Tax File Memorandum Essay
Tax File Memorandum
SUBJECT: Peaceful Pastures Funeral Home, Inc. (Peaceful)IRS Audit Notice Today I met with Peaceful to discuss the IRS audit notice they received regarding the reporting of income from Peaceful’s prepaid program. FACTS: Peaceful does not report payments received from a preneed contract as income until the year in which the funeral service is provided. Peaceful’s preneed contract allows for a refund of payments at the contract purchaser’s request any time until the goods and services are provided.
ISSUE: Should Peaceful include payments received from the prepaid program as income for the year in which they are received?
CONCLUSION: Based upon the refund clause in the contract and the rulings in Comm. v. Indianapolis Power & Light Co. and Perry Funeral Home, Inc. v. Commissioner, Peaceful should not have to report payments for its preneed program as gross income in the year in which they are received. Instead Peaceful should be allowed to report the income in the year in which the goods and services are delivered.
ANALYSIS: In Perry Funeral Home, Inc. v. Commissioner (Perry), the court held “…payments received by P under its preneed funeral contracts are includable in gross income only upon the provision of the subject goods and services”. The court heavily relied upon the decision of the Supreme Court in Comm.v. Indianapolis Power & Light Co. (65 AFTR 2d 90-934 Justice Blackmum delivered the opinion in which he stated, “… it does not have the requisite “complete dominion” over them deposits at the time they are made, the crucial point for determining taxable income” and “… the principal purpose of these deposits was to serve as security rather than prepayment of income”. Under the terms of Peaceful’s contract, “the payments are refundable at the contract purchaser’s request any time until the goods and services are provided to them”. Additionally, Blackmum states, “The key is whether the taxpayer has some guaranteed that he will be allowed to keep the money.”By allowing the purchaser to determine when the refund is payable, Peaceful has no guarantee they will be able to keep the money.
November 18, 2012
TAX FILE MEMORANDUM
FROM: Bobbette Barrett
SUBJECT: MegaCorp, Inc.IRS Audit Notice.
Today I met with MegaCorp to discuss the IRS audit notice they received regarding the reporting of $5million in damages paid to Ideas, Inc.
FACTS: MegaCorp purchased all of the assets of Little, Inc. MegaCorp also acquired some of Little’s liabilities which included an alleged patent violation by Ideas Inc. MegaCorp agreed it would be legally responsible for any judgment that Little would have to pay Ideas. A jury awarded Ideas $5 million in damages. MegaCorp reported the payment as a deduction under §162.
ISSUE: Upon audit, the IRS reclassified the payment as a capital expenditure under §263 and disallowed the deduction. Is MegaCorp entitled to the deduction?
CONCLUSION: MegaCorp is not entitled to the deduction and should add the judgment payment to the basis of acquiring Little, Inc.
ANALYSIS: Section 162(a) of the TRC allows for the deduction of “all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business”. Section 263 of the Code allows no deduction for a capital expenditure, an “amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate”.
In Illinois Tool Works Inc. et al v. Commissioner, the court opinion stated, “Generally, the payment of a liability of a preceding owner of property by the person acquiring such property, whether or not such liability was fixed or contingent at the [pg. 45] time such property was acquired, is not an ordinary and necessary business expense… Instead, payment of such a liability is capitalized and added to the basis of the acquired property.” In 93 AFTR 2d 2004-548 (355 F.3d 997), the court states, “…our prior precedent states that there is a “well- settled general rule that when an obligation is assumed in connection with the purchase of capital assets, payments satisfying the obligation are non-deductible capital expenditures.
Research Essay Assignment 1
1. Breitling Oil and Gas
The reason why they think people should invest in oil is because everything revolves around these products. It’s a natural resource and that the United States is trying to control the supply of this product.
The secret to asset appreciation is to buy in the path of growth. Oil is one of the most important natural resources known to mankind. For most societies in the world, oil is the principal natural resource that fuels their economies. Then why, in this great age of communication and technology, do we need to be concerned about a natural resource like oil? Simple. Nearly 98% of everything you have or do is in some way related to crude oil. Heat for your home, gas for your car, 2 liter plastic bottles for pop, and petroleum jelly are just a few examples of products created from crude oil. The United States has the greatest standard of living in the world, as well as the largest economy. Why? Because we have always tried to maintain control over the supply, as well as price, of oil. Over the last 10 years, the U.S. economy has undergone the largest economic expansion in history and cheap oil has fueled this unprecedented growth. (Faulkner) Unlike the 1970s, when the U.S. was held at bay by OPEC withholding oil production for political reasons, the growth of the oil industry during the 1990s, and beyond, will be more likely be determined by the laws of supply and demand.
As democracy and capitalism are spreading around the world, global oil consumption is at record levels. Throughout Latin America, Russia, India and Asia, economic growth is accelerating at a remarkable pace; much faster than anything we have seen in the U.S. Recently, Forbes described the development now exploding across Asia: You can almost smell the money in Shanghai, Bangkok, Kuala Lumpau or just about any East Asian commercial center outside Japan these days. Traffic snarled, construction booming, glitzy shopping malls showing the latest Hollywood movies… These formerly traditional societies, stagnant for centuries, are exploding into the modern capitalist world and spawning vast new middle classes with a taste for consumer goods and the means to indulge that taste.
Healthy economics generate great wealth, and Asia is churning out billionaires as though on a conveyor belt.” —Forbes.(Faulkner) In these countries, more than two billion people, or more than 40% of the world’s population, are suddenly entering the age of consumerism. Thanks to American movies, TVs and VCRs, they have seen what the rest of the world has and they want it all. “They want McDonald’s french fries. They want Coke. They want Levi jeans. They want Caterpillar tractors. They want cars, cameras, mouthwash, homes, toothpaste, Tide, aspirin and ten thousand other products we take for granted. “In vast regions of these countries, they’re starting from the raw basics of modern life. They need electric power, running water, sewage treatment plants, bridges, tunnels, roads, cities — you name it.
“And oil is the one commodity absolutely essential to this tidal wave of global growth. It’s literally the blood supply of capitalism. If you’re a developing country, you need all the oil you can get to drive your trucks, your cars, your planes and ships. You need oil to run your factories, machines and power plants so necessary to a modern industrial economy. “What we’re seeing is the first simultaneous, worldwide economic expansion since the late 1970s. But this time, many newly industrialized countries are joining the party and importing an unending procession of super-tankers laden with black gold.(Faulkner)
There are significant risks associated with investing in oil and gas ventures. The above information is for general purposes only and is not a solicitation to buy or an offer to sell any securities. General information on this site is not intended to be used as individual investment or tax advice. Consult your personal tax advisor concerning the current tax laws and their applicability and effect on your personal tax situation
2. Derek Oil and Gas Corp.
They tell investors on their webpage that their share structure changes from month to month since everything either goes up or down depending on the economy at that time. They have safe and desirable North American locations. Another reason to invest with them is expandable reserve and production on per share basis.
Shares Outstanding 60m
Market Cap C$3.26m
Convertible loan C$1.6m
Derek Oil and Gas Corporation is a TSX-V Listed oil development and production company concentrating on the 8,000 acre LAK Ranch field, in the Eastern margin of the prolific Powder River Basin, Wyoming, approximately 7 miles from Newcastle and the Wyoming oil refinery. Derek, which had encountered problems recovering its heavy oil, is now positioned to benefit from previous investment and new management with specialist knowledge and experience in heavy oil. (Couldrey) The company has a 95% working interest and a 66% net revenue interest in the play.
A study in 2005 by Ivanhoe Energy Inc, the then operator, credited the LAK Ranch with 33mmbo recoverable. In 2006 Ivanhoe decided to concentrate on their proprietary oil upgrading process and withdrew from the project, selling their WI back to Derek, including a 4.4 square mile high-resolution 3D seismic survey carried out over the north portion of the LAK Ranch property. This survey has been instrumental in defining the extent of the Newcastle Sandstone and also delineating potential prospects in the deeper Fall River and Minnelusa Sandstones. No wells have yet been drilled into prospects contained in these deeper stratigraphic units.(Couldrey)
This document has been distributed by S.P. Angel Corporate Finance LLP (“SPA”), which is an appointed representative of SP Angel & Co Ltd which is authorised and regulated by The Financial Services Authority and is a member of the London Stock Exchange and APCIMS. Some statements contained in this document or in documents referred to in it are or may be forwardlooking statements. Actual results may differ from those expressed in such statements, depending on a variety of factors. Any forward-looking information contained in this document has been prepared on the basis of a number of assumptions that may prove to be incorrect, and accordingly, actual results may vary.
This document does not constitute an offer or invitation to subscribe for, or purchase, or dispose of any shares or other securities in, or any business or assets of, any entity including Derek Oil and Gas Corporation. (Couldrey) Neither of SPA or Derek Oil and Gas Corporation makes any representation as to the accuracy, completeness or relevance of the information or opinions contained herein and accordingly no representations or warranties are made with respect thereto. Any party must rely upon his own inquiries and investigations. In addition, the only information that will have any legal effect will be that specifically represented in definitive purchase documents. Accordingly SPA or Derek Oil and Gas Corporation hereby exclude any liability to any person in consequence of his purported reliance upon information contained herein or omitted herefrom (whether express or implied) or otherwise furnished in connection herewith.(Couldrey)
3. Enterprise Products
The reason why they want you to invest with them is to not many partners so you get more capital. They are the largest public trade company in the world. They delivered record operating costs the last four years.
University/College: University of Arkansas System
Type of paper: Thesis/Dissertation Chapter
Date: 13 October 2016
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