I-1-49 - I:1-49 Case Study Problem John Gemstone a wealthy...

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I:1-49 Case Study Problem John Gemstone, a wealthy client, has recently been audited by the IRS. The agent has questioned the following deduction items on Mr. Gemstone’s tax return for the year under review: • A $10,000 loss deduction on the rental of his beach cottage. • A $20,000 charitable contribution deduction for the donation of a painting to a local art museum. The agent has questioned whether the painting is overvalued. • A $15,000 loss deduction from the operation of a cattle breeding ranch. The agent is concerned that the ranch is not a legitimate business (i.e., is a hobby). Your supervisor has requested that you represent Mr. Gemstone in his discussions with the IRS. a. What additional questions should you ask Mr. Gemstone in an attempt to substantiate the deductibility of the above items? • A $10,000 loss deduction on the rental of his beach cottage. IRC Section 208A deals with the number of days of personal use and rental. IRC Section 280A states “a company can choose to rent out “a home” instead of a “meeting facility”. Instead of paying the hotel (or
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