Subject: Tax Research
As we conclude the quarter after ten weeks of discussing tax issues and referencing the Internal Revenue Code, the IRC regulations, court cases, and an everchanging tax climate, it is sometimes interesting to see situations that are not always as crystal clear as you would like.
Taxation has considerable gray areas. Some people find that interesting for creating tax opportunities,and others find the gray areas very stressful for liability reasons. It is a tough world.
Project:
I would like you to select one of the four cases presented below. The topics might not be as “black and white” as you believe, but you might find one more interesting than the others. You are to research the case, draft a tax position supported by reference to the IRC, court cases etc. These are actual tax situations which have arisen, they are not hypothetical.
I am not looking for your opinion. I do not care about your opinion of the taxpayer as to what he or she did or did not do. I am only interested in your interpretation of the law.
This exercise usually brings to the surface some strong opinions and feelings.
Case A
The Jackie Robinson Little League team from Chicago finished second place in the Little League World Series, having lost to South Korea in the Championship game. It was very exciting for the players, coaches, parents, and a source of pride for all of Chicago. The players had a parade provided by the City of Chicago, and all the players received little items of appreciation from both the Chicago White Sox and Chicago Cubs. Shortly after the parade, the players were “rewarded” with a paid vacation to Disneyworld. The trip was paid for by United Airlines, Disney and Operation Push (Rev. Jesse Jackson).
You have recently been engage to determine whether this trip is taxable income to the players. The value of the trip is irrelevant. Your answer should be the same, whether the trip is worth $1,000 or $100,000, unless you can support a de minimis fringe provision.
Case B
Steven Jacobs is a chiropractor who was arrested for attempting to bribe an IRS agent. During the course of the audit, Jacobs attempted to bribe the agent, rather than have him disallow payments made to two female patients for alleged inappropriate behavior. He was not arrested or convicted of a crime relating to this behavior.
The question is whether the payments to the two alleged patients are a deductible business expenses? The bribe is an irrelevant issue and should not be consider as indicative of whether he is guilty or innocent of the alleged inappropriate behavior. You can assume or not assume the patients signed non-disclosure agreements in return for the payments.
Case C
Leona Smith (formerly Leonardo Smith) has been transitioning from male to female. I can only suspect this process has caused a great deal of mental and physical anguish to Leona. Furthermore, the process has resulted in a great deal of medical expense to date. My understanding is Leona has elected or will be electing a more permanent resolution which will incur a great deal more medical expense.
Leona would like to know whether her medical expense might be deductible on Schedule A?
Might they be deducted on Schedule C as a business expense since her career has really taken off as a professional golfer on the women’s tour?(Very big issue today in women’s sports)
In anticipation of these costs, Leona has been aggressively funding her Health Savings Account. Can she use her HSA to pay these expenses?
Case D
A taxpayer recently called our office and indicated she was interested in being a surrogate mother. Her idea was to carry the baby for a fee (not unusual). She would carry the fertilized egg for biological father and mother. I was very impressed by what a giving person she was. She thanked me, but indicated she was not that giving, since the fee was $50,000. She further indicated the $50,000 fee is tax free due to the pain and suffering she incurred delivering a baby. While I am a father of four, I cannot personally relate to the pain and suffering.
Would the payments be tax free?
When she is “out of work” could she collect unemployment? What about workers compensation?