Service's "final" words

Article Abstract:

The IRS has just announced final Regulations on a number of important issues. One of these is TD 8600, which offers guidance regarding S corporations. These new rules widen the opportunity for gaining eligibility for making the S election. Another recent regulation is TD 8602, which details how costs should be allocated among lobbying and other activities. It explains three allocation methods although Reg. 1.62-28(b) indicates that other methods may be employed as long as they are reasonable. Yet another new regulation concerns lender liability. Under TD 8604, an interest under the 25% liability ceiling for an entity that supplies funds for an employer to meet its payroll is introduced. Reg. 31.3505-1(d) also changes the limitation period for the collection of withholding taxes and interest from six years to ten years. Finally, TD 8608, conforms Regs. 1.446-1(e)(3), 1.481-1(c), 1.481-1(d), 1.481-2, and 1.481-4 to IRS practices.

Taxes NEC, Lender liability, Lobbying

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Debt assumption does not always increase basis

Article Abstract:

The Tax Court has ruled in favor of the IRS in the 'Hitchins' case. The case involved an S corporation shareholder who assumed a C corporation's debt to the S corporation in which he was a shareholder. According to the Tax Court, the taxpayer's action did not give him any legal basis for increasing his shareholdership in the S corporation. Citing 1366(d)(1)(B), the Tax Court ruled that S corporation shareholders could only increase their basis in the event of a debt assumption if the shareholder concerned assumed the debt directly from the S corporation, such that an actual economic outlay was made by the shareholder. Among the precedents cited by the Tax Court were the 'Gilday' case of 1982 and Revenue Ruling 75-144 of 1975.

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Making up for low-pay years was reasonable

Article Abstract:

The Tax Court has ruled against the IRS in the 'Comtec Systems, Inc.' case. The case involved a telecommunications and electronics firm that claimed deductions on the higher-than-average salaries paid to its founder-president and his vice-president wife in the year 1988. The firm claimed that the salaries were reasonable in light of the two executives' history of undercompensation in the years prior to 1988. As such, it argued that it was reasonable for it to claim deductions on these compensation packages. The Tax Court citing 162(a)(1) ruled in the firm's favor. Among the prior cases cited by the court were 'R.J. Nicoll Co.' in 1972 and 'Pacific Grains Inc.' in 1968.

Wages, Wages and salaries

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