Service's measure of reasonable salary found stingy
Article Abstract:
The Tax Court held in the 'Heitz' case that a small corporation could take a greater deduction of the compensation made to an officer than was originally permitted by the IRS. The court explained that the IRS employed unreliable numbers in its computations, although not as great as it initially reported, since the company involved, Exacto Spring Corp, used the aggregated-salaries method in attempting to support its compensation deduction. Sec 162(a) provides that deduction of employee compensation should be based on 'reasonableness.' The Tax Court relied on the categories developed by the Seventh Circuit in the case involving 'Edwin's Inc' to ascertain if the compensation implemented by Heitz was justifiable. It discovered that the company's services to Exacto Spring Corp were wide-ranging and indispensable. The IRS' calculation of the amount that the company could deduct was too small because the agency used bad numbers.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1998
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Qualified residence can be where a relative lives
Article Abstract:
The 1997 Tax Court case 'Estate of Dickerson' describes how taxpayers can make a deduction of mortgage interest on homes where they do not live. The taxpayers in this case, whose grandchild resided in the house concerned, resorted to qualified residence interest, which is the sole type of deductible personal interest, in qualifying for the deduction. Sec 163 limits qualified residence interest to interest on a loan employed for purchasing the principal residence and one other home used by the taxpayer as residence. Sec 280A(d)(1) defines personal use as use by the taxpayer or such family members as brothers or sisters, spouses, ancestors, or lineal descendants, including children or grandchildren. Taxpayers can therefore avail of deduction of mortgage interest on a home that their grandchild occupied as if it was their second residence.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1997
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