How would i draft the letter for the following assignment:

Background

After discussing the situation at length with the Smiths, they decided to extend the statute of limitations as requested by Revenue Agent Johnson. The Smiths had been slow to gather additional records requested in the previous IDR. Revenue Agent Johnson explained that the Smiths had been given ample time to gather their records. Revenue Agent Johnson informed you that a 30-day letter would be issued based on available information and the records provided to date.

On July 2, 2024, you received a copy of the 30-day letter. After reviewing the examination report, you made an appointment to discuss with the Smiths. At the appointment, you went through each adjustment reflected on the Form 4549-A.

Casey was extremely confused by the adjustment to Schedule C gross receipts of $150,000. In December 2021, Casey had been engaged by Casey's former employer to represent them in a compliance action initiated by the regulatory agency overseeing their operations. The retainer agreement provided that Casey would bill the bank monthly at an hourly rate of $800 per hour. The engagement was terminable by either party and any unused retainer when the engagement was terminated would be refunded by Casey. Upon execution of the agreement, the bank had remitted a retainer of $150,000, which Casey deposited in the firm's IOTA trust account. Casey began work in December 2021, billing the bank $10,000 on January 3, 2022, for the month of December and thereafter transferring the funds from the IOTA trust account to the operation account on January 10, 2022. Casey said the $10,000 was included in the listing of income given to Riley and should have been included in gross receipts on their tax return. Casey asked you how they could be taxed on fees that had not yet been earned. In response to IDR no. 1, you had submitted a copy of the retainer agreement to Revenue Agent Johnson and a partially redacted copy of the December invoice.

Next, you reviewed the disallowance of the $6,160 depreciation deduction for the Mercedes and the $100,000 special depreciation disallowance for the Porsche. In response to IDR no. 1, you had submitted copies of a calendar showing all client or prospective client meetings during the year (including names and meeting location) and repair and service invoices for the Mercedes. You had previously discussed with the Smiths that there may be adjustments to these deductions because they had included mileage between their home and Casey's office. In your discussions, Revenue Agent Johnson had explained that the IRS was not accepting as business use mileage to and from the golf club where the Smiths had a membership. Casey explained that the Smiths had been long-time members of the golf club, which also included among its members many prominent executives in the local banking community. Casey explained that nearly all of the clients Casey had landed since going solo were also members there, and Casey would frequently play golf and have lunch with them at the club while discussing pending legal matters. The Smiths were particularly upset that Revenue Agent Johnson had disallowed all of these deductions. While Casey had not kept a contemporaneous mileage log, they had worked hard to reconstruct Casey's use of the Mercedes and Porsche with other records. Based on your review of their records, it appeared that approximately 45% of the usage of each vehicle was personal and commuting mileage and 10% was mileage to and from the gold club. You also used a popular automotive website to estimate that, at the time Casey started the solo practice, the Mercedes was worth approximately $20,000.

Riley did not understand why the loss on the sale of the Mercedes had been disallowed, or what "property described in I.R.C. 1231" was. Riley thought that if you used property in connection with a business, you were allowed to write off a loss on the sale. The Smiths had submitted the bill of sale for the purchase of the Mercedes, and did not understand why Revenue Agent Johnson had concluded that they had "not substantiated the adjusted basis for purposes of determining the gain or loss on the disposition of the vehicle."

With respect to the contract labor disallowance of $40,000, Riley explained that Casey had given Riley a listing of other attorneys Casey had consulted to assist with Casey's engagements. According to Riley, Riley had asked around and was told that no Forms 1099 had to be filed because all the payments were made to other law firms with the designation "P.A." and not to individual attorneys. In response to IDR no. 1, you had provided the listing of payments (which reconciled to the bank statements and check copies that were also provided), including the names and addresses of the payee firms, and copies of invoices from the consulting firms clearly showing the payments were for matters relating to Casey's law practice.

The Smiths were absolutely shocked that the IRS had determined that they should be taxed on $470,000 gain from the sale of their prior home, particularly when they had only netted cash of $480,000 on the sale and they thought that $500,000 was excludable. You explained that loan proceeds could only be included in the basis of the property if they had been used for improvements to the property. They had taken the time to gather additional records for this meeting, including a closing statement for the purchase of the property, some invoices for contractors, and copies of some permit applications for work done over the years. Based on your review, you estimate that they incurred $25,000 in closing costs on the purchase of the property in 2004 and had paid for $275,000 in improvements over the years prior to sale. You plan to submit these records along with the protest letter. You are somewhat concerned, however, that because of the age of some of the improvements they had made, the Smiths were unable to obtain copies of bank and credit card statement to show proof of payment.

Assignment

Prepare aformalwritten protest in response to the 30-day letter packages issued to your clients, Casey and Riley Smith, containing all the elements required by the IRS.SeeIRS Publication 5,Your Appeal Rights and How to Prepare a Protest if You Disagree(rev. April 2021). For purposes of this assignment, do not include a copy of the 30-day letter package or copies of Forms 2848 (though you would do this in real-life).

In preparing the protest, assume that the Smiths disagree with at least a portion of each adjustment proposed in the 30-day letter. Based on the information provided (as well as all background information provided in the previous assignments), advocate for the Smiths as best as you can while keeping in mind your obligations as a Circular 230 practitioner. Be as specific as possible, but keep in mind that you do not need to recompute the amount of any adjustment or tax if doing so would be too complicated or if you lack enough information to do so. Do not forget to address proposed penalties and additions to tax!