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Federal Tax Memorandum
Finance & Accounting
Pages 3 (753 words)
Tax Research Memorandum Name: Institution: Tax Research Memorandum File: From: RE: Peaceful Pastures Funeral Home, Inc Facts Peaceful Pastures Funeral Home, Inc. is an accrual service taxpayer. It provides a full line funeral services as well as selling goods related to those services…
The new product design allowed clients to make prepayment for the goods and services and be accorded with a discount at the time of their death. The contract entered states that the payments are refundable at any time the purchaser request for them until the time when they receive the goods and services. Peaceful record this payment and income for the year the client received the funeral services. IRS sent Peaceful an audit notice in which it contends that the amount prepared under the Peaceful product design constitute prepaid income and must form Peaceful income therefore subject to tax in the year Peaceful received it. Issue and Conclusion Is Peaceful Funeral Homes, Inc entitled to a tax deduction for the income it receives from clients under the prepaid product design? No, the amount received is not taxable because the contract allows the customers to reclaim their money before purchase. Analysis The income received under the prepaid product are susceptible to refund upon customer request and thus do not form the real income of the business. From the contract, customers of Peaceful Funeral Homes Inc, reserve the right to demand their money before the actual purchase of the services and goods offered by this firm. ...
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