The report must be prepared in memo format, maximum 3 pages, Times New Roman, font 12, double-spaced. The memo should include the following five sections: (1) facts, (2) issue, (3) authorities, (4) conclusion, and (5) analysis.
1
Research Module #1
Scenario.
Mary and John were married during the years at issue (i.e., years 2014, 2015, and 2016). They
separated in 2016 and divorced in 2017 after nearly 20 years of marriage.
At the time Mary filed her petition, she resided in Maryland. She holds a high school diploma
and attended the University of Delaware for six months, taking noncredit courses in data
processing.
While married, Mary and John owned the marital home, two rental properties and a farm. As
having a large blended family, they owned a large van in addition to two pickup trucks and an
Oldsmobile Cutlass, which John described as a “classic car”. They took family vacations each
year, including trips to Bermuda and Mexico. They enjoyed camping, and throughout the years
they purchased several campers, which they used on family camping trips every few months.
John owned VIP Builders, which was the primary source of the family’s income. Established in
the early 1990s, VIP Builders is a home improvement company focusing on residential
remodeling. A carpenter by trade, John operated the business, but he did not have the
bookkeeping background to maintain the company’s records. He hired Mary to be the company’s
bookkeeper and office manager. Their relationship blossomed, and they eventually wed.
Mary was VIP Builders’ bookkeeper/office manager for approximately 20 years, including the
years at issue. She developed and maintained the accounting program used by the business. Her
duties included: (1) managing the company’s financial records, bank accounts, and American
Express credit card account; (2) managing the company’s “end of the month check run”, which
reconciled all charge accounts that VIP Builders had from its vendors, roofing suppliers, lumber
yards, plumbing supply houses, and other subcontractors; (3) reconciling the company’s bank
and credit card statements; (4) managing the accounts payable and accounts receivable; (5)
tracking inventory; and (6) managing the company’s payroll. To these ends, Mary had authority
to write and sign checks on behalf of VIP Builders, deposit money into the company’s accounts,
and prepare checks and receipts for the business. Mary was familiar with VIP Builders’ clients
and knew, or at least could have learned, the amounts they paid the company. Before becoming
VIP Builders’ bookkeeper, she had other experience in accounting.
When Mary managed VIP Builders’ finances, her duties included the end-of-year accounting for
the company. She reviewed the company’s books and provided information and documents to the
company’s certified public accountant (C.P.A.), Joe Taigi, who prepared Mary and John’s joint
tax returns. Mary also met and interacted with Mr. Taigi during the years involved. She admitted
to “booking things wrong” for VIP Builders and was advised that she had done so by Mr. Taigi.
2
For 2014 Mary and John’s joint returns underreported income attributable to VIP Builders; for
2015 the returns underreported income and overstated expenses attributable to VIP Builders. The
IRS made no adjustments with respect to VIP Builders for 2016.
In addition to working for VIP Builders, Mary operated a horse care and boarding business on
the farm that she and John owned. She exclusively controlled the business, and under her
stewardship the business’ income for each of the years involved was underreported. All
adjustments made by the IRS for 2016 were due to underreported income with respect to the
horse care and boarding business.
Mary wrote checks drawn on VIP Builders’ bank account to herself, and she used the VIP
Builders’ American Express credit card to pay horse care and boarding business and household
expenses.
Mary was given the joint income tax returns for 2014, 2015, and 2016 before they were filed, but
she did not review them before signing them. Mary was not a victim of spousal abuse or
domestic violence during the years involved.
The IRS tries to collect the joint tax liabilities of years 2014-2016 from Mary.
Instruction: Provide your advice to Mary who is appealing the case.