Tax research problem Paper Example | Topics and Well Written Essays - 1000 words

Tax problem - Research Paper Example entertain prepare a memorandum to me addressing the appraise income consequences of receiving the $200,000 back-pay and damages award, and whatsoever gross up she might take on caused by the bunching effect of receiving the award in a single year. Be sure to cite any authority bearing on these questions. _____________________________________________________________________________ MEMORANDUM TO S. Partner, C.P.A. FROM J. Accountant RE Brenda Broccoli In Brendas case, trine circumstances must be considered incorporate settlements are a possibility there is one major valuate advantage to having a incorporate settlement and there is one major disadvantage to having a structured settlement. The structured settlement itself was devised 29 years ago in order to ensure that people who dead came into money due to a jurys award would not turn out to suffer pecuniary consequences that come with new-found wealth. In 1982, Congress createdthe struct ured settlement. Rather than paying a plaintiff with a single crack of $1 million, defendant pays plaintiff $2 million in increments over the next twenty years. Spreading the know over a long period of time relegatessettlement monies to periodic payments, creating the structured settlement tax subsidy.1 One of the major problems that had been plaguing people who won large sums of money from jury trials included the fact that people would be subject to losing or spending all of their money in a in truth irresponsible fashion. This was partially due to the fact that many people simply were not prepared to get across with such large sums of money, had poor financial planning, and, as a extendwould lose all of their settlements in a very short time. The best aspect of making sure that one gets a structured settlement for the payout of $200K is that, most likely, Brenda could maintain her current tax bracket instead of being taxed in the second-highest tax bracket in the country. One significant advantage of a structured settlement is tax avoidance. With clutch set-up, a structured settlement may significantly reduce the plaintiffs tax obligations as a result of the settlement, and may in some cases be tax-free.2 What would be ideal is if Brendas settlement was tax-free. The specifics would have to be worked out with her tax lawyers, but perhaps they could set up a tax hold dear in the Cayman Islands by setting up an account there and funneling the money there each that or in Switzerland. Unfortunately, since all the money in a structured settlement isnt original at one time, no big purchases can be madesuch as purchase a house. One of the disadvantages to a structured settlement is that you cannot make any changes in the amount you find or in your schedule of payments. That is why it is imperative when you agree to a structure, that you tryto anticipate what your involve will be over time.3 Of course, it would really depend upon the payout amount of the structured settlement as to what types of goods and services could be purchased based upon Brendas budget. It is recommended that Ms. Broccoli make full advantage of her tax lawyers, who determine in this very same type of legal dilemma.