23 Feb Bob and Carol have been clients of our firm for several years. To our surprise, they have been seeing a marriage counselor the last two years. In February 2022, they decided to separate.
accounting writing question and need an explanation and answer to help me learn.
Below is a hypothetical tax research problem that surfaced while you were preparing a clients tax return. Your task is to research the issues and find a court case (or cases) and statutes that resolve the issues using the internet and/or a university provided research database.
The university provides you access to the following research databases: RIA Checkpoint and International Tax Library and Westlaw Next. To access these databases, use the URL https://shsulibraryguides.org/busdb. The Accounting, Tax and Law databases are in the lower right corner of the webpage. If you encounter a technical issue, you may contact Lisa Shen at [email protected].
Once you find primary legal authority (you are looking for a court case and statutes), prepare an internal workpaper memorandum documenting your position with respect to the tax issue presented. To complete the memorandum, use the IRAC format for analyzing complex legal issues. An example memo that utilizes this format from a prior semester is included below.
Requirements:
Bob and Carol Wright
Bob and Carol have been clients of our firm for several years. To our surprise, they have been seeing a marriage counselor the last two years. In February 2022, they decided to separate. However, because they are barely surviving on their current incomes, they cannot afford separate housing or the legal costs of a divorce. Bob moved out of their house in March and took up residence in their detached garage, which has an enclosed workshop and bathroom. Carol stayed and continues to reside in the house with their two children. She pays more than half of the cost of maintaining their residence. Bob has not entered the house since the separation and does not plan on entering the house for the remainder of the year. After talking a friend that used to work for H&R Block, Carol believes she can file as head-of-household because she is considered unmarried under the Internal Revenue Code (typically known as the abandoned spouse rules). She is a calendar year taxpayer. Please research the issue and determine if Bob and Carol are living apart? (i.e., did not live in the home) for purposes of qualifying as not married under the Internal Revenue Code for 2022.
To: Dr. England
From: Jane Doe
Date: October 18, 2018
Re: Sammy Withrows Gambling Tax Issue
Issue
The issue at hand is determining if Sammy Withrows gambling is extensive enough to classify him as a professional gambler and engaging in gambling as a trade or business.
Rule
A taxpayer cannot simply pick a classification (amateur or professional) that will result in the least tax liability. There is legal precedent, set by the Supreme Court in the case Commissioner v. Groetzinger, 480 U.S. 23 (1987), which addresses the issue of extensive gambling and factors to take into consideration when classifying gamblers. The Supreme Court did not decide on a specific test to determine if a taxpayer is engaged in a trade or business. Each case must be examined separately. In regards to gambling, the Supreme Court ruled that a taxpayer who engages in gambling full time, with good faith, and to produce income is said to be a professional gambler. Therefore, for tax purposes, the taxpayer is engaged in the trade or business of gambling.
Analysis
Sammy Withrow has spent five days a week in casinos and devoted forty to fifty hours each week on gambling. He is not employed elsewhere and relies mostly on the income he produces from gambling. For tax purposes, Sammy should be classified as a professional gambler who is participating in the trade or business of gambling. This means that he should net his income and losses from gambling on Schedule C, but his gambling losses cannot exceed his income (the limitation still applies to professional gamblers). Sammy can also deduct his business expenses that resulted from his gambling.
Conclusion
In this specific case, Sammy Withrow should be classified as a professional gambler engaging in the trade or business of gambling. This classification has an impact on the amount and where his gambling deductions and expenses are applied on his tax return.
