Topic: Tax Law ; Type: Letter Subject: Accounting and Finance; Academic Level: Undergraduate; Style: Turabian Language: English (U.S); Number of sources: 3

3. Surname !1
Topic: Tax Law Type: Letter Subject: Accounting and Finance
Academic Level: Undergraduate Style: Turabian Language: English (U.S)
Number of Pages: 3 (double-spaced, Times New Roman, Font 12)
Number of sources: 3
Completed by: https://writersperhour.com
Task Details
Your client owns an apartment building in Los Angeles for which he paid a price of $500,000
which was his original basis. During the ten years he has owned the building, he has taken
depreciation deductions that total $120,000. An investor has offered to buy the building from
your client for a price of $850,000 which is agreeable to your customer if the customer can avoid
paying taxes on his gain. The client has found an office building located in San Diego, which
was legally converted into co-op shares in 2012. Two shares in the co-op are for sale for a price
of $425,000 each, so the client would like to acquire those as part of an exchange qualifying
under IRC sec. 1031. The client would have the investor buy the two shares immediately prior
to exchanging those two shares so that at the end of the exchange the investor owns the
apartment building and your client owns the two shares in the office co-op.
Write a letter to the client explaining all of the income tax-related consequences and risks of this
transaction. Try to identify issues in tax law (court cases and sources written by Congress,
Treasury, and the IRS).

4. Surname !3
Dear Client,
Thank you for the chance to offer advice pertaining this legal matter at hand. Basing on
my personal investigations your situation involves a few related tax issues from a wider
perspective. For starters, one is required to consider the conditions under which one holds the
liability resulting from the building depreciation. Subsequently, it is of significance to whether is
achievable under tax laws to successfully withdraw tax payments under gains acquired from the
purchased building. Conversant with the related tax issues is the consideration of qualifying
exchanges under the IRC involving the tradable shares. Thus, taxation laws appear to be
relatively strict enough in the matters pertaining business deductions. Conversely, in the recent1
periods in our developing financial industry, there have arose cases where case laws have indeed
devised altering stances in regards to such deductions. Therefore, in this letter, I will take full2
interest in explaining a few of such possible upshots.
Under the recent income tax laws, “an individual is liable to pay taxes under the
conditions where the amounts are acquired from self-employment” Subsequently, “sales as well3
as other dispositions relating to a business property producing long-term capital gains and
occurring ordinary losses are liable to tax as per the unrelated incomes” However, in this4
particular scenario a transfer of the Los Angeles building holds to be a key transaction.
Therefore, in such a case the IRS rules that the changes in ownership is associated with the
Ferguson, N. The Ascent of Money: A Financial History of the World. The Penguin Press HC, 2008.1
Ward, Ruby, Trent Teegerstrom, and Joseph G. Hiller. "One Size Does Not Fit All." Choices 28.2, 2013.2
Balakrishnan, K., X. Li, and H. Yang. Mandatory Financial Reporting and Voluntary3
Disclosure:Evidence from Mandatory IFRS Adoption. 2012.
IRC Sub-Section 512(b)(5)(B)4

5. Surname !4
transfer of the tax burdens to the new holding party. Hence, it is significant to acknowledge tax
burdens as specified under Tax laws. In the US Social Security workforce taxes require that5
every individual pay tax by paying half their totals.6
However, from an economic perspective, “payroll taxes pose to be different; thus, as a
rule, it would be essential to every person to accept their tax burdens willingly as an individual”7
Thus, in a similar case relating to section 1231, it was held that the new owner of the building
under sale considerations will be liable for paying taxes from his operational gains. Conversant8
with the operational gains involves the incentives acquired from the operation of the building
after agreeing and signing the transaction contracts. Thus, this agreement will consider the9
exclusions involving the depreciation values of the building. Therefore, this poses relevance to10
the tax payment issues. Hence, in the end as a client, once the transfer of ownership is made
every participant will have to alter their tax payment schedules. Thus, the client will need to
avoid evading from his personal tax responsibilities by having a full agreement with the investor
on the transfer of the tax burden.11
Lee, T. "The Changing Form of the Corporate Annual Report." The Accounting Historians Journal 21,5
no. 1 (1994): 215-232.
Nobes, C., and R. Parker. Comparative International Accounting. Latest Edition. Prentice Hall, n.d.6
Hopkins, Bruce R. The law of tax-exempt organizations. Vol. 5. John Wiley & Sons, 2011.7
Onyebuchi, V. "Ethics in Accounting." International Journal of Business and Social Science 2, no. 128
(2011): 914-925.
VanStel, S., and Thurik. "The effect of business regulations on nascent and young business9
entrepreneurship." Small Business Economics (2007): 171-186.
Hansmann, H., and H. Hansmann. The ownership of the enterprise. Harvard University Press, 2009.10
Reinhart., and Rogoff. This Time is Different: Eight Centuries of Financial Folly. Princeton University11
Press, 2009.

6. Surname !5
Subsequently, under the IRS based laws, shares, as well as stocks, hold to be subsidiaries.
Thus, a case in point involving an exempt organization deriving its substantial portions of its
income from the unrelated business. Hence, attempting to secure its tax-exempt eminence, the
company would establish a wholly-control for-profit subsidiaries. Thus, the individual is capable
of entering into the lease with the subsidiaries for fixed rental amounts almost equivalent to
100% of the relating after-expense net revenues. By deducting rental payments to the parent12
from gross income, the subsidiary would incur almost no tax liability. Therefore, the extant Code
primarily includes rents, interests, as well as various other forms of passive revenues resulting
from controllable taxable subsidiaries as taxable unrelated incomes. Dividends and shares13
remain to be omitted from taxation since the subsidiaries normally pay taxes on retributions
before the distribution of dividends to the exempt persons.14
Therefore, a controlled entity is distinct by the IRS as an organization controllable to the
degree of 80% or more by other organizations. This percentage of control level is conventional
through share ownership as well as by interlocking the boards of directors. However, I would
endorse that you take part in the transaction since by the tax laws the transaction is considerate
Burkhauser, Richard V., et al. "Recent trends in top income shares in the United States (2012):12
371-388.
IFC Forum. Research into the positive impacts of tax competition and tax planning. February 15,13
2014. http://www.ifcforum.org (accessed March 10, 2015).
IRC Sub-Section 512(b) (13) Note: under distinct documentation applicable to every private14
foundation, ownership is prohibited where an individual speculates to acquire more than 20% of a
corporation's stock.

7. Surname !6
on both sides as appropriate relating to IRS section 1031. Hence, in case of any pressing
inquiries please let me know.
Sincerely,
Sign
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