A major airline manufacturer was found to be in violation of FAA safety rules and was forced to install additional safety devices in each of its planes within the next six months. The airline company projects the cost of this upgrade to be several million dollars, consisting of lost profits while the planes are on the ground, labor costs, and the cost of parts. In addition, the airline spent $100,000 in attorney's fees in an unsuccessful fight to have the requirement waived. The CFO of the company wishes to know whether any or all of these costs can be deducted.
a. Are there any additional questions you should ask the client before you begin your research?
b. What additional potential sources of information might you want to ask for?
c. Which of the preceding facts are relevant? Which are irrelevant?
d. Is there a chance that you will need to ask more questions at a later point? Why or why not?
e. What is the first question you will try to answer in your research? Are there any additional issues that you can identify at this time?
f. What is the taxpayer's desired result? Why is this important? How does it affect your role as tax advisor?
g. Is this a planning research type of situation? How do you know?
h. Do you have an initial belief regarding the tax treatment in this circumstance?