Tax Research

You are to prepare a tax research memo regarding the following fact pattern. Your memo should include four sections: Facts, Issues, Conclusion, Discussion. A sample research memo is located in your text and additional information can be found at www2.gsu.edu/~accerl/. Your memo should be 1-2 pages, single spaced. You will need to cite primary authority in your memo. Your assignment will be screened through TurnItIn, so all sources should be cited. You are to work on this assignment individually. This assignment is subject to the Academic Honesty Policy.

Whitney and Ed North are avid antiques collectors. They regularly attend garage sales and flea markets and purchase lots of old stuff. In 2010, they purchased a very old desk for $600. The desk was in poor shape and required rehabilitation. It sat in their garage for more than a year. Whitney was taking the desk apart when she found an old document jammed into a dark recess of the desk. She opened the document and much to her surprise she had found a very old copy of the Declaration of Independence.

Whitney was very excited by the discovery of this historical treasure. She and Ed contacted Sotheby’s, the auction house, to get an appraisal for the document. In December 2011, Sotheby’s authenticated and appraised the document at $1,350,000. In April of 2012, the document was auctioned by Sotheby’s and fetched $1,650,000 net of fees and commissions. Whitney and Ed received the money in May of 2012.

Your manager asked you to prepare a research memo indicating how Whitney and Ed should treat the discovery of this document for tax purposes. Specifically, you should indicate the following:
• Do they have taxable income?
• If so, when do they have taxable income and what amount?
• What is the character of any income?

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