Tax Memo
Background:
Rico owns a building in downtown San Diego. Rico is trying to lease the building. Rico is a calendar-year, cash-method taxpayer and is trying to evaluate the tax consequences of three different lease arrangements. Lease option 1, the building rents for $5,000 per month, payable on the first of the next month, and the tenant must make a $5,000 security deposit that is refunded at the end of the lease. Lease option 2, the building rents for $55,000 per year, payable at the time the lease is signed, but no security deposit is required. Lease option 3, the building rents for $5,000 per month, payable at the beginning of each month, and the tenant must pay a security deposit of $10,000 that is to be applied toward the rent for the last two months of the lease.
a. What amounts are included in Rico’s gross income this year if a tenant signs lease option 1 on December 1 and makes timely payments under that lease?
b. What amounts are included in Rico’s gross income this year if the tenant signs lease option 2 on December 31 and makes timely payments under that lease?
c. What amounts are included in Rico’s gross income this year if the tenant signs lease option 3 on November 30 and makes timely payments under that lease?
Your responsibility:
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 text on p. 2-20). 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. 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.
Please do not simply regurgitate the background, but present the facts in a logical, factual manner.
