...Tax Research Memo Personal Injury winning treatment and other issues research ________________________________________________________________ XYZ CPAs NearLakes City John Smith tax issues 1 a Issue: Treatment for purposes of Federal Tax Income of $300,000 fee received out of the amount awarded by Jury. Applicable Law: Any winnings in a personal injury lawsuit that cover the treatment of physical injuries are not taxable except for attorney fees which are taxable. IRC Sec 104(a)(2).Taxability also depends upon the place of residence of the taxpayer. Conclusion: As per the provisions of IRC Sec 104(a) (2), $300,000 received by John Smith as fees from jury award is taxable for federal tax income purposes. 1b Issue: Treatment for purposes of Federal Tax Income of $25,000 expenses paid upfront and received out of the amount awarded by Jury. Applicable Law: Any winnings in a personal injury lawsuit that cover the treatment of physical injuries are not taxable except for attorney fees which are taxable. IRC Sec 104(a)(2).Any expenses can be claimed as a deduction.Taxability also depends upon the place of residence of the taxpayer. Conclusion: Expenses paid upfront and received as part of the jury award can be claimed as a deduction in the hands of the recipient (IRC Sec 104(a) (2). 1c Issue: Reducing the taxable amount of income for both (a) and (b) above. Applicable Law: An...
Words: 899 - Pages: 4
...MEMORANDUM To: John and Jane Smith From: XXXXXX, CPA Near Lakes City Date: February 7, 2013 Dear Mr. & Mrs. Smith, Thank you for coming to our offices and allowing us to review and discus your concerns regarding your tax questions. I have been assigned to reply to your questions and I have listed my recommendations below. After you both have reviewed these recommendations, please contact me so we can go over any additional questions you may have. Mr. Smith’s questions: 1(a) How is the $300k treated for purposes of Federal tax income? According to the IRC §61(a)(1), “Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items: (1) Compensation for services, including fees, commissions, fringe benefits, and similar items”, the $300,000 you received must be included as part of your gross income, compensation for services, and as such it is taxable. 1(b) How is the $25,000 treated for purposes of federal tax income? The $25k you received as a recovery for expenses you paid in advance must also be treated as income. In general, an expense cannot be deducted if paid in advance. This is true for both the cash basis method of accounting and the accrual method of accounting. The prepaid amount is treated as an asset with a useful life extending beyond the current tax year, and carried over to the tax year where the expense applies. The Internal Revenue...
Words: 1806 - Pages: 8
