I 15-63 Tax Strategy Problem

I 15-63 Tax Strategy Problem - I:15-63 Tax Strategy Problem...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
I:15-63 Tax Strategy Problem Your client, Home Products Universal (HPU), distributes home improvement products to independent retailers throughout the country. Its management wants to explore the possibility of opening its own home improvement centers. Accordingly, it commissions a consulting firm to conduct a feasibility study, which ultimately persuades HPU to expand into retail sales. The consulting firm bills HPU $150,000, which HPU deducts on its current year tax return. The IRS disputes the deduction, contending that, because the cost relates to entering a new business, it should be capitalized. HPU’s management, on the other hand, firmly believes that, because the cost relates to expanding HPU’s existing business, it should be deducted. In contemplating legal action against the IRS, HPU’s management considers the state of judicial precedent: The federal court for HPU’s district has ruled that the cost of expanding from distribution into retail sales should be capitalized. The appellate court for HPU’s circuit has stated in
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/22/2011 for the course ACCT 497 taught by Professor Rainwater during the Fall '10 term at University of Phoenix.

Ask a homework question - tutors are online