Tern Corporation, a calendar year C corporation, is solely owned by Jessica Ramirez. Tern’s only business since its incorporation in 2012 has been land surveying services. In Tern’s state of incorporation, land surveying can be performed only by a licensed surveyor. Jessica, Tern’s only employee, is a licensed surveyor but is not a licensed engineer. Upon audit of Tern’s 2012 and 2013 tax returns, the IRS assessed tax deficiencies stemming from its conclusion that the corporation was a personal service corporation subject to the flat tax rate of 35%. Jessica believes that the IRS’s determination is incorrect, and she has asked you for advice on how to proceed. Evaluate the IRS’s position regarding the treatment of Tern Corporation as a personal service corporation, and prepare a memo for the client files describing the results of your research.
Answer to relevant QuestionsWho can claim the DPAD? Which taxpayers are more likely to use it? Janice Boyer, the controller of one of your clients, calls you to ask what impact current E & P has on ACE. She wants to know if ACE is the same as current E & P. Prepare a tax file memo indicating what you told Ms. Boyer. Outline some ways to avoid the W–2 wage limitation. Present your findings in a set of PowerPoint slides. Given the following information, determine the ACE adjustment for each year. Don is the owner of a large apartment complex that was built 30 years ago. As the complex is in serious need of renovation, Don pays Cardinal Construction Corporation $2.8 million to do the work. Don also pays an architect ...
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