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Finance & Accounting
Pages 4 (1004 words)
Tax Case Memorandum To: From: Date: Facts Cambro Construction Company hires union carpenters for home building. Cambro requires, as a condition of employment, that the carpenters provide and maintain various tools of their trade. Cambro pays each carpenter a set amount per hour as a “tool allowance” to cover the costs of the tools.
Normally, the cost of tools forms part of capital goods that the company requires to run its operation. Under the IRC section 263A, the uniform capitalization rule dictates that the taxpayer should produce information for all direct costs and certain in direct cost concerning tangible and real property. The law defines tangible and real property as those that lead to production such as to construct, build, install, manufacture, develop, improve, create, raise or grow (DiNardo, Baldwin and Harris 106). From this provision of the law, it is evident that the allowances that the company pays to cater for the cost of various tools of trade fall under capital goods and that they are tangible in nature. If this were the case, the provision of IRC section 263A, states that the taxpayer should treat such information as direct because they affect the cost of capital. It follows therefore, that Cambro Construction Company should treat the allowances it reimburses as cost for capital goods. Combro Company should treat this case as cost associated with tangible assets, which it uses to aid production. Therefore, the tax treatment for this case should be ordinary. Under this category, the taxpayer should accumulate all the information concerning this cost and treat them a cost of assets used in production. ...
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