PROBLEM: Brie was a leading violin teacher. Brie files Married filing joint. Her husband is retired. Brie grossed $110,000 for the year from giving violin lessons. Brie had rental expenses of $16,000. Brie deducted $7,500 for Mindy’s work. Brie did not keep payroll related records. Brie reported these numbers on her schedule C for her violin lesson business. Brie said she paid Mindy by contributing $2,500 payment to Mindy’s section 529 account and $5,000 in cash. Other spending by Brie includes: $12,000 in mortgage interest; $5,136 in state income tax; $4,000 in property taxes; and $2,900 in charitable contributions, for a total of $24,036. During the summer Brie brought her 9-year old child Mindy into her office, usually for three hours a day, two days a week. Brie did this for three reasons: (1) sometimes other family members were not available to care for Mindy, (2) day care was too expensive, and (3) Brie wanted Mindy to learn lessons about the value of money and working hard. Mindy performed routine receptionist tasks such as greeted clients and photocopied music for the group violin recitals. Mindy sat in the waiting room. During the year, Brie made a gift to her daughter antique violins. Brie valued the violins at $2 million on her return based on potential income from leasing out the violins, but the IRS valued the interest at $13 million based on their net asset value.
INSTRUCTIONS: Brie is your client. Write a tax research memo identifying all highly relevant and sophisticated tax issues for Brie. Create at least one issue for each of the last two paragraphs. Each issue must include relevant critical facts and precisely where in the code each issue arises. Each issue must focus on a totally different subject from the other issue(s). Due in two weeks is the tax research memo and the additional items explained below. Use the following subheadings which are expected in a tax research memo. Use the following order: Facts, Issues, Conclusions, Discussion of Law, and Application. Do not create any other subheadings. The memo for the rough draft must include at least two different sophisticated issues. Review the memo example. The memo requires at least two pages single-spaced for substantively addressing each of the two issues (with a blank line between paragraphs). It must discuss and apply all relevant code sections and regulations.