion of the reasoning upon which your conclusions are based.
- Citations, in proper form, to all primary authority relied on in reaching your conclusion,
e.g., reg. sections, code sections, court case, revenue ruling, etc.
3. Any primary authority discussed in your memorandum has to be tied into the facts of this particular assignment. Do not merely recite the law without explicitly relating it to the facts at issue.
5. Secondary authority can NOT be cited in your memorandum. It should only be used to assist you find relevant primary authority.
9. At a minimum your memorandum could cite:
- One internal Revenue Code section.
- Two court cases At least one case should be a U.S. Court of Appeals case. Since you are not provided the residence of the taxpayer you can use a case from any Circuit Court.
- One Treasury Regulation.
- One other primary source, e.g., revenue ruling, treasury regulation, revenue procedure, notice, etc.
TAXPAYER INFORMATION
You are a senior manager at a large public accounting firm. One of your clients, Larissa, calls you with a tax problem. Larissa owes Waterbury State Bank $200,000. In the current year, she has discovered she is unable to make the required payment on the loan. Larissa asks you that she owns assets valued at $290,000 and her liabilities are $440,000. Since Larissa is unable to make her required debt payments she has negotiated the subsequent terms with Waterbury to extinguish the debt:
1. Larissa can transfer to Waterbury ownership of investment property she owns with a value of $90,000 and a basis of $55,000 and common stock she owns with a value of $50,000 and a basis of $70,000,. Larissa can also pay Waterbury $5,000 cash.
2. Waterbury may forgive the remaining amount of debt.
Larissa could like you to advise her as to how much gross income she can have from the extinguishment of debt under the above terms. Specifically she wants to know whether her payment of part of the debt with the investment property and the stock constitutes a realization of income or are transfers considered part of the extinguishment and shielded by the IRC Section 108 exclusion.
Please research Larissa's question and prepare a Tax Research Memorandum detailing the results of your research.