Business-related deficiency interest is not deductible
Article Abstract:
The Ninth Circuit Court held in 'Redlark' that interest on an individual's business-related income tax deficiency is considered personal and therefore nondeductible. The ruling reversed the Tax Court and upheld the IRS's Temp Reg 1.163-9T(b)(2)(i)(A) disallowing the business deductions for the interest expense incurred by a married couple after they changed their unincorporated business from the accrual to the cash basis method of accounting. The Tax Court rejected the IRS's position, arguing that the interest was deductible as a business expense and that Temp Reg 1.163-9T(b)(2)(9i)(A) was invalid. The circuit court cited a statement in the Taxpayer Relief Act of 1996 Blue Book of the Joint Committee on Taxation that income tax deficiency interest is considered personal interest even if the income comes from a trade or business.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1998
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Cell phone sales commissions are capital expenses
Article Abstract:
The IRS ruled in TAM 9813001 that one-time sales commissions paid by a cellular telephone service firm to distributors for recruiting new customers are capitalizable rather than deductible because the commissions gave a substantial long-term benefit on the taxpayer. The Service also found that since the commissions resulted in new customer contracts from which the firm can derive future income, these commissions should be capitalized. It rejected the taxpayer's argument that the terminability of the contracts on short notice meant that they were short-term rather than long-term in nature. On the contrary, the benefits arising from the commissions extended significantly beyond the tax year's close and that the contracts were expected to be renewed.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1998
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Company races away with advertising deduction
Article Abstract:
The Tax Court allowed an airplane company to deduct as advertising expenses part of the expense reimbursements paid to the proprietorship of its sole shareholder who was engaged in race car driving as a promotional activity. The court also decided that the race expense reimbursements were not taxable to the shareholder as constructive dividends, rejecting the argument of the IRS. The IRS had earlier disallowed the deduction, claiming that the racing-related expenses were not proximately related and necessary to the company. The company, however, insisted that the shareholder's automobile racing is part of its sales business and filed an appeal with the Tax Court. The court supported the company and the shareholder and upheld the deduction.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1998
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