ACT 611 Federal Taxation Chapter 7: Tax Research Assignment
Using the information from Chapter 7 and the tax research resources from Chapter 5 write a tax research memo for the firm’s records (TAX FILE MEMORANDUM). No client memo is necessary. Refer to pages 5-15 through 5-16 for a sample memo format. Use Checkpoint to find your primary sources and only cite primary sources. Some Internal Revenue Code (IRC) sections to consider include, but not limited to, the following: 162(a); 263(a); 1016(a)(2); 1012; 168; 168(i)(13); 168(k); 230F(a); 179(d)(1); 179(b)(2); 179(b)(3), etc.
When writing this research memo, you may have a number of research issues. Use the numbered items to develop your tax issues. List them separately (bullet points or numbered). Some of the bullet items are not research issues but information that should be incorporated and answered in your analysis. The memo sections may have multiple research issues. You should address each research issue in a separate paragraph in the Research Issues section of the memo. The same for the Law and Analysis section of the memo. Do not repeat the sections of the memo multiple times.
Not-so-Green Acres Farm, is a newly formed working farm in Massachusetts. During the current year, the company acquired and placed in service (PIS) the following assets. The farm has a store to purchase dairy (cow and goat) items including milk and specialty cheeses. There is also a petting area and hayrides to offer to visitors on weekends and holidays. A list of the year’s acquisition is outlined below.
Other: The company has taxable income for the year of $500,000.
| Current Year Expenditures | Date Placed in Service | Amount |
| Barn (house & care for livestock) & land (barn $700k; land $700,000k) list separately. | April 10 | $1,400,000 |
| John Deere Tractor (2010, used) | June 15 | 250,000 |
| Livestock (working, breeding, dairy):
Hogs: $25,000 Goats: $15,000 Cattle: $30,000 Horses (5 years old): $50,000 Horses: (13 years old) $30,000 |
October 10 | 150,000 |
| Outbuilding: Store | November 2 | 300,000 |
| Fencing | December 1 | 100,000 |
| Flatbed truck (transport hay & hayrides) | December 15 | 60,000 |
| Total Cost | 2,260,000 |
Required:
Research the following to assist the company in maximizing tax savings for the year using the various available cost recovery methods. You will be required to (1) submit a research memo document and (2) an Excel template (provided) to calculate depreciation and support your analysis. Your analysis and your computations must be consistent between the written document and the Excel spreadsheet calculations.
When drafting your memo your analysis should address the following:
- Provide a concise but comprehensive overview of the concept of cost recovery. (5 points)
- Determine (tax perspective) if the costs above are deductible expenses or capitalized costs. Define what constitutes an acquisition to be capitalization. Explain. (5 points)
- Compute the corporation’s MACRS deprecation with respect to the assets placed in service this year. Assume that the Company does not elect to use Section 179 or bonus depreciation. Use the provided Excel template and detail each acquisition with the required information. Refer to Revenue Procedure 87-56 and Publication 946 (provided) for information on asset class information. (15 points)
- The farm is considering a purchase of a new farm tractor for $700,000. The tractor could be purchased in December or postponed until January of the next year. What effect would this decision have on the depreciation calculation with regard to the assets already placed in service. Hint: Depreciation will be a larger amount is not the answer. Be specific. (10 points)
- What is Sec 179 Expensing election? How much and what assets are eligible? Are any of the asset not eligible? If so, explain. Does the farm face either, or both of the two limitations? Be specific in your explanation. (15 points)
- What is bonus depreciation? How much and what assets are eligible? Are any of the asset not eligible? If so, explain. Does the company face any limitations? Be specific in your explanation. (10 points)
- Assume that the corporation will maximize its cost recovery deductions. Using the Excel template, calculate the amount of MACRS depreciation, Section 179 and bonus depreciation. (15 points)
- Explain the order of application and the overall strategy an organization would use to determine the method and amounts used for each. (5 points)
- Use appropriate format, technical language, the written analysis should reflect your own word with appropriate references. It is not necessary to detail all the depreciation amounts for each asset in your memo. A summary of the amounts is appropriate. Be sure to cite only primary sources (law) in the body of the memo. Your written analysis should be consistent with the Excel calculated amounts. (15 points)
- Write a reflection paragraph discussing what you learned from completing the assignment. Be specific. Also, what could be done to improve the assignment. Your reflection should be incorporated at the end of your written document after your conclusion. (5 points)
