Research Project $1$

Background: When working in the tax department of a public accounting firm it is common to have to do tax research. The AICPA has guidelines as to how to communicate the results of tax research, which generally involve identifying the following:

$$ Facts

$$ Issue$($s$)$

$$ Discussion

$$ Conclusion

The discussion will involve the use and application of primary tax authorities, such as the Internal Revenue Code, Treasury Regulations, IRS administrative guidance, and court holdings. Your memo should be organized into the four sections shown above and should cite ONLY primary tax authorities. Section $199$A Deduction

Facts:

Jeff and Karla Johnson are both employed and have W$-2$ wages $($combined$)$ of $$167,000$ and taxable income of $$143,000.$ They own two rental properties, both single$-$family houses that produce net income of $$4,300$ and $$3,100$ respectively. These figures are for the $2022$ year $($yes$,$ use the $2022$ numbers in your response$).$

Issue:

Does the Section $199$A qualified business income deduction $($Section $199$A$)$ apply to the net income from the rental properties?

HELP....

The deduction applies only to the income from a business. So$,$ the first question is whether a rental of a house is a trade or business. There is case law on this point, and you will NEED to address these cases. There is also discussion in the preamble to the proposed and final section $199$A regulations and in the regulations themselves. However, you must understand that you advocate for the client. You also need to know the standard for taking a position on a tax return $($Circular $230$ and AICPA SSTS No$.1).$ Note that you will need to go deeper if the reference is to $$applicable standards: or some such language.

This is NOT AN EASY ISSUE. Your assignment is to research the issue and write a memo which must be long enough to address the issues. I cannot tell you what this would be$,$ but since you will be citing court cases and regulations, it will certainly not be $2$ to $3$ pages.