Interest payments on the debt are deductible by the corporation while dividends are not deductible. Repayment of the principal is tax free to the creditor, whereas payments made to shareholders for their stock may be considered dividends or taxable redemptions. On the other hand, a corporation does not recognize a gain or loss on the receipt of money or other property in exchange for its stock. Also, it does not recognize income when it receives money or other property as a contribution to
Ms. Thomas was unfortunately audited in 2008 by the Internal Revenue Service, and they found that these deductions were disallowed. Ms. Thomas requested to know if the IRS is correct or if there is a way to fight the ruling. While these expenses are qualified under IRC 162, as it is “an ordinary and necessary expense that was paid or incurred during the taxable year in carrying on a trade or business.” The United States Supreme Court held that “ to be engaged in a trade or business, the taxpayer must be involved in the activity with continuity and regularity and that the taxpayer’s primary purpose for engaging in the activity must be for income or profit; a sporadic activity, a hobby, or an amusement does not qualify.” Under code 162 and the Supreme courts definition of an expense and a business, the expenses that Ms. Thomas incurred are deductible by the Violet Corporation. Because Ms. Thomas chose not to submit them for reimbursement, she is not eligible to deduct them personally. In the Case of Robert O. and Rita R. Eder v. Commissioner, U.S. Tax Court, CCH Dec. 38,118(M), T.C.
The parole evidence rule requires, in the absence of fraud, duress, mutual mistake, or something of the kind the exclusion of all prior or contemporaneous oral or written evidence that would add to or vary the parties’ integrated written contract.”(Mallor, 2013, Pp448-451). Therefore, paying the taxes by the seller would be considered as if it “supplement, change, or contradict the terms of the written contract”. The contract also contained a clause requiring any modifications of the contract to be in writing, and Dyer failed to include the salesperson’s promise in writing. The court ruled the case in favor of Walt Bennett Ford. http://ar.findacase.com/research/wfrmDocViewer.aspx/xq/fac.19820414_0043514.AR.htm/qx Mallor, Barnes, Bowers, & Langvardt (2013).
• Can the taxpayer expect to make a profit in the future from the appreciation of assets used in the activity? In deciding Donald and Denise Hastings v. Commissioner of Internal Revenue, the Tax Court ruled that “…occasional and weekend activity… does not indicate a profit objective.” and, therefore is not provided with trade or business status. Conclusion Based upon the existing precedents, Dr Green’s gambling activities would not be considered a trade or business. This opinion is supported by the fact Dr. Green is actively employed as a physician and does not “…depend on income from the [gambling] activity” as required by FS-2007-18. And as ruled in Donald and Denise Hastings v. Commissioner of Internal Revenue, since the gambling activities are limited to the weekends, they are excluded from consideration as a business activity.
Passive Income is income that is earned through a trade or investments where the taxpayer does not spend much time or effort. It is called passive because it is not their main income. Portfolio Income comes from income directly from investments such as stocks and bonds, mutual fund investments, and interest income. 13. Briefly, what is "material participation"?
* The transaction does not have tax avoidance purpose. Issues The main issue encountered in this case is whether the contingent environmental liabilities assumed by Patten is a liability that would give rise to a deduction within the meaning of Internal Revenue Code (IRC) section 357 (c)(3) and whether Cho’s basis in the stock is determined by reference to Section358 (d)(1) or Section 358 (d)(2). The issue for Patten is how to determine the tax consequence based on the transaction. Applicable Laws The most pertinent Sections are directly cited form Code and listed as below: IRC Section 351(a): “No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control (as defined in section 368(c) of the corporation.” IRC Section 357(a): “Except as provided in subsections (b) and (c) , if— (1) the taxpayer receives property which would be permitted to be received under section 351 or 361 without the recognition of gain if it were the sole consideration, and (2) as part of the consideration, another party to the exchange assumes a liability of
Consequently, shareholders have no flexibility to alter their legal treatment with respect to one another, with respect to the corporation, and with respect to outsiders” (15-3). However, states provide default provisions for LLC’s and allow members the flexibility to alter arrangements based on their management style and desired outcomes. Corporations also require onerous fees and organizational requirements that must be met. LLC’s have fewer formalities, do not require board meetings and do not impose strict organizational reporting requirements. Tax considerations are also an important part of forming a business and play a significant part when choosing an entity.
The Supreme Court has ruled that a professional gambler is entitled to deduct gambling losses as a trade of business expense. The fact that the taxpayer did not offer goods or services to others did not preclude characterization of the activities as a trade or business, rather, the appropriate “business” test was that the taxpayer must be involved in the activity with continuity and regularity and the taxpayer’s primary purpose for engaging in the activity must be for income or profit. (R.P. Groetzinger,87-1 USTC 9191 480 U.S. 23, 107 S Ct. 980 1987, 9622, 771 F.2d 269 (CA-7 1985). Since the expenses for lodging and travel you incurred were related to non business activities they would be considered personal expenses and as such cannot be deducted on his tax
Only company assets may be claimed if debts are not paid. Taxes are paid based on net income. Individual shareholders are also taxed on dividends. This is a form of double taxation. A corporation can exist for a limited time or as long as there is a board to carry on business on a continuous basis.
The Foreign Corrupt Process Act focus is on the purpose of the payment as an alternative of the exact functions of the officials receiving offer, the payment or promise of payment, and there are exceptions to the anti-bribery stipulation for "facilitating payments for routine governmental action"; the last is ‘Business Purpose Test' Here the Foreign Corrupt Process Act does not allow payments made in order to help the firm in retaining or obtaining business with or for directing business to, any person. The Department of Justice interprets retaining business broadly such that the term encompasses more than award or renewal of a contract. Notice that the business to be retained or obtained does not need being with a foreign government instrumentality. The Foreign Corrupt Process Act prohibits corrupt payments through intermediaries says it is illegal to make a disbursement of cash to a third individual, all through knowing that a portion or all of the payment will go indirectly or directly to a foreign official. The term "knowing" included conscious disregard and intentional ignorance.