Read the memorandum and answer the following questions.

MEMORANDUM #1

TO: Tax Associate

FROM:

SUBJECT: Research Memorandum

I have a meeting with a client in a month and require your assistance to prepare a memo so that I am prepared to meet and advise our client. The memo shouldn’t be more than four double-spaced pages. The memo should include the relevant facts that I will provide you, discussion of the applicable Internal Revenue Code, case law, U.S. Treasury regulations, and IRS authorities for me to read from CCH Intelliconnect, and your conclusion. Please ensure that your memo is clear, and concise since I will probably not be able to read the memo until the day of the meeting.

The format of the memo should follow our firm’s tax research guidelines in Laulima under the resources tab and be no longer than ten double-spaced pages.

You can ask me questions during the work day and provide me one draft for me to quickly review to see if you are going in the correct direction. Since this is your first memo with me, the budget to complete this memo is 20 hours.

Facts:

Our client performs bookkeeping work for her clients. She performs most of her client work at the client’s office. She has about ten clients and spends about 4 hours per client each week.

She also has a dedicated office at her home where she does all of her administrative work.

The administrative work she performs is at her home office to include billing, record keeping, and training.

Additional Facts:

 Area of her home used for business – 500 square feet

 Total area of home – 5,000 square feet

 Annual indirect costs

o Gross income from business - $100,000

o Deductible mortgage interest - $25,000

o Real estate taxes - $1,500

o Utilities - $2,500

 Cost basis in the house - $350,000

 Cost basis in the land - $50,000

Required:

What she wants to know is whether she can deduct expenses related to her home office?

What is the estimated amount of the home office deduction?

What are the requirements to take a home office deduction?

Is there a code section that applies to our fact pattern?

I remember there was a famous Supreme Court case in this regard, please find that and provide a quick summary of the case.

I also recall the IRS issuing guidance on this as well in a Revenue Procedure. Does the IRS provide a publication on this topic?

How do we report this deduction on her Form 1040?

Answer rating: 100% (QA)

1 What she wants to know is whether she can deduct expenses related to her home office expl ain The client can deduct expenses related to her home off... View the full answer