Mimi’s CupcakesTax Research Memorandum
Mimi Charpentier, operates a successful sole proprietorship which sells cupcakes to retail customers at fourlocations in Las Vegas. Mimi’s Cupcakesdoes not carry any inventories, because of the nature of its products. Mimi owns the four small buildings in which the shops exist. One of the stores is slightly larger than the others; it is Mimi’s original location, and it still is the site of the kitchen and the loading dock where the Cupcakes trucks daily pick up and deliver merchandise and supplies. The workforce of each store is the equivalent of 2.5 employees; the employees are paid reasonably well, and the low-pressure atmosphere of the typical workday results in a very low turnover rate. Mimi’s offers only one fringe benefit to the employees –it encourages the employees to use Health Savings Accounts for their medical costs, and Mimi’s reimburses the employee for the out-of-pocket deductible amounts, to a $2,500 maximum per employee per calendar year.Mimi’s attorney, Gloria Willis, has urged Mimi to incorporate the business, primarily because of the limited shareholder liability associated with corporate status, and to facilitate a business succession plan for the operation. After several years of discussions, Mimi has agreed to go ahead with this idea. She plans to take a sixty percent ownership interest in the common stock of the new entity; twenty percent interests will be made available to Mimi’s daughter Nancy, and to Joan Price, the chief operating officer of the business, who is not related to the other two shareholders.Mimi has operated the business as a cash basis sole proprietorship since 2009, and she anticipates incorporating the business on January 1 of next year. A summarized projected balance sheet for the business as of December 31of this years attached. Willis’ practice consists of general work with small business clients. She is not by any means conversant with the federal income tax rules as they apply to individuals and C corporations. In this process, Willis is concentrating on the establishment of the new corporate entity, the retitling of assets as they are transferred from the proprietorship to the corporation, and the mechanics of creating and issuing shares to the new shareholders. Nancy recently graduated from community college in restaurant and hospitality management, with an emphasis in financial recordkeeping. Joan is about fifty years old, in good health, and planning to remain in charge of operating decisions for the three stores for the foreseeable future. Neither Mimi nor Joan projects that the corporation would add a fifth store, nor would it expand outside of Las Vegas, but the parties review these issues at least once a year.
The proprietorship does not carry any debt; its trade payables and receivables are disposed of in a timely fashion. Its website allows for remote ordering, scheduled pickups, and deliveries of larger orders to customer locations. Mimi’s is active on Twitter and Facebook, where the company has about five thousand friends/followers. This presence allows Mimi’s to plan and carry out “spontaneous” outdoor events on the stores’ patios, where high-markup products are made available in plentiful quantities, this really made a difference in 2020.As Mimi has told you several times, “this is a simple business, and we know how to keep our customers happy and coming back on a regular basis. I do not want the legal etc. aspects of an incorporation to disrupt the good thing that we have here.” But, in your dealings with Mimi over the years concerning her Forms 1040 and employment tax obligations, you know that she expects you to give her suggestions about how her tax liabilities would be affected by decisions that she makes, and that she expects to “get it right the first time” when she makes her choices.At Mimi’s latest appointment with her hairdresser, Cathy Duvall mentioned that her own salon was about to incorporate, but that Duvall would retain her individual ownership of the land and building. Duvall was certain that there were tax and legal advantages to structuring the corporation that way, but she could not really explain to Mimi what those advantages were
.Required:You will be meeting shortly with Mimi, Nancy, and Joan to discuss the tax aspects of the incorporation.Be sure to review the following items:
•Review the various options available for operating the business and the tax consequences of these options.
•Mimi certainly will ask you to cover the issue of which assets to contribute to the new corporation, with the explanations that Duvall could not provide. Concentrate on those issues for this meeting, offering at least two alternative plans for the asset transfers be sure to include computation of tax effect of the alternative plans.
•At the meeting, Nancy will look to you for information on issues of asset basis, as well as any effects that the incorporation might have on sales/use and self-employment tax obligations. •Ignore any exposure to the individual alternative minimum tax.
Mimi’s Cupcakes Tax Research Memorandum
Due Date: Wednesday, July 28th at 11:59 pm
PwC Case Studies in Taxation, PwC, LLP
Page 1 of 5
Purpose: The purpose of this is to enable you to meet the following
goals:
• Understand the role of a tax practitioner
• Identify the tax issues involved in a scenario
• Be able to conduct comprehensive tax research utilizing on-line tools in order to
formulate a solution to the issues raised.
• Be able to articulate and defend a tax position in writing.
Task: In order to successfully complete the assignment you must:
• Prepare a memorandum to the tax manager outlining the information you found
in your research.
• Format the memo to include:
o Restatement of Facts (paraphrase)
o Identify at least three main issues based on these facts
o Provide a conclusion for each issue
o Include the analysis that led you to the conclusion for each issue. This
analysis should refer to the primary authority that best addresses the
issue.
o Primary authority would include items such as the Internal Revenue
Code, Regulations, Court Cases, etc. These also should be paraphrased
in order to highlight your understanding of the primary authority and
how it relates specifically to the issue. IRS Topics and Publications are
NOT primary authority for this project.
• Submit the assignment using a Turnitin assignment dropbox.
o Turnitin, is an online resource that checks your work against the submissions of
others, books, articles, tax code, etc., in order to verify originality of your
content. Given that everyone in the course is working on the same problem and
using the same format, the service will likely find some similarity in your
paper. Upon submission you will be able to see your score immediately, as
others submit their papers your score may increase. Should you resubmit your
paper, the originality score will not be viewable for 12-24 hours.
o I use the information supplied by TurnItIn as well as my professional judgment to
determine the originality of your paper. A high similarity rating is an indication of either
plagiarism or insufficient original content. Plagiarism is a serious issue which would be a
violation of the student code of conduct and would be reported to Student Affairs.
o I will accept late assignments for no more than 48 hours after the due date, with a 20%
penalty.
Mimi’s Cupcakes Tax Research Memorandum
Due Date: Wednesday, July 28th at 11:59 pm
PwC Case Studies in Taxation, PwC, LLP
Page 2 of 5
The writing assignment will be graded based on grammar, style of writing, logical development of
ideas, critical thinking skills, and technical accuracy of the analysis and conclusions, using a
rubric, which is found below.
Rubric to be used for grading
Expert Average Novice
Content
35 points
35
Contains ALL of the
following:
-All issues identified and
thoroughly analyzed;
-Conclusion and/o
Citation
to
Primary
Authority
PRIMARY
AUTHORITY
CITATION
Committee
Report
House
Committee
on
Ways
and
Means,
H.Rep.
No
432,
98th
Cong.,
2d
Sess.
(March
5,
1984).
Internal
Revenue
Code
Sec.
469
(e)(1)(A).
Treasury
Regulation
–
final
Reg.
Sec.
1.269-‐1(a)(3).
Treasury
Regulation
–
proposed
Prop.
Reg.
Sec.
1.704-‐3(c).
Treasury
Regulation
–
temporary
Temp.
Reg.
Sec.
1.441-‐1T(a)(2).
Revenue
Ruling
–
temporary
cite
Rev.
Rul.
84-‐101,
1984-‐28
I.R.B.
5.
Revenue
Ruling
–
permanent
cite
Rev.
Rul.
54-‐56,
1954-‐2
C.B.
108.
Revenue
Procedure
–
temporary
cite
Rev.
Proc.
93-‐15,
1993-‐3
I.R.B.
12.
Revenue
Procedure
–
Permanent
cite
Rev.
Proc.
88-‐12,
1988-‐1
C.B.
17.
Announcement
–
Temporary
cite
Ann.
2011-‐77,
2001-‐30
I.R.B.
83.
Announcement
–
Permanent
cite
Ann.
2001-‐77,
2001-‐2
C.B.
83.
Notice
–
Temporary
citation
Notice
2002-‐64,
2002-‐41
I.R.B.
690.
Notice
–
Permanent
citation
Notice
2002-‐64,
2002-‐2
C.B.
690.
Private
Letter
Ruling
LTR
8450056
(PLR)
or
LTR
200343030
(PLR)
U.S.
Tax
Court-‐
regular
decision
J.B.
Linderman,
60
T.C.
609
(1973)
U.S.
Tax
Court
–
memorandum
decision
Thomas
E.
Lesslie,
36
TCM
495
(1977),
T.C.
Memo
¶77,111.
Acquiescence
Phillip
G.
Larson,
66
T.C.
159
(1976),
acq.
1979-‐1
C.B.
1.
U.S.
District
Court
Arnold
v.
U.S.,
289
F.
Supp.
206,
68-‐2
USTC
¶9590,
22
A.F.T.R.2d
5661
(E.D.
N.Y.,
1968)
U.S.
Court
of
Federal
Claims
Zuchman
v.
U.S.,
524
F.2d
729,
75-‐2
USTC
¶
9778,
36
A.F.T.R.2d
75-‐6193
(Cl.
Ct.,
1975)
U.S.
Court
of
Appeals
Comm.
V.
Percy
W.
Phillips,
275
F.
2d
33,
60-‐1
USTC
¶9294,
5
A.F.T.R.2d
855
(4th
Cir.,
1960).
U.S.
Supreme
Court
Commissioner
v.
Duberstein,
363
U.S.
278,
80
S.
St.
1190,
60-‐2
USTC
¶9515,
5
A.F.T.R.2d
1626
(1960)
Temporary
cite
–
Refers
to
Internal
Revenue
Bulletins
which
are
published
weekly.
Permanent
cite
–
Refers
to
Cumulative
Bulletin
(C.B.)
which
is
printed
semiannually
and
includes
IRS
pronouncements,
previously
included
in
a
weekly
bulletin.
Citations
should
be
to
the
C.B.
unless
it
is
not
Tax Research Memorandum
To: File
From: Your Name
Date: Enter Date
Re:
Client name and Tax Year.
Facts
Paraphrase the relevant facts. Remember that this is going to the client’s file and be reviewed and used by someone unfamiliar with the case.
Issue & Conclusion #1
Issue: State the most important issue in the form of a question?
Conclusion: Answer to the question above in one to two sentences.
Analysis 1
Explain here how you came to the conclusion above, relate back to the case and be sure to cite primary authority. Explain how that primary authority relates to the facts of this case. For example if you find a court case where the court findings are helpful to your argument explain how the facts in that case are similar to the facts of the client. This should be at least a paragraph or two in length for each source. At least one primary source per issue, all citations included in the memo can be either footnoted or inline. Inline citation example: “Pursuant to IRC§123 income earned by a taxpayer which is not related to blah blah blah would be taxable.” Repeat the same process for each issue.
Issue & Conclusion #2
Issue:
Conclusion:
Analysis 2
Issue & Conclusion #3
Issue:
Conclusion:
Analysis 3
Issue & Conclusion #4
Issue:
Conclusion:
Analysis 4
Issue & Conclusion #5
Issue:
Conclusion:
Analysis 5
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