Tax avoidance transactions must overcome two powerful weapons of the IRS

Article Abstract:

Reallocations of income, pursuant to Section 482 of the Internal Revenue Code, and disallowance of deductions, pursuant to Section 269, are discussed in terms of punishing corporations guilty of tax evasion. Corporations wishing to avoid reallocations of income should: (1) document the business purposes of transactions entered into, (2) verify the arm's-length nature of transactions involving members of a controlled group of corporations, (3) shift income in as small amounts as possible, and (4) file consolidated income tax returns. Similarly, deductions are less likely to be disallowed, if: (1) the business purpose of the corporate acquisition is documented, (2) businesses acquired continue as going concerns, (3) the acquirer was controlled by the corporation immediately prior to the transaction, and (4) liquidation plans are formulated two years after acquisition.

Interpretation and construction, Tax law, Tax evasion, Tax penalties

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The type of transaction will determine when taxpayers are 'related' to each other

Article Abstract:

For tax purposes, related parties may be affiliated corporations or individuals as well as combinations of these two groups. The twelve definitions of related parties under Section 267(b) of the Internal Revenue Code are discussed in detail, as are accounting for transactions between and among such parties for tax purposes. Concepts of constructive ownership, unpaid expenses, investment tax credits, rentals in lieu of transferring ownership, low interest and interest free loans, imputed interest rates and stock transfers under the laws related to related parties are defined. Examples of related-party transactions and their taxation are cited to illustrate the regulations.

Finance, taxation, & monetary policy, United States, Taxation, Affiliated corporations, Tax administration and procedure, Tax administration, Tax compromises

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Use of nonqualified plans permits employer to target benefits to key employees

Article Abstract:

Employers that wish to recruit and maintain high-quality managers may offer nonqualified plans (NQPs) as part of the compensation package to certain individuals, and be exempt from the nondiscriminatory regulations that accompany qualified plans. An analysis of the taxability of NQPs reveals that there are benefits and advantages to be gained when NQPs are appropriately used, despite a substantial risk of forfeiture. Aspects discussed include: general background, overlapping sections, three subsections of employee annuities, taxation of employer's trusts, and trust assets or annuity payments.

Planning, Economic aspects, Tax accounting, Compensation management, Employee benefits

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