IRS requires capitalization of lease termination payment where purpose is move to owner-occupied premises

Article Abstract:

An IRS letter ruling holds that a lease termination payment must be capitalized rather than deducted when the lessee decided to move to another building that it planned to buy. The IRS believed the payment should be considered part of the acquisition capital expenses, but this reasoning is questionable since the lessor received the payment rather than the unrelated party selling the new site. The IRS should have looked instead to the economic effect of the payment, as suggested by the Ninth Circuit's opinion in the 1981 Handlery Hotels case.

Public Finance Activities, Tax Deductions & Exemptions, Landlords, Interpretation and construction, Laws, regulations and rules, Commercial leases, Tax deductions, Tenants, Amortization, Discharge of contracts

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New proposed regulations published on liability of limited partners for self-employment tax

Article Abstract:

Proposed regulations governing limited partners' liability for self-employment taxes are an attempt to clarify a confusing area of tax law and may provide planning opportunities. In perhaps the biggest change under these regulations, service partners will not be considered limited partners. Also, the regulations' definition of a limited partner will preempt any relevant state laws. The regulations also set forth the tests for defining limited partners and for determining appropriate exclusions by holders of more than one class of interest.

Partnerships, Limited liability companies, Self-employed persons, Self employed persons, Limited partnership, Limited partnerships

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Anticipatory abandonment of old building: deduction allowed for demolition when building retired from use

Article Abstract:

The Tax Court found in De Cou v. Commissioner that the taxpayer had appropriately deducted losses incurred from the demolition of a building that was found to have serious health and structural defects. Demolition losses are generally not deductible, but they may be deducted if the taxpayer can show abnormal retirement, such as a casualty loss or extraordinary obsolescence. The IRS argued that to allow the deduction would encourage taxpayers to structure building abandonment and retirement as extraordinary obsolescence.

Analysis, Loss deductions, Abandonment of property, Abandonment (Law)

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