If you really want to use a name then please use “Jane Smith” irrespective of whether you are male or female. Please ensure you use the tax research database, CCH AnswerConnect to help you research the issues to be addressed in the tax memo. Please look at the examples for the correct format for a tax memo.
Below expectations
Meets expectations
Exceeds Expectations
Facts and Issues
Critical facts omitted or substantial
unessential facts included. Unable to
apply or distinguish from other possible
fact patterns or facts are merely copied
from case.
Most critical facts identified and
communicated. Some unessential facts
included.
All pertinent facts have been described in
a clear and concise manner.
Distinguishing features of the fact pattern
are highlighted.
________
Content – Analysis
Analysis is deficient in reference to
authoritative tax law. Analysis lacks
cohesion and does not support conclusion.
Analysis relies on secondary sources
when primary sources exist.
Analysis is incomplete or one-sided. Most
relevant authority has been identified.
Analysis is not perfectly logical or does
not support issue stated.
All necessary references to authority have
been made. Authority which could apply
but does not has been distinguished from
that which does. The analysis follows a
logical pattern of application to the facts
and supports author’s conclusion.
________
Content-Conclusion
Conclusion is unclear and unsupported by
analysis. Reader is not able to form
educated opinion on tax treatment of facts
pattern. Conclusion is a simple sentence
stating conclusion.
Conclusion fails to tie analysis and facts
together. Some conclusions made as part
of analysis instead of in conclusion.
Conclusion is clear and integrates with
facts and analysis. More than a simple
sentence stating conclusion. Cause and
effect relationship between facts and
analysis are made. All open issues are
responded to. Conclusion drawn is
correct.
________
Organization
Paper lacks logical sequence hence
causing format to interfere with
readability. Does not use proper
paragraphing. Topic sentences do not lead
to rest of paragraph or are missing
altogether.
Paper follows logical sequence with
identifiable beginning, development, and
conclusion. Generally proper use of
paragraph structure and topic sentences.
Organization and/or headings help the
reader to follow and find information.
Paper flows well with appropriate
beginning, development, and conclusion.
Paragraph structure contributes to flow
and transitions. Organization and/or
headings help the reader to understand
and remember information.
________
Audience
Writer is internally focused rather than
focused on the reader. No clear awareness
or understanding of the audience is
evident. Writer may appear discourteous
to the reader.
Writer acknowledges the reader and
displays some thought about the nature of
the audience. Reader is treated politely
and positively. No evidence of
inappropriate attitude.
Writer clearly focuses writing to the
audience, and displays empathy for the
reader. Goodwill is created through
consideration of the reader’s needs.
Message tailored directly for the reader.
________
Style
Overuse of simple sentences. May misuse
words or idioms. May include slang.
Wordy rather than concise. Writing shows
lack of sophistication or variety in
vocabulary. Awkward. Little or no use of
business terms.
Sentences vary in length and style. Strong
action verbs are used. Occasionally uses
jargon or clichés. Vocabulary and word
usage generally is correct and shows some
variety. Uses business terms
appropriately.
Demonstrates a sophisticated grasp of the
language in terms of both sentence
structure and vocabulary. Writes fluidly
and concisely. Includes appropriate
business terms.
________
Mechanics
Significant errors in word usage, sentence
structure (run-ons, fragments), spelling,
punctuation, and capitalization. Errors
undermine credibility of content and
readability.
Relatively free of errors in word usage,
sentence structure (run-ons, fragments),
spelling, punctuation, and capitalization.
Mechanics do not detract from credibility
of the content.
No errors in word usage, sentence
structure (run-ons, fragments), spelling,
punctuation, and capitalization. Strong
mechanics help to establish credibility.
________
Referencing
References (if called for) are missing or
do not use correct referencing style.
Generally correct referencing (if called
for).
References (if called for) are consistently
correct. No missing citations.
________
October 17, 2021
To:
Client file
Facts
1. The name of the US client is George’s Software, Inc. (“George’s”)
2. The business, George’s, is an S corporation
3. The corporation is a calendar year end, cash basis taxpayer
4. George’s recently redeemed 23% of the shares from a shareholder Robyn Harley
(“Harley”)
5. As part of the transaction George’s and Harley entered into a Covenant Not to Compete
(“CNC”)
6. The CNC is for a period of one year and is in relation to customer contracts and
relationships
Issues
1. Which code section of the Internal Revenue Code covers the deductibility of a CNC for
George’s?
2. What is the normal period for deducting the costs of a CNC for federal income tax
purposes?
3. Is it possible to deduct the costs in accordance with the term (one year in this case) of the
CNC?
Conclusions
1. §197 of the Internal Revenue Code covers the deductibility of a CNC. The CNC is
considered a Code Sec. 197 intangible.
2. A taxpayer can deduct the cost of a CNC over a 15-year period, beginning in the month
the asset is acquired.
3. Since the CNC is a section 197 intangible that is amortizable over fifteen years, it is not
possible to deduct the costs of the CNC over its duration of one year.
© 2021. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part. Violation of copyright will be subject to prosecution and considered Academic Dishonesty
Analysis
Which code section of the Internal Revenue Code covers the deductibility of a CNC for
George’s?
As a general rule, under §197, of the Internal Revenue Code, a taxpayer is entitled to an
amortization deduction of any section 197 intangible asset. A CNC 1 is considered to be an
intangible asset that is deductible over a 15-year period, beginning with the month of the asset’s
acquisition.2 George’s is also holding the asset in connection with a trade for the production of
income, another requirement for an asset to be considered a section 197 intangible.
Furthermore, when dealing with any corporate stock acquisition, it does not matter whether the
corporate stock is substantial or not because it will still be considered a “section 197 intangible”
nonetheless.3
Certainly, there are exceptions to these assets which include: financial interests4, land5, computer
software6, certain interests or rights acquired separately7, and some more discussed further
throughout §197(e). §197(f)(1)(B) also discusses the special rule regarding covenants not to
compete, which is that no event shall be treated as disposable before the disposition of the entire
interest.
What is the normal period for deducting the costs of a CNC for federal income tax purposes?
As discussed before, Internal Revenue Code §197 covers the normal period for deducting the
costs of a CNC for federal income tax purposes. §197(a) states that the deductions are “…ratably
over [a] 15-year period…” The deductions also begin within the month the intangible asset is
obtained by the taxpayer.
In the case, Recovery Group, Inc., et al., Petitioners, Appellants v. Commissioner of Internal
Revenue, Respondent, Appellee8, the Internal Revenue Service (IRS) changed the amount of
allowed amortization deductions that Recovery Group had reported in their income tax returns
since they allocated the income from their CNC over a two-year period instead of the correct
1
Refer to §197(d)(1)(E)
Refer to §197(a)
3
Recovery Group, Inc., et al., Petitioners, Appellants v. Commissioner of Internal Revenue, Respondent, Appellee.
652 F.3d 122 (1st Cir. 2011), Affirming the Tax Court, 99 TCM 1324, Dec. 58,184(M), TC Memo. 2010-76.
4
Refer to §197(e)(1)
5
Refer to §197(e)(2)
6
Refer to §197(e)(3)
7
Refer to §197(e)(4)
8
Recovery Group, Inc., et al., Petitioners, Appellants v. Commissioner of Internal Revenue, Respondent, Appellee.
652 F.3d 122 (1st Cir. 2011), Affirming the Tax Court, 99 TCM 1324, Dec. 58,184(M), TC Memo. 2010-76.
2
© 2021. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Violation of
15-year period. As a result, the change in the allowed amortization deductions increased
Recovery Group’s income for each year, and thus the amount of each shareholder’s share.
Is it possible to deduct the costs in accordance with the term (one year in this case) of the CNC?
In Recovery Group, Inc. v. Commissioner of Internal Revenue9, the court found in favor of the
Commissioner regarding the length of the amortization period for a CNC. They analyzed the
requirements and rules regarding an intangible asset under section 197.
The court concluded that Recovery Group’s interpretation of §197(d)(1)(E) was incorrect and
that any CNC “…entered into in connection with the acquisition of any corporate stock, even if
not ‘substantial,’ was considered a ‘section 197 intangible’ amortizable over fifteen years.” The
taxpayer must use the correct IRC §197 rules for its intangible asset and it cannot claim any
other type of depreciation or amortization to align with those rules contradicting the possibility
of the costs to be deductible in accordance with the term of the CNC.
9
Recovery Group, Inc., et al., Petitioners, Appellants v. Commissioner of Internal Revenue, Respondent, Appellee.
652 F.3d 122 (1st Cir. 2011), Affirming the Tax Court, 99 TCM 1324, Dec. 58,184(M), TC Memo. 2010-76.
© 2021. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Violation
of copyright will be subject to prosecution and considered Academic Dishonesty
ACCTG 503 Federal Taxation of Individuals Tax memo (100 points)
Background:
Sadiq is 25 years old and is currently unmarried and has no children. He does have a girlfriend, Nalo, and is thinking
about marrying her on December 20, 2023 but has heard about the marriage tax penalty and would like to better
understand this issue and how it will impact them. He currently lives in Nevada and knows you through your friend,
Frankie, as Frankie has recently moved to Nevada.
In order to make the assessment you will need to understand the personal tax situation for both of them in 2023 and
this is the current situation.
Sadiq works for a licensed BMW dealership and he estimates this year he will make $39,500. He rents his room from
Nalo. It is how they met. In April 2023 he inherited $37,000 from an uncle and he has been able to score a great deal
from his employer and purchased a 2020 BMW X3 xDrive30e for $25,000 on May 1, 2023. Up until then he had been
getting rides to his job from his girlfriend, or borrowing her car, who drives a 2022 Jaguar F Type. His employer does not
provide a 401(k) plan or any type of savings plan but he knows he should start putting into a retirement account and he
put $6,500 into a Traditional IRA account on May 10, 2023.
Nalo is a doctor and makes $175,000 a year and she has no children. Her husband died in 2019. Her employer provides
a 401(k) plan. She rents her place. Her living expenses and her student debt means she has no investment income.
You research should consider the following (but it is not an exhaustive list):
IRC §25B
IRC §25E
IRC §§408, 408A
IRC §1
IRC §63
Ensure you are using the 2023 amounts for standard deductions and income tax rates: IRS provides tax inflation
adjustments for tax year 2023 | Internal Revenue Service
Your responsibility:
Prepare a tax research memo addressing the issues that analyze the tax result for Sadiq if he files Single in 2023 or
marries his girlfriend in 2023. Please note that if the tax memo is not in the required format and/or contains very little
analysis you will receive a zero (0) for the assignment. All good faith efforts are capable of receiving a minimum of 60%
but less than a good faith effort will be awarded zero points.
© 2023. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Violation of copyright will be subject to prosecution
and considered Academic Dishonesty
You will need to support your conclusion using primary sources of tax law. Your textbook is NOT primary authority nor
are IRS Publications. The tax database, CCH AnswerConnect is a great resource and is available through the SDSU library,
but please remember a tax database is a secondary authority as well. If you are uncertain what is meant by a primary
authority please review Chapter 2 in the textbook.
You must use proper citation form in your memo (see Chapter 2 for help with citation form). The form for this
communication should be professional and in the form of a tax research memo (examples posted on Canvas and a
similar example in your textbook). Do yourself a favor and look at the grading rubric before you submit.
This memo should be whatever length you feel is appropriate to resolve the issues. We do NOT use a bibliography or list
of references in a tax research memo. We do not include Background in a tax memo. One of the example tax memos
does have a Background included but just so you can see how to obtain the Facts for the Tax Memo. You will see that
citations are within the text of the document in the example. Once a court case has been cited in full, it can be referred
to using simply the name in italics.
You are required to INDIVIDUALLY prepare this document. Please upload your memo to Canvas before the due date
and time. TurnitIn will be used to check for plagiarism.
The grading rubric for Tax memos is posted in Canvas. For this assignment, points are distributed as follows:
Aspects of the memo
Content – facts and issue(s)
Content – analysis
Content – conclusion
Organization
Audience
Style
Mechanics
Referencing
Total
Points
16
30
14
8
8
8
8
8
100
© 2023. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Violation of copyright will be subject to prosecution
and considered Academic Dishonesty
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Formatting
Title Page
Citation
Outline
