Memorandum to the File
Date: August 1, 20XX
From: Carie Ford
Re: Summarize the tax issue/purpose of the memo.
Provide a concise yet complete overview of facts/background.
State the issue(s) in question format.
List all authoritative guidance used to form conclusion and analysis. Refer to p. 718 in your tax textbook for citation reference guidance.
Discuss each issue separately. Describe the logical, defendable, legal alternatives to each issue/problem. Provide support and detail for your reasoning.
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” case. Only complete requirements #1 and #2. You will NOT be conducting IFRS research (requirement #3) for this assignment.
This is an individual assignment. Prepare a research memorandum following the format and example discussed in class. Please note a general format for research memos is also posted in the Lectures folder in Blackboard.
Remember to upload a copy of your completed assignment through Blackboard and bring a hard copy to class as well. If you have any questions while completing the assignment, please call, email, or visit Dr. Ford. Copyright 2010 Deloitte Development LLC All Rights Reserved. (FY11)
A few comments about the research assignment due on Monday:
* Vintage year means the first year the allowance may be used
* I suggest skimming chapter 23 of your Intermediate textbook, paying careful attention to the definitions of operating, investing, and financing activities
* You will not find specific guidance on EAs in the Codification. Instead, focus on what defines each of the three classifications.
Polluter Corp. (the “Company”), an SEC registrant, operates three manufacturing facilities in the United States. The Company manufactures various household cleaning products at each facility, which are sold to retail customers. The U.S. government granted the Company emission allowances (“EAs”) of varying vintage years (i.e., the years in which the allowance may be used) to be used between 2010 and 2030. Upon receipt of the EAs, the Company recorded the EAs as intangible assets with a cost basis of zero, in accordance with The Federal Energy Regulatory Commission (“FERC”) accounting guidance for EAs. The Company has a fiscal year end of December 31.
As background, in an effort to control or reduce the emission of pollutants and greenhouse gases, governing bodies typically issue rights or EAs to entities to emit a specified level of pollutants. Each individual EA has a vintage year designation. EAs with the same vintage year designation are fungible and can be used by any party to satisfy pollution control obligations. Entities can choose to buy EAs from, and sell EAs to, other entities. Such transactions are typically initiated through a broker. At the end of a compliance period, participating entities are required to either (1) deliver to the governing bodies EAs sufficient to offset the entity's actual emissions or (2) pay a fine.
The Company currently emits a significant amount of greenhouse gases because of its antiquated manufacturing facilities. The Company plans to upgrade its facilities in 2014, which will decrease greenhouse gas emissions to a very low level. On the basis of the timing of the upgrade, the Company currently anticipates a need for additional EAs in fiscal years 2010–2014. However, upon completion of the upgrade, the Company believes it will have excess EAs in fiscal years subsequent to 2014 because of reduced emissions as a result of the upgrade.