Jessica loves to visit antique malls and flea markets. She buys old furniture to refinish and later

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Question:

Jessica loves to visit antique malls and flea markets. She buys old furniture to refinish and later resells some of her projects for a modest profit.

Jessica inherited a large house with a barn from her grandmother. The barn is where she keeps her future furniture refinishing projects. She buys more than she can handle and has a large backlog of projects.

To Jessica’s surprise, while cleaning and sanding an old desk that she purchased five years ago, she found an envelope with $50,000 of cash! Jessica is meticulous in her record keeping and worries about being audited, so she called you, her tax accountant.

She wants to know if she is required to report the found money, and if required, the timing of reporting the money since she purchased the desk five years before.

Required:

1. As Jessica’s tax accountant, research and write a memo for your firm’s internal files. (IRC) Sec. 61 defines gross income. Determine if this is a closed or open facts case. Make sure to address her concerns when performing research and communicating the results.

2. When your tax research is completed, write a client letter to Jessica outlining your tax research findings. Both memos should be roughly a full page when you follow the outlines specified. Proper language, spelling, and usage is expected. The research should be persuasive and technically sound.