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Tax Memo to the IRS: Jammer Entertainment, Inc. Case

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DJ Jammer, a rapper/musician, travels around the country performing concerts on college campuses. He has two employees who make up his road crew. The crew sets up his equipment and sells DJ Jammer memorabilia (CDs, T-shirts, posters, etc.) during intermissions and after the concerts. For the last several years, Jammer has operated his business as Jammer Entertainment, Inc. (JEI). JEI, a C corporation with Jammer as the sole shareholder, has generated about 75% of its income from ticket sales and about 25% from memorabilia sales.

In January 2006, Jammer sets up a second corporation, Jammer Memorabilia, Inc. (JMI). The new corporation (JMI) handles all memorabilia sales, while JEI now handles only the concert arrangements and concert ticket sales. The two road crew employees continue to perform the same duties as before and continue to be paid by JEI. (JMI is billed for the salaries paid on its behalf.) Jammer spends about 80% of his time on JEI activities and the remainder on JMI. He set up JMI in order to sell the memorabilia business and concentrate on his career as an artist/performer.

Upon audit, the IRS advises DJ Jammer that the new arrangement causes JEI to be classified as a qualified personal service corporation. Write a 2- to 3-page memo to the file, evaluating the merits of the position taken by the IRS. Use the IRAC Tax memo format: Issue, Ruling, Analysis, and Conclusion.

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Solution Summary

The solution to this problem includes an explanation of each section of the IRAC tax memo format: Issue, Ruling, Analysis and Conclusion and how each one should be applied to the case of DJ Jammer. The solution is comprised of approximately 550 words of text and two links to websites for the IRS publication related to this problem and an IRAC tax memo sample format.

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Sections of an IRAC

Issue: The IRAC begins with a statement of the issue or question at hand. In the issue section of an IRAC, it is imperative to state exactly what the question of law is, for example, classification as a qualified personal service corporation.

Rules: The rules section of an IRAC follows the statement of the issue at hand. The rule section of an IRAC is the statement of the rules pertinent in deciding the issue stated. The information included in the rules section depends heavily on the specificity of the question at hand. The rules section needs to be a legal summary of all the rules used in the analysis and is often written in a manner which paraphrases or otherwise analytically condenses information into applicable rules. In the case of your problem, you would cite IRS Publication 542, which can be found at the following ...

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