Duncan Schock is running for reelection in the U.S. House of Representatives for the 2nd Congressional district in Arkansas. Unfortunately for Duncan, he has encountered some financial difficulties during his reelection bid. In order to pay the mortgage on his home in Little Rock and other personal expenses, he diverts $100,000 of campaign contributions to cover these expenses. He does not intend to repay the campaign for the use of these funds. Duncan seeks your advice about the tax consequences of diverting these funds. [Ignore all potential FEC/federal law violations committed by Duncan and focus only on the tax consequences].

Duncan’s address is as follows: 12345 Taylor Loop, Little Rock, AR 72211.

NOTE: The following research sources are complete for the purposes of this assignment. There are no other sources or research necessary to complete the assignment. Sources:

IRC § 61
IRC § 527
Treas. Reg. § 1.527-5(a)(1) FSA 0887
Rev. Rul. 71-449
Rev. Rul. 74-22

Submit (1) a letter to the client and (2) a tax research memo for your files (using the format provided) to support your conclusion.