TAX $6045$

Writing Assignment Class $2$ Administrative sources

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Alfredo and Violetta Traviata $($married last month$)$ are enterprising young real estate salespeople. In addition to selling residential property professionally. They buy distressed real property and fix it up and weekends with the goal of ultimately flipping the properties. They buy, fix and sell between three $(3)$ and $(5)$ properties per year.$$ Their primary goal is to flip the properties as soon as they are market ready. Sometimes they rent the properties for a period of time until the market is right to sell for the particular house. They did not generally rent properties longer than a year and a half $$if they can help it$.$ But for those properties they can$$t immediately flip, they rent for typically $13$ months. $$They have been doing this for three years.

Your boss brings you into the firm$$s first meeting with the client. The clients provide a copy of their most recent $3$ years of returns. You ask them how they are reporting the construction expenses and sales of their properties. They are really not sure they understand the question but say that everything they are doing is on schedule$$s D and E$,$ they think. They advise that Dave and Dave bookkeeping does their returns, but that they think they have outgrown their ability to provide services.

After the meeting your boss says he is not sure the returns are properly prepared and you recall he said something about dealer vs investor in property and passive losses.

Requirement:

Using only administrative sources, Regulations, authoritative IRS pronouncements, write a memorandum discussing the relevant tax issues the clients face.

Draft a letter of explanation to the clients