How do you start and complete a tax research problem? Tax memo and Client Letter?

How do you start and complete a tax research problem? Tax memo and Client Letter?

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Problem No. 1 Tax Research
A and C is a famous country-and-western singer. As an investment, A and C started a chain of
barbecue restaurants called ACs Terrific Ribs. AC’s friends and associates invested $600,000 in
this venture. The restaurant chain failed, and the investors lost all their money. Because of his
visibility and status in the entertainment community, Flake felt that he personally had to make
good on the losses suffered by the investors, to protect his singing and business reputation.
Consequently, he personally paid $600,000 to reimburse the investors for their losses.
Use the following resources to prepare a tax research memorandum and client letter:
I.R.C. § 162
Harold Jenkins
, 47 TCM 238 (1983)
Lohrke v. Comm.
, 48 T.C. 679
In
Harold Jenkins
, 47 TCM 238 (1983), the Tax Court ruled that payments made to investors to
reimburse them for their losses are deductible under §162 as ordinary and necessary
business expenses of petitioner’s business as a country music performer. The Court
concluded on the basis of
Lohrke v. Comm.
, 48 T.C. 679, that the negative impact of a
potential lawsuit from the investors on the petitioner’s career would justify the
reimbursements as an expense of maintaining the integrity and reputation of that career.

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