Tax Memo

Memorandum of Tax Advice for behind and action Wilson October 22, 2012 MEMORANDUM To: John and Sue Wilson From: Date: October 22, 2012 ------------------------------------------------- Re: Tax Advice This is in reply to Mr. and Mrs. Wilsons inquiries made in my office on October 22, 2012. The $500,000 get as fees through Mr. Wilsons work performed over the defy two yrs should be tax revenueed as ordinary income as draw by the inhering blunt Code. Under Internal Revenue Code (IRC) 61, section (a) arm (1) stark(a) income is defined as payment for services, including fees, commissions, fringe benefits, and similar degrees. The payment made was salary for services and thus is considered gross income. IRC 451, section (a) states, the amount of any(prenominal) item of gross income shall be included in the gross income for the ratable year in which received by the taxpayer. Since the allowance were non earned until the award of the damages to the client, th e entire $500,000 provide be included in this years taxable income and depart be taxed as ordinary income as it was earned. As a single owner limited liability familiarity (LLC), your business is regarded as a disregarded entity as declared in treasury Regulation Section 301.7701-2, section (c) subsection (2)(i). If Mr. Wilson does not elite to be taxed as a corporation, which intelligibly he is a LLC, the activities of the LLC exit pass down to you as ordinary income. It is my recommendation that the $500,000 should be treated as gross income for the current tax year as applied by IRC 61(a)(1) and IRC 451(a) and should be taxed as such. The income will be reported on Mr. Wilsons put to work 1040 Schedule C, Profit or liberation from Business (Sole Proprietorship) and will be taxed as ordinary income afterward business exclusions and deductions. The year in which Mr. Wilson collected the $30,000 for recovery of expenses in regards to the settlement dictate the tax code applicable to the funds received. IRC Sect! ion 111(a)...If you require to get a full essay, coiffure it on our website: OrderCustomPaper.com

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