Tax Memorandum Essay

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Fact: Peaceful Pastures Funeral Home, inc. (Peaceful). Peaceful, an accrual basis taxpayer provides a full line of funeral service and sells goods related to those services. Peaceful has attempted to design an approach that allows customers to prepay for their funeral goods and services. Issue: IRS sent Peaceful an audit notice. It contends that the amount prepaid under Peaceful’s program constitutes prepaid income that must be included in Peaceful’s income (and therefore subject to tax) in the year in which it’s received. Conclusion: Peaceful should pay the audit based on the facts. The IRS is correct according to the tax code and laws. Analysis: Peaceful receive prepay from their customers for funeral goods and service, so Peaceful…show more content…
Notably, under contracts' plain language and pursuant to Massachusetts regs], customers controlled whether or when refund would be made; and fact that cancellation/refund rights were rarely exercised was irrelevant. Because Peaceful received prepaid income so they have to pay taxes on the prepaid sales which being made within one year of the sale. According to the General Rules, Federal Taxation Principles in Perry funeral Home case, he Internal Revenue Code imposes a Federal tax on the taxable income of every corporation. Sec. 11(a). Section 61(a) specifies that gross income for purposes of calculating such taxable income means “all income from whatever source derived”. Encompassed within this broad pronouncement are all “undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.” Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 431 [47 AFTR 162] (1955). Stated otherwise, gross income includes earnings unaccompanied by an obligation to repay and without restriction as to their disposition. James v. United States, 366 U.S. 213, 219 [7 AFTR 2d 1361] (1961). Section 451(a) provides the following general rule regarding the year in which items of gross income should be included in taxable income: The amount of any item of gross income shall be included in the gross income for the taxable year in which received by the taxpayer,

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