Recent trend expands deductions for cleanup costs
Article Abstract:
The IRS now allows the deduction of environmental remediation expenditures which used to be capitalized. Revenue Ruling 94-38 dictates that the costs expended by a company in remediating polluted land and treating contaminated groundwater were deductible under Sec. 162 and do not result in any enduring improvements to the land within the scope of Sec. 263(a)(1). This ruling is in contrast with the highly controversial TAM 9315004, which treated all land cleanup costs as capital expenditures. However, Revenue Ruling 94-38 reflects the official position of the Service and may be referenced for judicial and administrative cases. It should be noted that the ruling does not address all costs related to cleanup. Assessment costs, legal fees, asbestos removal, underground storage tank removal, preacquisition contamination and remediation of property held by others.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1995
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Compensation paid PSC shareholders subject to scrutiny
Article Abstract:
The IRS may choose to require personal service corporations (PSCs) to reclassify part of the salaries of shareholder-employees as corporate distribution. When this happens, PSCs incur greater net income and consequently higher taxes because such distributions are not deductible. Corporations challenged by the IRS may also find themselves liable for penalties and interest, and the subject of tax evasion lawsuits. The IRS employs a two-pronged test to find out if compensation is deductible, as what PSCs claim. One holds that the compensation must be reasonable. The other requires payments to be totally for services rendered by shareholding employees. Corporations that are being challenged by the IRS should always have a ready defense to avoid taxation. A seven-step guideline for preparing a defense is presented.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1995
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Applying safe haven relief from employment taxes
Article Abstract:
TAM 9410005 indicates the position of the IRS that an employer has to first ascertain the employment status of a worker before applying for any Sec. 530 employment tax relief. However, this ruling does not comply with Ltr. Rul. 8131015 and appears to be in violation of congressional intent for employer relief from employment taxes. Moreover, two earlier Revenue Procedures do not tackle whether Sec. 530 or the 20-factor test for determining employment status should be performed first. An outcome of this lack of certainty is that courts follow two different approaches when trying cases involving issues such as this. Whatever judicial results emerge, taxpayers should aggressively defend themselves if they erroneously treat workers as independent contractors.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1996
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