Daniel is the sole shareholder of Easytown Chiropractics,

Daniel is the sole shareholder of Easytown Chiropractics, Inc., a C corporation. In 2018, Easytown is audited by the IRS for the year 2016. During the audit, the IRS agent asked Easytown to provide the general ledger. 

After going through the general ledger, the agent presented Easytown with an IDR (Information Document Request) requesting a number of receipts to support expenses within the general ledger. After completing her analysis, the IRS agent hands Daniel a Form 4549, Income Tax Examination Changes. On this form, the agent indicates that she has disallowed deductions for payments totaling: $3,260 to Macy’s (the receipts indicated that the expenditures were for clothing and housewares Payments to various high-end restaurants (no supporting documentation provided) $1,750 to each of his children (they do not work at Easytown) In 2020, around Christmas time, the general ledger indicates that $1,230 was paid to a local high-end dress boutique. In addition, $2,040 was paid to a toy store. Action Items You are Easytown Chiropractics’ outside tax accountant. 

Research whether the IRS auditor’s disallowance of these items was proper. Also research how the IRS auditor would have treated these items on the Form 4549. Prepare a tax memo to Daniel and Easytown Chiropractic with your conclusions. When preparing your tax research memo, use each of the categories listed above as headings in your memo. This organization helps you steer the reader through your thought process in a logical progression. This format also ensures that you have completed the tax research process to formulate a supported, correct conclusion to your taxpayer’s issue. Facts: Succinctly state the facts relevant to the resolution of the taxpayer’s issue. Doing so involves reviewing the facts to include only those relevant to answering the question(s) at issue in your memorandum. Issue: State the question or questions your memorandum seeks to answer. 

If possible, present it in a single sentence (e.g., “Will Mr. Smith have to include the value of the property in income?”). Most (if not all) of the memoranda you will be assigned will present a single, overarching question. Granted, there may be multiple issues that you have to analyze to answer this question, but all of them go toward answering the larger question – such as whether the taxpayer has to include the value of some property in income. 

Conclusion: State the answer to the “Question(s) Presented” as clearly and succinctly as possible – again, preferably in a single sentence. (For example, your “Short Answer” to the “Question Presented” answer above might be, “Mr. Smith will have to include the value of the property in income.”). 

Analysis: This is the substantive portion of your memorandum and is worth the majority of the points on the assignment. It is where you present all of the analysis that is required to support your “Short Answer.” In performing your analysis, you should use the general “IRAC” approach you have learned and utilized to date, although you will not have specific sections within the “Analysis” listed as “Issue,” “Rule,” “Analysis,” and “Conclusion.” Once you have identified the issue or issues that you have to resolve to answer the “Short Answer,” you will need to perform tax research to identify tax authorities to establish the controlling “rule” that resolves that issues. Your analysis for each of these issues should review these authorities and then apply them to the facts of the case to draw conclusions.