Tax Research Paper
Facts: Agnes was an art history major in college Although she was a homemaker for the last 25 years, married to a wealthy hedge fund executive, she never lost her interest in art. Now that her children are grown she has decided to combine her love of art with a new business: an art gallery. With $1,500,000 of capital from her husband she rents, renovates and equips a storefront as gallery in her trendy Westchester community. She buys some art as inventory, and takes significant other art in for sale on consignment. She advertises regularly and holds events monthly to publicize her gallery. Although her passion for art drives her to work very hard, she bases her decisions in the business upon what is most likely to be profitable. In that regard she hires business professionals -accountants, lawyers, public relations experts - in an effort to run and efficient successful business. The result of her first 5 years of operation are as follows:
|
Year
|
Sales
|
Cost of Inventory & Operations
|
Net Profit (Loss)
|
|
1
|
$165,000
|
$1,100,000
|
($935,000)
|
|
2
|
$860,000
|
$920,000
|
($60,000)
|
|
3
|
$2,230,000
|
$2,300,000
|
($70,000)
|
|
4
|
$2,470,000
|
$2,490,000
|
($20,000)
|
|
5
|
$3,150.000
|
$3,015.000
|
$135,000
|
Question: Can Agnes deduct her losses in years 1-4 at any time and, if so, when and how will they be deducted? Why?
The paper should be no more than 3 pages double spaced and typewritten. Up to 3 students may work on and hand in a single paper as a team. If you wish to work with a team, you must inform me of the identity of your team no later than Midnight November 9. Once you are on a team you cannot leave it, and you will "sink or swim" together, so make the decision about your teammates carefully.
Answer the question I asked only, not what you wish I had asked. Give your reasoning and valid legal authority for each statement you make, citing the source in each case. Only primary sources are valid, such as the Internal Revenue Code, Regulations and Rulings, and case law. The textbook, annotations in CCH or other texts, or IRS consumer publications, may be useful in focusing your research, but they are not primary authority.