Use of PC by athlete still fails to pass Tax Court muster

Article Abstract:

Professional corporations (PC) can be used to minimize individual income tax liabilities. However, in the 'Leavell' case, the taxpayer who used a PC was still held liable for income paid to the PC. The case involved a professional basketball player who established a PC in which he was the sole shareholder and the only other director and officer was his lawyer. The taxpayer signed a contract with the PC, promising to provide his services exclusively to the corporation. The PC, in turn, entered into an agreement with a professional basketball team to provide the taxpayer's services. The Tax Court ruled that the corporation could not be considered a PC because it did not pass the first of the two-part test for recognizing a PC. Although the taxpayer's PC entered into a contract with the team and such agreement acknowledged the PC's controlling position, the PC did not truly control the activities of the taxpayer.

One-person corporations, One person corporations

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Excess contribution to IRA is not taxed twice

Article Abstract:

The Tax Court found in the 'Campbell' case that an excess contribution to an individual retirement account (IRA) cannot be included in income upon its distribution, which avoided double taxation. Legislative history shows that the allowable nondeductible contributions provided basis in the IRA or other plans. The court opined that the after-tax contribution of the taxpayer also gave basis since it was incorporated into the basic meaning of 'investing in the contract' while the legislative history did not indicate otherwise. Moreover, the interpretation of the IRS would lead to the retirement distribution of the taxpayer being subjected to double taxation, which should be avoided unless mandated by Congress.

Retirement planning, Individual retirement accounts, Double taxation

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Amounts paid to PSCs were not taxed to owners

Article Abstract:

The decision of the Tax Court to tax hockey players for payments made by the hockey team to the players' personal service corporations (PSCs) was reversed by the Eighth Circuit. The circuit court held that the Minnesota North Stars players were not liable to pay additional taxes because the conditions for non-taxation were met. The court has established the PSCs as valid business entities, and recognized the business relationship between the players and the PSCs.

Hockey players, Circuit courts, Minnesota North Stars

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