Holding tax-exempts may not necessarily result in loss of interest deduction
Article Abstract:
Taxpayers who own or intend to purchase tax-exempt obligations risk losing loan interest deductions under Section 265(a)(2) of federal tax law. Taxpayers who borrow against home equity lose their interest deductions if they hold municipal bonds, even though they are in the same economic position as taxpayers buying a home mortgage. Taxpayers can safely incur debt for valid business reasons while conducting an active business, and yet others who earn taxable income through investments can risk interest deductions when they leverage their investments, even for prudent investment goals. Those who must borrow in light of unanticipated events keep a double benefit if they have tax-exempt securities, but no such favorable treatment is available to those who plan for the unexpected.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1987
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Bona fide profit motive profit motive was not enough to allow investors tax shelter deductions
Article Abstract:
Two court cases regarding tax shelter deductions are discussed. The Tax Court has ruled that intent to make a profit is not enough to allow deductions for tax shelters that have no realistic potential for profit. A transaction must be planned in accordance with industry standards in such a way that a reasonable business person would make the investment. In one case studied, a taxpayer's deductions for investments in a livestock operation were disallowed because the shelter had been designated a sham. In another case, however, the court ruled that a coal mining partnership could deduct fees and operating expenses because the partners had a valid profit motive, and because events beyond the investors' control had made the investment unprofitable.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1988
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When and how to analyze a tax shelter that a client has or is considering
Article Abstract:
When a tax practitioner is asked to advise a client on tax sheltering investments, the changes in tax shelter laws, the economic and structural risks involved, the projected returns on investment, and the client's characteristics must all be analyzed. The tax adviser should recommend investments that are managed by reputable and experienced individuals, which offer adequate protection and tolerable risks for the client, and which provide attractive projected returns based on reasonable assumptions. The adviser should promptly disclose any conflict of interest or lack of expertise to the client, and should be wary of analyses or recommendations made by third parties.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1987
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