Wash-sale rules mutual fund loss deductions

Article Abstract:

Section 1091 disapproves the recognition of losses associated with the disposition of stock or securities when the taxpayer purchases stocks or securities that are substantially similar within 30 days before or after the disposition. The clause can promote complex and uncertain consequences for shareholders when utilized in investments in open-end mutual fund shares. Loss disallowance computations can also become complicated when fewer shares are purchased than sold. The complications stem from the possibility that the shares establishing the loss were acquired on different dates and that the acquired shares disapproving the loss were purchased on different dates. However, shareholders can still have maximum control over the tax consequences of redemptions by utilizing the specific identification technique for cost basis.

Open-End Investment Funds, Investment Funds & Trusts, Regulation, Licensing, and Inspection of Miscellaneous Commercial Sectors, Securities & Commodities Regulatn, HOLDING AND OTHER INVESTMENT OFFICES, Securities, Investments, Securities taxes

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To deduct or capitalize: courts and IRS interpret Indopco

Article Abstract:

The Supreme Court's ruling in the INDOPCO case is frequently cited whenever there are tax disputes concerning deduction versus capitalization issues. Together with the 'Lincoln Savings' case, the INDOPCO ruling has served to guide the treatment of certain deductions declared by corporate taxpayers. The Tax Court, in particular, has been fairly aggressive in applying the INDOPCO ruling that capitalization is the norm and deductions the exception. The IRS, however, seems to have arrived at a different interpretation of the INDOPCO and Lincoln Savings decisions. Consequently, it has issued several rulings on the treatment of various expenses such as those associated with advertising costs, demand-side management programs, environmental cleanup, start-up expenditures, ordinary repairs and severance payments.

Tax Deductions & Exemptions, Cases, Capital assets, Expense deductions, Tax deductions, Tax policy, United States. Supreme Court, United States. Internal Revenue Service

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Planning pays for stock redemptions through related corporations

Article Abstract:

Section 304 redemptions are an efficient method of extracting money from related corporations supporting minimal additional tax. Such redemptions are characterized as a redemption of the acquiring corporation's stock. However, several factors should be considered before using Section 304 redemptions because of the complexities and pitfalls associated with such stock redemptions. The section defines the control of corporations with ownership of 50% or more of the total combined voting power or the total value of all categories of stock. It takes precedence over Sections 351 and 357 that focus on tax-free transfers to a corporation and debt assumptions, respectively. In addition, Section 304 takes precedence over Section 358 that promotes basis guidelines for tax-free transfers.

Capital Management-Stock Repurchase, Management, Stock redemption

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