Bar review teacher barred from deferring income
Article Abstract:
The Tax Court held in 'Schmitt' that a bar review professor is required to include tuitions paid with a money-back guarantee by students in his income. Some of his students paid fees and took the exam, while others paid an additional fee in exchange for a money-back guarantee that allows them to receive a refund or re-take the course without charge if they do not pass the exam. The IRS found deficiencies in his taxes amounting to approximately $37,000 resulting from undeclared income. The teacher gave four defenses. He claimed that he had allotted guaranteed money into escrow based on a contract with his students, that the $50,000 savings account he opened to guarantee his students' tuitions was actually a trust account, that he had set up an oral trust with his students, and that the untouched $50,000 savings account was a guarantee since he did not touch it. The court rejected all arguments.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1998
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Dentist with hand impairment was not totally disabled
Article Abstract:
The Tax Court ruled in the 'Kelter' case that a pension plan distribution to a dentist who had ceased to practice his profession due to an injured hand was not exempt from tax under Sec. 105(c). Amounts given to an employee via accident or health insurance are generally treated as income under Sec. 105(a) if they can be attributed to employer contributions. However, Sec. 105(c) provides for exception if two conditions are satisfied. One is that the payment is for the permanent loss or loss of the use of a body part or function. The other is that the payment is based on the nature of the injury without consideration for the time the employee is absent from work. The court found that the dentist did not meet both requirements. Therefore, the distribution should be included in income.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1996
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