chapter #-page 1 tax research the revision process revising, editing and proofreading for accounting...

Tax Research

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THE REVISION PROCESS

Revising, Editing and Proofreading for Accounting

Michelle Doss, 2006

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THE WRITING PROCESS

Prewriting

Writing

Revision

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WRITING THE TAX MEMO

The tax memo contains the following:

1. Client

2. Relevant facts

3. Specific issues

4. Conclusions

5. Support

6. Actions to be taken

7. Preparer

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REVISING, EDITING, AND PROOFREADING

1. Revising a. Occurs at the level of ideasb. Focuses on questions of purpose, audience and

voicec. May mean deleting entire sections and starting

over2. Editing

a. Occurs at the level of languageb. Sharpens your word choice and organization to

make it as precise and effective as possiblec. Follows revision for most effective use of timed. May focus on grammar, usage, and mechanics

3. Proofreading a. Checks for accuracy and correctnessb. Follows all other revision for most effective use of

timec. Focuses on grammar, usage, and mechanics

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QUESTIONS OF PURPOSE

Why am I writing this?

To convey the results of the research to a superior

Do all parts of the paper meet/advance this purpose?

Have I stated the purpose clearly?

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QUESTIONS OF AUDIENCE

Have I provided the full context and background for audience?

Usually fellow tax practitioners are well-versed in federal tax law, understanding frequent and complete references to primary and secondary sources of the tax law, and needing no introduction to the hierarchy of tax authority or to statutory citation practices

Have I answered all questions and/or objections my audience might have?

Will my tone and style most effectively communicate my ideas to my audience so that I get the response intended?

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10 REVISING STRATEGIES

1. Let it sit.

2. Reread as if for the first time.

3. Test your claim.

4. Evaluate your evidence.

5. Evaluate your paragraphs.

6. Dialogue with your paper.

7. Eliminate extraneous material

8. Add new details.

9. Switch perspective.

10. Be willing to let it go and start over.

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EDITING SENTENCES

1. Are the issues, conclusions and supporting analysis stated clearly and unambiguously?

2. Is each sentence in the correct form (statement, question, etc.)?

3. Does each statement provide the appropriate amount of detail?

4. Are the issues numbered and arranged in the most logical order?

5. Does each word, phrase, clause make sense and have purpose?

6. Do the punctuation marks guide the reader in understanding how to read the sentence?

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STATING YOUR ISSUES: An Example

Not a question and vague:

A question arises as to how much the taxpayer can deduct for the payment he made for the expense.

Question and specific:

Can part or all of the $13,000 payment be deducted and, if so, what is the character of the deduction?

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STATING ISSUES: An Example

Unclear tax conceptWhat is the tax treatment for a company under Reg. §1.162-5(c)(1) when it pays its employee’s tuition?

Explicit tax concept

Can Borden Company deduct the $2,300 it pays to Smith to cover his tuition?

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STATING ISSUES: An Example

Emphasize tax concepts rather than financial accounting concepts:

Accounting conceptCan Bikes-R-Us, Inc. expense the rental payment to its chief financial officer?

Tax conceptCan Bikes-R-Us, Inc. deduct the rental payment to its chief financial officer?

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STATING YOURSUPPORTING ANALYSIS: An Example

Insufficient Detail:

The theft loss is deductible in 2006 according to IRC §165(e).

Better:

IRC §165(e) indicates that theft losses are deductible in the taxable year sustained. Thus, the theft loss is deductible in 2006.

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EDITING FOR WORDINESS

Wordiness:

Using more words than necessary when making one’s point; needlessly distracts the reader from the main points.

Eliminating wordiness results in a concise writing style that is easier to read and provides fewer opportunities for misinterpretation.

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TAX-RELATED WORDINESS

Wordy

1. Code Section 61

2. In Smith v. U.S., the court held

3. Take a deduction for

4. Tax deductible

5. The Smith v. U.S. decision

6. United States

Better

1. §61 (Sec. 61)

2. In Smith, the court held

3. Deduct

4. Deductible

5. The Smith decision

6. U.S.

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REVISION SKILLS

Original:

Expenses incurred by a taxpayer during a given year in regard to the conduct of a trade or business can be deducted from net income according to Internal Revenue Code Section 162 and Treasury Regulation Section 1.162.

Improved:IRC §162 and Reg. §1.162-1 allow deductions for ordinary and necessary expenses paid or incurred in the year in connection with the conduct of a trade or business.

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ACTIVE AND PASSIVE VOICE

Active Voice: the subject does the action of the verb

The committee is looking into the matter.

Passive: the subject does not do the action of the verb.

The matter is being looked into by the committee.

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When to use Active vs. Passive

Active

Most messages in business and technical writing

Passive

The doer is

unknown, unimportant, clear from the context, or appropriate to hide.

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CONVEYING BAD NEWS

Active: I think your farming activity is a hobby and, thus, disallow your deduction.

Less Confrontational:

Passive: Since your farming activity is a hobby, no deductible loss is allowed.

Active: The IRS considers your farming activity

to be a hobby and, thus, disallows your deduction.

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REVISION SKILLSOriginal:

In addition to the above mentioned Code Section in the event that education expenses maintain or improve skills required of the taxpayer in his employment or education expenses are required in order to retain his position or rate of compensation an expense is allowed by Regulation §1.162-5.

Improved:Additionally, Reg. §1.162-5(a) allows a deduction if education expenses either (1) maintain or improve skills required of the taxpayer in his/her employment or (2) are required in order to retain his/her position or rate of compensation.

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EDITING FOR PARALLEL STRUCTURES

Parallel structures: two or more phrases or sentences that have the same grammatical structure and use the same parts of speech

Make your sentences clearer and easier to read

Help your reader see the connections between ideas in a series of consecutive sentences

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EDITING FOR PARALLELISM

Without parallelism:Prepare letter to review with clientThe client should obtain multiple appraisals of building.Appraisal should be attached to client’s tax return.

With parallelism:Prepare letter to review with client.Suggest client obtain multiple appraisals of building.Attach appraisal to client’s tax return.

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EDITING PUNCTUATION

Commas

Act as Yield signs for the readerAllow the reader to pause, digest the information, and continue with the same main idea

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COMMON USAGE FOR COMMAS

1. Before coordinating conjunctions (independent clauses and items in a series)

The client is entitled to deduct the appraisal of the building, and the deduction should be treated as an itemized deduction.

NOTE: You must have a coordinating conjunction with a comma to separate two independent clauses.

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2. To set off introductory elements

After the fire department finishes using the building, Ross plans to demolish the building and leave the lot vacant.

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3. To set off nonrestrictive modifiers or appositives

The new ruling, which weakened our conclusion considerably, is not the only applicable. (nonrestrictive)

The new ruling that weakens our conclusion considerably should be applied. (restrictive)

NOTE: Be careful that you do not separate your subject and verb with a comma!

Incorrect: The hurricane heading our way, caused some to panic.

Correct: The hurricane heading our way caused some to panic.

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4. Also use commas

To set off parenthetical expressions and elements of contrastTo set off interjections, tag sentences, and direct addressBetween quotations and attributory phrasesWith numbers, dates, names and addressesWhenever necessary to prevent misreading

TIP: Use the search function to find all your commas. Evaluate your use, and edit where necessary.

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EDITING PUNCTUATION

Semi-colons

Act as Stop SignsAllow the reader to stop, digest the information, and move to a closely-related idea

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COMMON USAGE FOR SEMI-COLONS

1. To separate two independent clauses

The hurricane, heading our way, caused many to evacuate; the mass evacuation created gridlock on the highways.

2. To separate items in a series containing commas

The forecasted intensity of the hurricane, which came so soon after Katrina; the recent images of damaged or destroyed property, lists of missing people, and shelters full of people; and the warnings coming from officials prompted many people to leave as soon as possible.

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INCORRECT USAGE OF COLONS

1. Do not use a colon after an introductory phrase or independent clause

Incorrect: As I learned this weekend: sometimes anticipation is worse than the storm.

Correct: As I learned this weekend, sometimes anticipation is worse than the storm.

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2. Do not use a colon between a verb and its object or complement

Incorrect: The materials used for the project include: steel, wood, and wire.

Correct: The materials used for the project include steel, wood, and wire.

Correct: The materials used for the project include the following: steel, wood, and wire.

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3. Do not use a colon between a preposition and its object

Incorrect: Evacuees went to: San Antonio, Dallas, Fort Worth and Austin.

Correct: Evacuees went to San Antonio, Dallas, Fort Worth and Austin.

4. Do not use a colon following an introductory expression

Incorrect: The stores were out of supplies including: water, milk, and plywood.

Correct: The stores were out of supplies including water, milk, and plywood.

5. Do not use more than one colon in a sentence

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PROOFREADING STRATEGIES

1. Read aloud.

2. Read with a cover.

3. Read as a reader rather than the writer.

4. Identify your common mistakes, and pay careful attention to those.

5. Use the tools on your computer (but don’t assume the suggestions are always correct).

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NOW LET’S PRACTICE . . . .

1. Pass out examples of tax memos

2. Allow time for groups to critique the memos

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GATHER THE FACTS

Ross Lambeth owns a corner lot on which a dilapidated rental building is situated. The building, which has been fully depreciated using the straight-line method, has a tax basis of zero. Recent flooding in the area has damaged the building to such an extent that it can no longer be rented without renovation, and Ross believes it is about to be condemned by municipal authorities as unsafe.

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The lot is located in a prime area of commercial development and, if it were not for the building, would be worth a considerable amount. As such, Ross is considering donating the building to the local fire department for use in the testing of new fire equipment and conducting fire drills and rescue training. After the fire department finishes using the building, Ross plans to push over the chimney and remove the charred foundation and debris, leaving the lot vacant. Ross would like to receive a tax deduction from the donation.

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Currently, the lot and building are appraised at $70,000 and $20,000, respectively. After removal of the building, however, Ross estimates the lot will be worth $110,000.

Donation = Tax savingsLand value = $40,000 increase

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RESEARCH THE SITUATION

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WRITE THE TAX MEMO

The tax memo contains:

1. Client

2. Relevant facts

3. Specific issues

4. Conclusions

5. Support

6. Actions to be taken

7. Preparer

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FILE MEMO 1

October 19, 2006

Client

Ross Lambeth, Deductibility of Contribution of The Right To Use Property The Donor Owns To Local Fire Department.

Focuses on contribution ofright to use property

rather thancontribution of property

Overuse of capitalization

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Set means “to place something in position”Sit means “to be situated or located”

Relevant Facts

Ross Lambeth owns a rental building and the land it sets on. The building is worth $20,000 and a formal appraisal has been done. The building has a fully depreciate, tax basis of zero. Ross wants to donate the building to the fire department for use in the testing of new fire equipment and training.

Too brief; fails toinclude all relevant facts.

X

sits

depreciated

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Specific Issue

Can Ross receive a tax deduction from the donation?

Does not clarify whetherthe donation would befor the building or lot Does not address

the amount ofthe deduction

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Conclusion

Ross’ contribution of the right to use his building is nondeductible.

Reaches wrong conclusion

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Support

IRC §170(a) and Reg. 1.170A-1 allows for a deduction of any charitable donation given within the year of contribution of an individual. Additionally, IRC §170(c) defines qualified charitable contributions, including a contribution to a subdivision of the government for public use. Additionally, ¶K-305 of IRC §170(e) and Reg. §1.170A-1(c) defines the deduction in the case of a charitable contribution to include a capital asset’s deduction which is the fair market value of that property.Repetitiou

s

Cite to RIA, not IRC

Section,§ or Sec.

Singular verb;plural noun

Awkward

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Reg. §170A-7 disallows the deduction of a partial interest in property. A partial interest in property includes the usage of the property free of rent. The rent free contribution is not deductible.

In Ottawa Silica Co., 82-1 USTC, an individual donated land for the use of a public school. The donation was disallowed because the individual received some economic benefit from the increase in the value of his property by the construction of roads by the donee.

Italicizecase name

Incomplete cite

Relevance is not explained

Reg. §1.170A-7

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Actions To Be Taken

Prepare letter, review results with client.

Preparer

Student 1Incomplete

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FILE MEMO 2

October 19, 2006

Client

Ross Lambeth, Deductibility of Building Donation

Sacrifices accuracyand completeness

for conciseness

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Relevant Facts

Ross Lambeth owns a lot on which a dilapidated rental building is situated. They are appraised at $20,000 and $70,000, respectively. The rental building has a zero tax basis and is severely damaged. The land would increase in economic value if the building was removed. Ross wants to donate the the building to the fire department that will destroy the building while in use.

Repetitious and wordy

Lot is appraised at $70,000; building at $20,000

X

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Specific Issues

Can the building be donated and a deduction taken for the charitable contribution to the local fire department? If the building alone can be donated, without the land (fee simple) then technical issues arise as to how to structure the title to the building such that the ownership of the foundation and chimney remain with Mr. Lambeth. Or is this more properly considered a use of the building rather than a donation? Additionally, is the building, having been severed from the land for the purpose of the donation, now considered tangible personal property?Lacks focus;

too many minor issues identified

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Conclusions

Ross Lambeth can deduct the $200,000 donation in the nature is a long-term capital asset distribution, treated as an itemized deduction and limited to the lesser of 30 percent of his adjusted gross income, or an amount equal to 50 percent of adjusted gross income, reduced by contributions qualifying for the 50 percent limitation.

What is a long-term capital asset distribution?Can a donation qualify?

No support for conclusions

According to thefacts, the building is

appraised for $20,000 Awkward

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SupportIRC Section 170(b)(1) defines the contribution rules for individuals. IRC Section 170(a)(3) defines the timing of contribution of a future interest and the unwinding of all rights to what, given the definition of “severability” in the code, in this case becomes tangible personal property – the building, having been severed from the foundation and masonry of the structure. At the time of final resolution of all the ownership interests and options of any conceivable “fee simple” possible ownership transfer to and back from the fire department of the building, the donation would have a value of zero for the building, and a cost associated with removing the foundation and the rubble. Though it is not the question under discussion, there will be a tax treatment for the cost to prepare the land for use, with which we would be happy to assist our valued client.

Patronizing

Unnecessarilylong sentences

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An alternative interpretation of the contribution would be that the use of the building more closely fits the definition of a rent-free use, which is not a deductible charitable contribution under IRC Section 170.IRC 170(f)(3) also would deny the deduction if the IRS took the position that the building is an undivided portion of the taxpayer’s entire interest in the property.

Section,§ or Sec.

Should beReg. §1.170-2(b)(5)(ii)(c)(3),

not IRC §170

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In Morris, TC Memo 1973-265, petitioners were permitted to deduct the fair market value of the partially damaged building donated to a volunteer fire department for use in its fire drills because even though the drills resulted in razing of building making property more marketable, the primary benefit was to the community. This case appears to be the most applicable authority for Lambeth’s situation because even though Lambeth would benefit from the increase in value of his lot, the primary benefit of his donation was to the community.

Italicizecase name

No support for conclusionregarding 30% limitation

Morris Scharf

Awkward sentence

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Actions To Be Taken

Prepare letter and review results with client.

Suggest that client attach appraisal to his tax return when he files for the deduction.

Preparer

Student 2

Better

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FILE MEMO 3

October 19, 2006

Client

Ross Lambeth, Deductibility of Charitable Donation of Dilapidated Building to Fire Department

Accurate, complete,and concise

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Relevant Facts

Ross Lambeth owns a rental building in a state of disrepair, as well as the lot on which it is located. The building is fully depreciated and has a tax basis of zero. To clear the lot of the building, and thereby to increase the value of the lot, Ross plans to donate the building to the local fire department for use in testing fire equipment and conducting fire drills and rescue training. After the building is destroyed by the fire department, Ross plans to push in the chimney and remove the remaining debris. The lot and building are appraised at $70,000 and $20,000, respectively. After removal of the building, the lot will be worth $110,000.

Includes allrelevant facts

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Specific Issue

Can the donation of the building be deducted and if so, what is the amount of the deduction?

Concisely identifies the major issues

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Conclusion

The donation of the building qualifies as a charitable contribution, deductible if Ross itemizes his deductions. The deduction is $20,000, the fair market value of the building at the time of the donation. However, because the building is capital gain property, the annual deduction will be limited to 30 percent of AGI, with a five year carryforward of excess amounts .

Complete,yet concise

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Support

IRC §170(c)(1) and Reg. §1.170A-1 allow a deduction for a charitable contribution to or for the use of a political subdivision of the State, but only if the contribution is made for exclusively public purposes. The local fire department is a political subdivision and, hence, a qualifying charitable organization. As for the use test, the taxpayer’s donation of a building in Morris Scharf, T.C. Memo 1973-265, for use in conducting fire drills was considered exclusively public purposes. As such, Ross’ donation of the building appears to meet the requirements of IRC §170(c)(1).

Supports conclusion withrelevant Code, regulations

and cases

Provides complete citethe first time

case is mentioned

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However, as determined in Karl Pettit, 61 T.C. 634 (1974) and Rev. Rul. 76-185, 1976-1 C.B. 60, a transfer to a charitable organization is not deductible to the extent the donor derives an economic benefit. Thus, a taxpayer’s transfer to a university in Robert E. Signom, T.C. Memo 2000-175, of a leasehold interest in and an option to buy a parcel of real estate was not a charitable contribution where the transfer was an integral part of a larger exchange in which the taxpayer received other real estate, cash and mortgage relief worth more than the property surrendered.

Includes related cases,distinguishing them

and highlighting theirrelevance

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The primary benefit from the use of a building in conducting fire drills, however, was determined in Scharf to inure to the general public with only lesser or incidental benefits flowing back to the donor. Thus, the charitable deduction was allowed.

Omits citation when

mentioning casethe second time

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In John G. Allen, 57 T.C. 12 (1971), the Tax Court held that where a charitable contribution is made in property other than money, the allowable deduction is measured by the fair market value of the property at the time of the contribution. This valuation rule was followed in Scharf, a case very similar to that of Ross Lambert, in which the taxpayer donated a building to a volunteer fire department for the conduct of fire drills. The court held in Scharf that the charitable donation was the fair value of the building when donated. Accordingly, Ross should be entitled to deduct the $20,000 appraised value of the building before the donation to the fire department. Moreover, under Reg. §1.170A-1(a), the deduction would be treated as an itemized deduction.

Provides sufficient background information for others to understand

relevant tax law

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Reg. §1.170A-4(b)(4) states that for purposes of a charitable deduction, property used in a trade or business, as defined in IRC §1231(b), is treated as a capital asset except for any depreciation recapture. Since the tax basis of Ross’ donated building is zero, the full $20,000 value would, therefore, be considered as arising from the sale of a capital asset. IRC §170(b)(1)(C), however, imposes an annual AGI ceiling on the amount of a charitable deduction. In the case of property that would result in the recognition of long-term capital gain if sold, that ceiling is 30 percent of AGI if contributed to a public charity. Applying these limitations to Ross’ situation, the $20,000 charitable deduction would be limited to 30 percent of his AGI, with any excess carried forward for five years under IRC §170(d)(1)(A) and Reg. §1.170A-10(c).

States the amountof the deduction andsupports that amountwith supporting Code

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Actions To Be Taken

Prepare letter, review results with client.

Suggest client obtain multiple appraisals of building prior to donation and adequate documentation from the fire department regarding its intended use of the building and benefit from the donation.

Attach appraisal to client’s tax return when he files for the deduction.

Preparer

Student 3

Complete

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FINISHING STEPS

1. Once you think your memo is finished, put it away for a few hours; then read it again.

2. Does it still make sense? Is it clear, concise, and accurate?

3. If so, then you’re done. If not, then work on it more.

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THE END

chapter #-page 1 tax research the revision process revising, editing and proofreading for accounting...

Documents

tax research revising

tax memo

tax treatment

tax research stating

tax research editing

federal tax law

explicit tax concept

hierarchy of tax authority