AX RESEARCH MEMO: IRA RESEARCH ASSIGNMENT INSTRUCTIONS OVERVIEW For this assignment, you will be submitting a tax research memo regarding the scenario detailed below. The purpose of this assignment i

AX RESEARCH MEMO: IRA RESEARCH ASSIGNMENT INSTRUCTIONS OVERVIEW For this assignment, you will be submitting a tax research memo regarding the scenario detailed below. The purpose of this assignment i
ACCT 612 Tax Research Memo Template Your Firm Your Town and State Date Relevant Facts The Pima and Southern Railroad (PSRR) intends to repair the 30-mile stretch of rail. PSRR has received proposals from contractors who are interested. The cost of the new track is $5,000,000, the cost of installing the new track is $3,000,000, the cost of road bed grading and improvement is $2,000,000, and the cost of removing the old track (Net Salvage value) is $1,500,000, for a total cost of $12,000,000. The old track has a salvage value of $200,000, which would be paid for track metals. The improved track is predicted to last 35-40 years in Arizona. Specific Issues Casey Jones wants to know if any costs can be deducted or if all costs must be capitalized and written off. Casey Jones also wants to know if implementing uniform capitalization rules would present any challenge for PSRR. Conclusions Because the PSRR costs associated with upgrading the truck line are all indirect costs, rule §263A requires that all indirect costs be capitalized. As a result, all indirect costs of upgrading the track must be capitalized and cannot be deducted. This is because the costs were incurred during the pre-production stage and not during the actual production process. Support When it comes to the first question of whether to deduct or capitalize, PSRR has no choice except to capitalize the expense. §263A states that no deductions can be made for property improvement or betterment. Because the rebuilt track represents an improvement, the cost paid to improve the track cannot be deducted. This section of the law works in the opposite direction of Casey Jones’ expectations. Casey Jones’s second concern is the application of uniform capitalization rules. All pre-construction and pre-development costs must be capitalized, according to §263 uniform capitalization rules. The indirect costs that are exempt from being capitalized are those that are less than $200,000, however the indirect costs involved in improving the track in this case were more than $200,000. 26 CFR § 1.263(a)-1 – Capital expenditures; in general. Legal information Institute: Retrieved from https://www.law.cornell.edu/cfr/text/26/1.263(a)-1 Actions to Be Taken ________ Discuss with client. Date discussed ________ ________ Prepare a memo or letter to the client ________ Explore other fact situations ________ Other action. Describe:___________________________ _______________________________________________________ Preparer ________ Reviewer ________ Partner ________
AX RESEARCH MEMO: IRA RESEARCH ASSIGNMENT INSTRUCTIONS OVERVIEW For this assignment, you will be submitting a tax research memo regarding the scenario detailed below. The purpose of this assignment i
ACCT 612 Tax Research Memo Template Your Firm Your Town and State Date Relevant Facts The Pima and Southern Railroad (PSRR) intends to repair the 30-mile stretch of rail. PSRR has received proposals from contractors who are interested. The cost of the new track is $5,000,000, the cost of installing the new track is $3,000,000, the cost of road bed grading and improvement is $2,000,000, and the cost of removing the old track (Net Salvage value) is $1,500,000, for a total cost of $12,000,000. The old track has a salvage value of $200,000, which would be paid for track metals. The improved track is predicted to last 35-40 years in Arizona. Specific Issues Casey Jones wants to know if any costs can be deducted or if all costs must be capitalized and written off. Casey Jones also wants to know if implementing uniform capitalization rules would present any challenge for PSRR. Conclusions Because the PSRR costs associated with upgrading the truck line are all indirect costs, rule §263A requires that all indirect costs be capitalized. As a result, all indirect costs of upgrading the track must be capitalized and cannot be deducted. This is because the costs were incurred during the pre-production stage and not during the actual production process. Support When it comes to the first question of whether to deduct or capitalize, PSRR has no choice except to capitalize the expense. §263A states that no deductions can be made for property improvement or betterment. Because the rebuilt track represents an improvement, the cost paid to improve the track cannot be deducted. This section of the law works in the opposite direction of Casey Jones’ expectations. Casey Jones’s second concern is the application of uniform capitalization rules. All pre-construction and pre-development costs must be capitalized, according to §263 uniform capitalization rules. The indirect costs that are exempt from being capitalized are those that are less than $200,000, however the indirect costs involved in improving the track in this case were more than $200,000. 26 CFR § 1.263(a)-1 – Capital expenditures; in general. Legal information Institute: Retrieved from https://www.law.cornell.edu/cfr/text/26/1.263(a)-1 Actions to Be Taken ________ Discuss with client. Date discussed ________ ________ Prepare a memo or letter to the client ________ Explore other fact situations ________ Other action. Describe:___________________________ _______________________________________________________ Preparer ________ Reviewer ________ Partner ________