Accounting -Carrie Hopkins is a qualified teacher in the San Francisco Unified School District.

| January 31, 2017

Please use the web based tax services to research the two research problems below. Write a memo analyzing your findings. Provide applicable code, regulation citations, as well as court decisions on point.

Research Problem I

Carrie Hopkins is a qualified teacher in the San Francisco Unified School District. Currently, she teaches at North Lincoln High School where she is also head of the English Department. North Lincoln is a culturally diverse school with a predominantly Asian student population. As a department head, Carrie has considerable input on curriculum content of the courses offered by her school.

During the summer of 2014, Carrie enrolled in a course sponsored by the University of California, Berkeley Extension Program. The course, entitled “Southeast Asia: Sacred Places,” was conducted in Thailand, Cambodia, and Indonesia and dealt with the effect of religious traditions on the culture of Southeast Asia. The course was taught by university staff, and successful completion by a student qualified for undergraduate college credit. The course is conducted overseas to enhance the significance of the subject matter covered. Although Carrie’s employer approved of her academic endeavors, it did not require her to take the course. Further, it did not reimburse her for any of the expenses involved. Except for several minor sightseeing trips, Carrie devoted most of her time during the course to the materials assigned and covered.

As a result of what she learned from the course she took, Carrie made various improvements to the content of her department’s curriculum. She also feels that the course increased her ability to understand and communicate with the Asian students in her classes.

On her Federal income tax return for 2014, Carrie dedicated all of the expenses incurred in connection with the extension course. Upon audit by the IRS, the deduction is disallowed. Who should prevail?

Research Problem II

Rex and Agnes Harrell purchased a beach house at Duck, North Carolina, in early 2012. Although they intended to use the beach house occasionally for recreational purposes, they also planned to rent it through the realty agency that had handled the purchase in order to help pay the mortgage payments, property taxes, and maintenance costs. Rex is a surgeon, and Agnes is a counselor.

The beach house was in need of substantial repairs. Rather than hiring a contractor, Rex and Agnes decided they would make the repairs themselves. During both high school and college, Rex had worked summers in construction. In addition, he had taken an advanced course in woodworking and related subjects from a local community college several years ago.

During 2014, according to a log maintained by the Harrells, they occupied the beach house in 38 days and rented it on 49 days. The log also indicated that on 24 of the 38 days that they occupied the beach house, one or both of them were engaged in work on the beach house. Their two teenage children were with them on all of these days, but did not help with the work being done. On their 2005 income tax return, Rex and Agnes, who filed a joint return, treated the beach house as a rental property and deducted a pro-rata share of the property taxes, mortgage interest, utilities, maintenance and repairs, and depreciation in determining their net loss from the beach home. An IRS agent has limited the deductions to the rent income. He contends that the 14-day personal use provision was exceeded and that many of the alleged repairs were capital expenditures. Advise the Harrells on how they should respond to the IRS.

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