Based on the problem below decide if you agree or disagree with the IRS agent an

Question

Based on the problem below decide if you agree or disagree with the IRS agent and advise the clients. You must clearly explain your findings using everyday language whenever possible. You must also include what the client needs to do next including timelines. NOTE: telling the client to "come in for an appointment to discuss" is not a complete answer. in addition to the client letter, you will need to create an internal memo to be placedi The internal memo will include the source Information you used, why you came to your decision. The internal memo should be more technical than the cient letter. It is written to help a fellow accountant who may need to look at this issue or a similar issue in the future. Think about what information you would want at your fingertips if you had to re-open this at a later date. You will upload both the letter and memo as one document. Example: if you are using word you can insert a page break between the letter and the memo.

Rex and Agnes Harrell purchased a beach house at Duck, North Carolina, in early 2016. Although they intended to use the beach house occasionally for recreational purposes, to help pay the mortgage payments, property taxes, and maintenance costs, they also planned to rent it through the realty agency that had handled the purchase. Rex is a surgeon, and Agnes is a counselor.

The beach house was in need of substantial repairs. Rather than hiring a contractor, Rex and Agnes decided they would make the repairs themselves. During both high school and college, Rex had worked summers in construction. In addition, he had taken an advanced course in woodworking and related subjects from a local community college several years ago.

During 2016, according to a log maintained by the Harrells, they occupied the beach house 38 days and rented it 49 days. The log also indicated that on 24 of the 38 days they occupied the beach house, one or both of them were engaged in work on the beach house. Their two teenage children were with them on all of these days but did not help with the work being done. On their 2016 income tax return, Rex and Agnes, who filed a joint return, treated the beach house as a rental property and deducted a pro rata share of the property taxes, mortgage interest, utilities, maintenance and repairs, and depreciation in determining their net loss from the beach home. In the current year, after examining their return, an IRS agent has limited the deductions to the rent income. He contends that the 14-day personal use provision was exceeded and that many of the alleged repairs were capital expenditures. Advise the Harrells on how they should respond to the IRS.

Research Writing: Letter 03 From Chapter 6 Research Problem 2 Rex and Agnes Harrell (p6-44) Read the problem in the book. You need to decide if you agree or disagree with the IRS agent and advise the clients. You must clearly explain your findings using everyday language whenever possible. You must also include what the client needs to do next including timelines. NOTE: telling the client to "come in for an appointment to discuss" is not a complete answer. in addition to the client letter, you will need to create an internal memo to be placedi The internal memo will include the source Information you used, why you came to your decision. The internal memo should be more technical than the cient letter. It is written to help a fellow accountant who may need to look at this issue or a similar issue in the future. Think about what information you would want at your fingertips if you had to re-open this at a later date. You will upload both the letter and memo as one document. Example: if you are using word you can insert a page break between the letter and the memo.

Explanation / Answer

Rex and Agnes could consider the beach house as a rental property and the property taxes could be deducted on the basis of pro-rata share. Furthermore, the net loss from the beach house could be dettermined by mortgage interest, utilities, maintenance and repairs, and depreciation of property.

The main issue is whether the allowable 14-day personal use provision was exceeded.Section 280A of the Internal Revenue Code, which governs the treatment of homes that are used for both personal and rental purposes, according to the law he uses such unit (or portion thereof) for personal purposes for a number of days which exceeds the greater of—14 days, or 10 percent of the number of days during such year for which such unit is rented at a fair rental.A unit shall not be treated as rented at a fair rental for any day for which it is used for personal purposes.

Rex and Ages occupied the property for 38 days out of which 24 days they were engaged in substantial repair work on the beach house.Section 280A(d)(2) provides that if the taxpayer is engaged in repair and maintenance on a substantially full-time basis on any day, such use will not constitute personal use of the vacation home. Hence Rex and Agnes Harrell occupied the beach house for 14 days for personal use only can treat the beach house as a rental property.

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