RESEARCH PAPER ACCOUNTING 483 - FEDERAL TAX Section 01 1st Research Paper Spring 2014 Due Friday, March 14, 2014
Speedy Karr is the used car sales manager of Fast Talking Ed's Car Sales, a local new and used car dealership in Moscow, Idaho. Speedy Karr’s income is about $90,000 a year from his salary and bonus (his bonus is a percentage of the net income of the dealership). In addition to his income from Fast Talking Ed's, Speedy also has income from rentals of about $35,000 a year. Speedy's wife, Holiday, is employed, earning about $65,000 a year. Several years ago, Speedy became interested in auto car racing. In 2011, Speedy purchased a used car, which he converted into a racing stock car. The cost of the car, and the modifications
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In addition to Speedy’s problem with the IRS, he will need to buy a new engine and transmission for the race car in 2014. The cost of the engine would be about $30,000 and the cost of the transmission would be about $6,000. Speedy would like to expense both the engine and the transmission. REQUIRED: Speedy Karr has requested that you represent him before the IRS. Therefore, you should write a letter to the IRS Revenue Agent - if you conclude that the IRS determination is incorrect. If you conclude that the IRS determination is correct you will need to write a letter to Speedy, so informing Speedy as to the tax treatment of the losses. In any event, you should write a letter to Speedy setting forth your conclusions as to the tax treatment of the car racing activity for the current (2014) year and future years. Speedy has not filed his 2013 tax return, awaiting your opinion. (Speedy has an extension to file until October 15, 2014). In addition, you need to inform Speedy as the proper tax treatment of the 2014 purchase of the new engine and transmission, The addresses of the parties are as follows: Speedy Karr 761 Lucky Drive Moscow, Idaho 83843 Ron Sneaky, Revenue Agent Internal Revenue Service Citizens Building, 82nd Floor Boise, Idaho 83724
Before the letter is sent to the client, it must be reviewed and signed by Goofy Playmaker, your firm’s managing partner.
Comments on writing your paper (not part of the office memo)