A taxpayer is a partner in an accounting firm. He has always enjoyed auto racing as a hobby. Now that his children are grown, he has decided to devote more time to auto racing. He recently purchased a racing car for $50,000 and has entered several races. He recently raced in his first competitive race and placed fourth, resulting in winnings of $5,000. He expects to incur a number of expenses related to his racing: auto maintenance, storage, transportation, and so on. He would like your advice as to how to proceed so that he can depreciate his car and deduct all of these expenses.
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?