Tax memorandum | Accounting homework help

Research Memo A: 

Fact Pattern #2

Your client, Smartbucks, a U.S. corporation conducts a major part of its coffee business through its wholly owned international subsidiary, Trader Jobs, located on the Turks and Caicos Island. As Smartbuck’s accountants, your firm does the tax planning for these two related companies to minimize or avoid the payment of taxes by Smartbucks in the US which is a higher tax jurisdiction than Turks and Caicos jurisdiction. 

In the past Smartbucks sold industrial coffee equipment to Trader Jobs. Trader Jobs then sold the same equipment for profit. The profits from those sales were reported and taxed in the Turks and Caicos, which resulted in significant tax savings for Smartbucks.  Your firm explained to your client that this transaction, known as “transfer pricing,” allows Smartbucks to shift profits

that would otherwise be subject to U.S. tax offshore to avoid tax. Your firm wants to use the same method to identify and shift costs between Smartbucks and Trader Jobs.

Specifically, Smartbucks has formulated a new latte coffee recipe with Trader Jobs and both companies would benefit taxwise if the research and development costs could be shared between them. To document the transaction, Smartbucks and Trader Jobs entered into a research and development (“R&D”) cost-sharing agreement which allows Trader Jobs the authority to license the new recipe internationally. You previously advised your client that the interplay of cost and income allocation between the two companies in this transaction will result in significantly reduced taxes for Smartbucks.

You also advised your client that there is some risk in engaging in multinational corporate tax

avoidance because the tax laws grant the IRS authority to allocate income and costs between related parties if it determines that any particular transaction fails to satisfy the arm’s length standard. As part of the R&D cost sharing agreement, your firm did not share the cost of certain employee stock options resulting in a substantial tax savings to Smartbucks in association with over $100 million in income. The IRS has reviewed the transaction and contends that the allocation of stock compensation costs between the companies must be appropriate to reflect

economic reality and that the allocation of the employee stock compensation costs under the cost sharing arrangement fails the arm’s length standard. On behalf of Smartbucks, your firm contends that the IRS has exceeded its authority under the arm’s length standard because the cost sharing methodology used in the R&D cost sharing agreement established “parity with uncontrolled taxpayers” and the actual results or economic reality is irrelevant under the arm’s length standard.  Methodology controls over result.

Prepare a tax memorandum for use in advising your firm’s managing partner assigned to Smartbucks. State the issue(s) to be resolved and make sure to identify the specific authorities (code, statutes, case law etc.) that address your client’s tax issues.  Make sure to weigh authorities both for and against your client’s position.

The memo should be 2 pages, double spaced, one-inch margins, 12pt.

Hint: search engine words: “related entities” “cost sharing” “court decision”

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

Read more

Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

Read more

Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.

Read more

Privacy policy

Your email is safe, as we store it according to international data protection rules. Your bank details are secure, as we use only reliable payment systems.

Read more

Fair-cooperation guarantee

By sending us your money, you buy the service we provide. Check out our terms and conditions if you prefer business talks to be laid out in official language.

Read more

Order your essay today and save 20% with the discount code RESEARCH