Question

Jessica loves to visit antique malls and flea markets. She buys old furniture to refinish and later resell

s

some of her projects

for a modest pro

fit .

Jessica inherited a large house with a barn from her grandmother. The barn is where she keeps her future

furniture refinishing projects. She buys more than she can handle and has a large backlog of projects.

To Jessica’s

surprise, while cleaning and sanding an ol

d desk that she purchased five years ago, she found

an envelope with $50,000 of cash!

Jessica is meticulous

in her record

keeping and worries about being audited, so she called

you, her tax

accountant.

She wants to know if she is required to report the found money, and if required, the timing of

reporting the money since she purchased the desk five years before.

Required:

1.

As Jessica’s tax accountant, research and write a memo for your firm’s internal files. (IRC) Sec.

61 defines gross income. Determine

if this is a closed or open facts case. Make sure to address her

concerns when performing research and communicating the results.

2.

When your tax research is completed, write a client letter to Jessica outlining your tax research

findings.

Both memos should be roughly a full page when you follow the outlines specified. Proper language,

spelling, and usage is expected. The research should be persuasive and technically sound.

Answer 1

At Chegg, we are here to help you solve the question, likewise the related guidelines to frame final answer would be:

For part 1

• This is a closed facts case as the same has been decided in the case of Cesarini v. United States. The concern of Jessica here is that she found a cash of $ 50,000 from an old desk. She is skeptical as to what would be the tax consequence of the same. Her concerns involves around following three questions,
  • will the cash received be taxable and how
  • can it be treated as gift and thus be exempt
  • will the cash received become time barred

Part 2

Similar case has been settled back in 1957, when a couple purchased a used piano at auction. Seven years later, while cleaning it, they found the tidy sum of $4,467 stashed inside. So, like good citizens, they declared the income on their 1964 individual income tax return. But a year later, they changed their minds, deciding that this couldn’t possibly be taxable income. So they filed an amended return requesting a refund of $836.51. The IRS turned them down. Court also turned down the pleas of the couple and held that section 61 states, “Gross income means all income from whatever source derived.” There are exceptions given in sec 101 but it does not include cash received in the given case. Thus cash received would be taxable

Moreover the same also cannot be treated as gift since Sec 102 requires that there must be a giver and te desk/piano cannot be consideered as giver for the purpose of the section

Moreover, The court proclaimed that the statute of limitations would begin running from the date of discovery not from the date of the purchase of the piano.

I hope this would help you in framing final answer, all the best !!