Accounting Question


The accountant for George’s Software, Inc. “George’s”) has approached you for some tax advice about how to handle an item on the income tax return for the business. The business is an S corporation. The corporation is a calendar year end, cash basis taxpayer. The business recently redeemed 23% of the shares from a shareholder Robyn Harley (“Harley”). As part of the transection George’s and Harley entered into a Covenant Not to Compete (“CNC”).The CNC is for a period of one year and is in relation to customer contracts and relationships.

The accountant needs advice for the following:

1.Which code section of the Internal Revenue Code covers the deductibility of a CNC for George’s?

2.What is the normal period for deducting the costs of a CNC for federal income tax purposes?

3.Is it possible to deduct the costs in accordance with the term of the CNC, i.e. one year in this case?

You research should consider the following (but it is not an exhaustive list):

Recovery Group, Inc., 652 F.3d 122 (1st Cir. 2011)

Your responsibility: Prepare a tax research memo addressing the question that has been raised. Please note that if the tax memo is not in the required format and/or contains very little analysis you will receive a zero (0) for the assignment. All good faith efforts are capable of receiving a minimum of 60% but less than a good faith effort will be awarded zero points.

You will need to support your conclusion using primary sources of tax law. Your textbook is NOT primary authority nor are IRS Publications

You must use proper citation form in your memo (see Chapter 2 for help with citation form). The form for this communication should be professional and in the form of a tax research memo (example posted on Blackboard and a similar example in your textbook). Do yourself a favor and look at the grading rubric before you submit.

This memo should be whatever length you feel is appropriate to resolve the issues. We do NOT use a bibliography or list of references in a tax research memo. We do not include Background in a tax memo. You will see that citations are within the text of the document in the example. Once a court case has been cited in full, it can be referred to using simply the name in italics.

You are required to INDIVIDUALLY prepare this document. Please upload your memo to Canvas before the due date and time. TurnitIn will be used to check for plagiarism.

The grading rubric for Tax memos is posted in Canvas. For this assignment, points are distributed as follows:

Aspects of the memo

Points Content – facts and issue(s) 16

Content – analysis 30

Content – conclusion 14

Organization 8

Audience 8

Style 8

Mechanics 8

Referencing 8

Total 100

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