Income Chapter 12 and 14

the costs of the conversion adapt the building to a new use and are improvement to which must be capitalized.

If a manufacturer owns a manufacturing building and pays amounts to convert the building into a showroom for its business, are the cost capitalized or deductible?

always zero

How do you treat salvage value for tax purposes?

(i) If you buy a facility for business entertainment like a ski lodge, you cant depreciate deduction. (ii) But if you buy it for travel like the example above, the facilitation limitation under 274(a)(1)(b) would not apply.

(b) PROBLEM: If the Sharp "divided airplane" was purchased in the current yr and was used for non-entertainment business purposes, would the facility limitation of § 274(a)(1)(B) deny the depreciation deduction?

Simon v. Commissioner

(i) Facts. The Simons, Petitioners, purchased two violin bows made in the 19th century by Francois Tourte, a renowned bow maker. They were purchased in 1985 and were virtually unused at that time. A violin bow will "play out" eventually and no longer be useful. However, the Tourte bows retain value as collector's items. The bows at issue were appraised in 1990 at $45,000 and $35,000. At that time they had deteriorated since their purchase by Petitioners. Petitioners paid $30,000 and $21,500 for the bows. Petitioners used the bows for their trade as musicians and in 1989, the tax year at issue, they played in four concerts per week. They claimed depreciation on the bows in the amount of $6,300 and $4,515. The Tax Court allowed the deductions, and the Commissioner appealed. (ii) Issue. Do the bows have a "determinable useful life" that will allow for the depreciation deduction? (i) Issue: whether professional musicians may take a depreciation deduction for wear and tear on antique violin bows under MACRS although the Ts cannot demonstrate that the bows have a determinable useful life? Yes (ii) Held: allowed depreciation deductions (iii) All that is required is that the prop be capable or subject to wear and tear. The court say for two reasons on 447, they look at revised depr rules and congress wanted to spur economic growth and downplayed the useful life concept and secondly on 447 congress sought to simplify the rules and it was enough the item sought ware and tare and as long as it was subject to ware and tear. On the basis of these two rationales the taxpayer prevails.

the cost of removal are not a betterment because the insulation was not a preexisting or material defect of the building because asbestos was widely used before the health dangers were recognized.

But if a taxpayer owns a building that was constructed with insulation containing asbestos and decides to remove the insulation to reduce health risks, re the cost capitalized or deducted as repairs?

1m dollar ceiling

But its got a major loophole that if the compensation is geared to what's called performance goals then the limitation does not apply under 162(m). But if they set the goals low then all of its deductible.

In general dues paid to organizations directly treated to one business are deductible under 162. Thus attorneys dues paid to the local bar are deductible and an employees labor union dues are deductible. Dues, like advertising vary with the situation for example club dues are nondeducible under 274(a)(3)

.Are due deductible?

(a)No deduction under § 162 b/c she was not carrying on a trade or business. he can benefit from § 195 b/c these are start-up expenditures. When she begins her operation, she can then amortize start-up expenditures over a 60 month period. (b) Expansions of existing business cost are generally deductible under 162 (c)This is not carrying on her trade or business. Would be a § 195 expenditure as long as she buys team. Must start operating business. (d)195(b)(2) allows her to deduct the unamortized portion of her loss. The bridge to 165 and its allowed.

1) Determine deductibility under §§ 162 and 195 of expenses incurred in the following: (a) T, a dr, unexpectedly inherited a sizeable amount of money from an eccentric millionaire. T decided to invest a part of her fortune in the development of industrial props and she incurred expenses in making a preliminary investigation. (b) The facts are the same as in (a), except that T, rather than having been a dr, was a successful developer of residential and shopping center props. (c) The facts are the same as in (b), except that T, desiring to diversify her investments, incurs expenses in investigating the possibility of purchasing a prof sports team. (d) The facts are the same as in (c), except T purchases a sports team. However, after 2 yrs T's fortunes turn sour and she sells the team at a loss. What happens to the deferred investigation expenses?

(a)No he cannot deduct it since its personal expense under 262 (b) if he travels from the office to the city they would be deductible since he doesn't have an option. Meals would not be, no rational for deducting the meals. (c)He can deduct the transportation. US v Carrol case said in order for you to deduct meals, if you are not meeting with clients you have to be away overnight. SO since he cane back in the same day he could have brought a sandwich. So nondeductible since he's having lunch by himself, personal expense 262.

1. Commuter owns a home in Suburb of City and drives to work in City each day. He eats lunch in various restaurants in City. A. May Commuter deduct his costs of transportation and/or his meals? See Reg. § 1.162-2(e) B. Same as (a), above, but Commuter is an attorney and often must travel between his office and the City Court House to file papers, try cases, etc. May Commuter deduct all or any of his costs of transportation and meals? C. Commuter resides and works in City, but occasionally must fly to Other City on business for his employer. He eats lunch in Other City and returns home in the late afternoon or early evening. May he deduct all or a part of his costs?

(a)Deductible up to 50% if business is discussed. Under 274(k) they cannot be lavish or extravagant. (b)Not talking business but just talking business. The regulations say it would be non deductible. (c)Non deductible under 274(k)(1)(B) taxpayer is not there (d)deductible since its transportation (e)section 274(e)(3)employer can take a deduction.

1. Employee spends $100 taking 3 business clients to lunch at a local restaurant to discuss a particular business matter. The $100 cost includes $5 in tax and $15 in tip. They each have two martinis before lunch. A. To what extent are Employee's expenses deductible? B. To what extent are the meals deductible if the lunch is merely to touch base with clients? C. What if he pays for the meal without being present? D. What result in (a), above, if, in addition, Employee incurs a $15 cab fare to transport the clients to lunch? E. What result in (a), above if Employer reimburses Employee for the $100 tab?

a. 20,000 the executive would be taxed since he earned it. Under Lucas v. Earl. The executive earned those apples so she's taxed on them b. MAYBE more likely than not the distinguished thing is that he DIRECTED it. So if he controlling it then since he earned it, it would be taxable. It can go either way c. She waited until the end of the year under rev ruling 66-167. So she earned it and then waived it. SO taxable to Executive. d. Rev ruling 74-581 it would be non-taxable to executive.

1. Executive has a salaried position with Hi Rolling Corporation under which she earns $80,000 each calendar year. (a) Who is taxed if Executive, at the beginning of the year, directs that $20,000 be paid to her parents? (b) Who is taxed if Executive at the beginning of the year directs that $20,000 of her salary be paid to any charity the Board of Directors of Hi Rolling selects? (Executive is not a member of the Board.) (c) Same as (b), above, except that Executive makes the same request with respect to a $10,000 year end bonus which Corporation has announced toward the end of the year, based on the services rendered during the year? (d) Who is taxed if Executive, in her corporate role, gives a series of lectures on corporate finance at a local business school and, pursuant to her contract with Hi Rolling, turns her $1,000 honorarium over to Corporation?

a. Helverig v Horst he kept the building (tree). So hes taxed on all 6000. b.3000 to father and 3000 to daughter under Blair. He gave her the whole tree. c. Dad owns half the tree still so he gets taxed on 4500 and daughter gets taxed on 1500. d. Father 3,000 and daughter 3,000. He gave everything away under Blair. He only had income interest in the trust. e. Rev ruling 96-102 because at the time half of the April rent has accrued. SO he's taxed on 1500 and the daughter is taxed on 4500. f. Father would have a 5,000 worth of income. Daughter in 2016 and 2017 would only have 500 in 2016 and 500 in 2017. Since she has a basis of 5,000. g. The father should be taxed on it since he already sold the property under Salvador. H. Dad negotiated the whole thing so he is taxed on the income under Salvador.

1. Father owns a registered corporate coupon bond which he purchased several years ago for $80,000. It has a $10,000 face amount and is to be paid off in 2010. The current fair market value of the bond is $9,000. The bond pays 8% interest, semi-annually April 1st and October 1st (i.e. $3000 each payment). What tax consequences to Father and Daughter in the following alternative situations? (a) On April 2 of the current year, Father assigns Daughter all the rent to the daughter. (b) On April 2, Father gives Daughter the land with the right to all the rent. (c) On April 2, Father gives Daughter a one-half interest in the land and the right to all the future rental payments. (d) Father owns an income interest in a trust which owns the land and on April 2, Father his income interest (the right to the succeeding interest coupons) to Daughter. (e) On December 31, Father gives Daughter the land with the right to all future rental payments. (f) On April 2, Father sells Daughter the right to the two succeeding interest coupons for $5000, their fair market value at the time of sale. (g) On April 2, Father sells the land and directs that the $90,000 sale price be paid to Daughter. (h) Prior to April 2, Father negotiates the above sale and on April 2 he transfers the land to Daughter who transfers the land to Buyer who pays Daughter the $90,000.

(a)Generally, this would be considered a kin to a repair and would normally be deductible since you are just cleaning up. Reg 263(a)-3(j)(3) example 6. However, if this is part of an overall remodeling of the whole complex then it would be capitalized. ^^^ example 8 and 9 (b)it depends since if it was a new roof you 263(a)-3(k)(7) example 14 then you have to capitalize it. (ii)Example 15 says if you just put a membrane into just seal it then its deductible. Example 3 says if you replace some shingles then it deductible. (c)Better position would be its probably deductible 263(a)-3(j)(2)(iv)(B) (d) carport is a roof without walls. It's capitalized since it's a semi-permanent structure that 263(a)-3(j)(1)(ii) Should last more than a year (e)Deductible under 162

1. Landlord incurs the following expenses during the current yr on a 10 unit apartment complex. Is each expenditure a currently deductible repair or a capital expenditure? (a) $350 for painting 3 rooms of one of the apartments. (b) $1,500 for replacing the roof over an apartment. The roof had suffered termite damage. (c) $500 for patching the entire asphalt parking lot area. (d) $750 for adding a carport to an apartment. (e) $100 for advertising for a tenant to occupy an empty apartment.

(a)AB 22,000 - 15,000 Insurance = (7,000) (b) 20,000 - 15,000 = (5) (c)22,000 - 15,000 - 5 = 2k + 17 = 19k

1. Taxpayer has an automobile used exclusively in Taxpayer's business which was purchased for $40,000 and, as a result of depreciation deductions, has an adjusted basis of $22,000. When the automobile was worth $30,000, it was totally destroyed in an accident and Taxpayer received $15,000 insurance proceeds. A. What is Taxpayer's deductible loss under Section 165? B. What result in (a), above, if the automobile had not been totally destroyed but was worth $10,000 after the accident? See Reg. § 1.165-7(b)(1). C. What is Taxpayer's adjusted basis in the automobile in (b), above, if Taxpayer incurs $17,000 repairing the automobile?

A court held that this is deductible. This is distinguish from Welch - trying to save an existing, continuing business as opposed to starting up a new one and saving reputation based on a previous failed business.

1. Taxpayer is a businessman, local politician who is also an officer-director of a savings and loan association of which he was a founder. When, partially due to his mismanagement, the savings and loan began to go under, he voluntarily donated nearly one half a million dollars to help bail it out. Is the payment deductible under § 162? See Elmer W. Conti, 31 T.C.M. 348 (1972).

A. He is allowed to deduct %50 of the face value under 274(l)(1)(A) $150

2. Businessperson who is in New York on business meets with two clients and afterward takes them to the Broadway production of The Producers. To what extent is the $600 cost of their tickets deductible if the marked price on the tickets is $100 each, but the Businessperson buys then from the hotel concierge for $200 each?

a. Child since it was before the winner was announced there was no knowledge of the winnings. b. Lucky is taxed c. He directed how he would get the winnings so he is taxed on it. Once he had the right to the whole he can't direct it as a stream of income and then direct it to a lower tax bracket. He chooses not to receive it in a lump sum.

2. Who is taxed on the lottery winnings if: (a) Lucky purchases a lottery ticket and gives it to Child prior to the lottery winner being announced. The ticket is the winning number. (b) Same as (a), above, except that Lucky's gift occurs after the lottery winner is announced. (c) Lucky wins the lottery, but properly elects to be taxed on the lottery winnings in the form of annuity payments, Lucky gives the remaining 18 years of payments to Child.

1. yes deductible, not personal 2.Deductible 3.Non-deductible not related to business 4.Yes, union dues are deductible 5.162 (e) not deductible. We are assumes that this is not local legislature about local issues. It can go either way 6. Perosnal, nondeductible

3. Airline Pilot incurs the following expenses in the current year: (1) $250 for the cost of a new uniform. (2) $30 for dry cleaning the uniform. (3) $100 in newspaper ads to acquire a new job as a property manager. (4) $200 in union dues. (5) $50 in political contributions to his local legislator who he hopes will push legislation beneficial to airline pilots. (6) $500 in fees to a local gym to keep in physical shape for flying.

a. Assuming there was no preexisting sale the son would be taxed on the income. The author is saying that here he took his services and transformed it into this patent which is intangible property so its not a service in this case. It would be considered income to the son. b. The father transferred all the rights to the son so the son is taxed on this.

3. Inventor develops a new electric switch, which she patents. Who is taxed on the proceeds of its subsequent sale if: (a) the patent is transferred to Son who Sells it to Buyer? (b) Inventor transfers all her interest in the patent to Buyer for a royalty contract and then transfers the contract gratuitously to Son prior to receiving any royalties?

Generally advertising expense are deductible for business in the year that is accrued or paid even though the benefit will extend over several years. On the other hand, it can also be capitalized. For example, the purchases of a piece of property of the construction of a billboard or advertising sign that last several years involve capital expenditures. But generally the cost of advertising in magazines, television, and sports programs are currently deductible.

Advertising deductible?

A common deduction for employees is the cost of obtaining and maintaining their uniforms. Deductions for uniforms are allowable only if (1) the uniforms are specifically required as a condition of employment (2) are not of a type adaptable to general or continued usage to the extent that they take the place of ordinary clothing. Thus policeman, fireman, baseball players, jockeys, etc. may deduct their uniform costs. Military uniforms are for general use and generate nod educations

Are Uniforms Deductible?

Generally No deduction generally allowed. But there s an exception that pertains to local lobbying.

Are lobbying expenses deductible?

The regulations academics and other argued are more taxpayer friendly than the INDOPCO decision would permit.

Are regulations on capitalization of amounts paid to acquire, create, or enhance intangible assets consistent with the Supreme Courts decision in INDOPCO?

(a) It's a personal expense under 262 (b) You want to look at his major and min post of duty, but here it gets confusing. On one hand he's going to make 90% of his income in NJ and on the hand 10% in FL but he's spending 7 month in FL. SO this would be hard to determine. SO theoretically where ever his minor post of duty is would be deductible.

Burly is a professional football player for the City Stompers. He and his wife own a home in Metro where they reside during the 7-month "off-season." A. If Burly's only source of income is his salary from the Stompers, may Burly deduct any of his City living expenses which he incurs during the football season? B. Would there be any difference in result in (a), above, if during the 7-month "off-season" Burly worked as an insurance salesman in Metro?

Estate of Stranahan He's trying to front load 115,000 of income. The IRS says this is essentially a loan and is not taxable for purposes of the father. The court ruled in the taxpayer favor and said it was a bonified transaction and not a strategy to minimize the tax to the taxpayer. The taxpayer was successful in recognizing the gain.

Code is not good at stopping taxpayers from producing income. The taxpayer had an expiring loss and wanted income because he was able to offset that income with the loss. So the taxpayer owns company stock that historically pays about 115,000 dollars worth of dividends. And he sells those rights to future dividends for about 122,000 and his son who is putting up the money will be paid that much money plus the TVM of 122,000. Taxpayer wants to report 115,000 because by doing so he wont pay a dime more in taxes. Does the court rule that he can sell future rights to income and relaize it in that period?

Rev ruling 66-167

Deals with executor's commissions, if you are named as an executor for an estate you are entitled to certain commissions. No one can force you to take them as long as you waive them before you commence services you will not bare a tax. But if you start performing services and you say you don't want them. They would be considered taxable income. Waive them earlier in this process since if you do it later it can be problematic.

Is this good tax planning? → no because under section 67 it's a miscellaneous deduction and can only deduct up to 2% of your AGI. But you cannot deduct it since you are entitled to the reimbursement. Since its extraordinary, because you wont submit it on your return. If you are entitled to reimbursement and you don't it brings to question the legitimacy.

Employee incurred ordinary and necessary expenses on a business trip for which she was entitled to reimbursement upon filing a voucher. However, Employee did not file a voucher and was not reimbursed but, instead, deducted her costs on her income tax return. Is Employee entitled to a §162 deduction? See Heidt v. Commissioner, 274 F. 2d 25 (7th Cir. 1959).

(a)This is a wholly owned corporation and would be problematic to prove free bargain. But not withstanding it can be either a deductible salary payment or non-deductible dividend payment, probably. Not the bonuses (b)Could consider Exacto Spring and how a reasonable investor would think if its reasonable or not. b. Could also apply the multifactor test that most courts subscribe to. (c) The original contract was entered into when he only owned 10 shares and at that point we have two even parties and is freely bargained for and might be legitimate.

Employee is majority shareholder (248 of 250 shares) & president of Corp. Shortly after Corp was incorporated, Directors adopted a resolution establishing a contingent compensation contract for Employee. Plan provided for Corporation to pay Employee a nominal salary + annual bonus based on a percentage of C's net income. In early yrs, payments to Employee averaged $50k annually. In recent yrs, C's profits have increased substantially &, as consequence, Employee has rec'd payments averaging more than $200k per yr. A. What are C's possible alternative tax treatments for payments? Does corp get to deduct the entire salary as reasonable, or does part of it have to be treated as a dividend? B. What factors should be considered in determining the proper tax treatment for the payments? C. The problem assumes Employee always owned 248 of the corporation's 250 shares. Might it be important to learn that the compensation contract was made at a time when employee held only 10 out of the 250 shares?

minimum education requirements, qualifications for a new trade or business

Expenses for Education The can be bifurcated into two baskets: 162-5(b) 1. Personal: nondeductible

maintain or improving skills (c)(1), (c)(2): if employer has certain requirements that he needs you to meet. 162-5(e) Travel away from home: if you have to travel as part of education expenses. Meals 50%, travel and lodging are also deductible.

Expenses for Education The can be bifurcated into two baskets: 162-5(b) 2. Business: Deductible:

Lucas v. Earl

Facts: Respondent, and his wife entered into a contract wherein all property that they have or received is taken as joint tenants with rights of survivorship. Respondent sought to only be taxed on half of his earnings for 1920 and 1921. He sought to claim only half of his salary earned as income instead of the entire salary that was paid him. Issue: Whether Respondent should be taxed on the whole of his earnings or just half in light of the contract with his wife? Held. Justice Holmes issued the opinion for the Supreme Court of the United States in reversing the Court of Appeals and holding that Respondent should be taxed on all of his earnings. Discussion. The Supreme Court found that the law is clear The IRS prevails. Famous quote the last line of the case. From this we have the famous fruit and the tree metaphor.

"major post of duty," and "minor post of Duty" He would be able to deduct the expenses at the minor post of duty.

From the andrews vs. commissioner case the court applies the "objective test" to determine the situs of a taxpayers ______________ including three factors (1) the length of time spent at the location; (2) the degree of activity in each place; and (3) the relative portion of taxpayers income derived from each place.

The court said there was no free bargain and the regulation below does not apply and it was unreasonable and should not in its entirety be deductible. Regulation 1.162-7(b)(2)

Harold v. Commissioner Smith has two sons here who are running the company. But the dad is really running the company, and the company is very profitable and he is being paid significant money. The amount of being paid to him is in excess what is reasonable. Is this deductible?

capitalized since its separate and distinct

If a taxpayer acquires an intangible asset, including (but not limited to) stock in a corporation, a partnership interest, a bond or other debt instrument, an option, a patent or copyright, a franchise, goodwill or going concern value, computer software or any separate and distinct intangible asset is it expensed or capitalized?

Then it would be taxable to the kids 50% 50%

If taxpayer gave it to their kids 5 years ealier. But there was no sale on the immediate horizon. Would it be all taxable to the mother?

(a) Revenue Ruling 75-120 says since it's a new trade or business its nondeductible. Either way, deduction is not available b/c S does not meet requirement of carrying on a trade or business. (b) under rev ruling 75-120 its nondeductible since it's a new trade or business. (c) S gets the deduction under Hundly (d) its deductible perpetuating an existing trade or business since he's just trying to find a new job rev ruling 75-120 (e) Non deductible since it's a new line of employment

Law student's Spouse completed secretarial school just prior to student entering law school. Consider whether S's employment agency fees are deductible in the following: (a) Agency is unsuccessful in finding Spouse a job. (b) A is successful in finding S a job. (c) Same as in (b), except that A's fee was contingent upon its securing employment for S and the payments will not become due until S has begun working. (d) Same as in (a) and (b), except that Spouse previously worked as a secretary in Old Town and seeks employment in New Town where student attends law school. (e) Same as in (d) except that Agency is successful in finding S a job in New Town as a bank teller.

He ends up winning since the court holds it to be a repair and deductible and point out that after the expenditures were made, the plant did not operate on a changed or larger scale and it resorted it to its original value.

Midland Empire Packing Co v. Commissioner He was curing meat in his basement and oil began to seep in. So they put this barrier around to stop it. The taxpayer wants to deduct it as a business expense under 162. The IRS says it was necessary but it was not ordinary. Is this deducible?

Helvering v. Horst Page 276, second full paragraph, income realized by signor and diverts the income to people who he wants. He has the power to dispose of the income. The Fruit is not to be attributed to a different tree in that in which it grew. So it stands for in the case of property unless you give away the tree you will be taxed on the apples. So The owner of the bond was taxed on the coupons she gave away since she had still maintained the tree and was only giving away the fruit

Our parent or grandparents have a bearer bonds where they have a bond worth 10,000 and they have coupons representing income. And whoever brought this coupon to the bank would get the money. So here we have a taxpayer who gave some of the interest coupons to a child. Question was who is taxable? The person who owns the bond or the person who gets the interest income? .

personal expense deductible 162 expense

Revenue Ruling 99-77 Talks about when people are traveling between taxpayers residence and work location and what circumstances they will be deductible. Some people may have to travel to temporary work locations. For example, if you're a physician that normally works in an office but has to go to the hospital occasionally and may be able to deduct this expense. - Going to and from your normal work location it would be a _________________ under 262. Because if you live in Livingston, that was your choice you could have lived in Newark. - But if you're a carpenter and you go to 10 different job locations you can live near all of them since its not your choice and its a _________ expense - Think if its deductible because it necessary or it's a personal choice.

Under current law he can only deduct 50% of meals under 162 but 274(n)(1) limits it. The IRS claims that home means where you live, taxpayer says it means business headquarters. The court looks to this Commissioner v Flowers where the court point to three factors to consider. (1) The expense must be reasonable and necessary (2) expense must be incurred away from home and (3) the expense must be incurred in a pursuit in business, this means there must be a direct connection between the expenditure and the carry on of the trade or business. So the reason this travel expense incurred was in pursuit from business. It doesn't matter how you define home since the third factor is so important, are you accruing this for business purpose. Meaning of home wont make or break the case. These were 262 expenses so nondeductible. Here the taxpayer was just incurring ordinary living expenses he had to live somewhere and choose to live in a hotel.

Rosenspan v. United States Jewelry salesman who's a widower and didn't really have a home to go to. He wants to deduct all of his travel expenses and he wants to deduct the meals, lodging and all other expenses. Can he deduct it?

Rev ruling 74-581 No you never had a legal right since contractually you forfeited that right before you even go it.

Suppose you work for an accounting firm and you give Rutgers a lecture, which is part of your employment contract. Rutgers is asking you to speak and Rutgers is going to give you a 500 honorary, and if you work for PwC you must turn it over to them. Is that considered taxable?

(a) Travel section 162, "major post of duty" in Newark, minor post in Philadelphia. And the meals since its overnight, US v Carrol would permit half of it. (b) They are indirectly raising the Andrews case. We would look at what constitutes major and minor post to duty. Where ever the major post of duty is its nondeductible and where the minor is its deductible. 50% of meals. (c) Section 262 nondeductible since its her choice if she wants to travel to Newark to see her husband.

Taxpayer lives with her husband and children in City and works there. A. If her employer sends her to Metro on business for two days and one night each week and if Taxpayer is not reimbursed for her expenses, what may she deduct? See § 274(n)(1). B. Same as (a), above, except that she works three days and spends two nights each week in Metro and maintains and apartment there. C. Taxpayer and Husband own a home in City and Husband works there. Taxpayer works in Metro, maintaining an apartment there, and travels to City each weekend to visit her husband and family. What may she deduct?

Weich case

Taxpayer originally works for a company that goes bankrupt. He decides to start a new business venture and then pays off debts that he didn't owe of the old company. His rational was he wanted to build his reputation and he wanted to seem trustworthy. The question becomes are these payment deductible? Generally when you spend money to make more money is should give you an aroma that theres an expectation that you will make more money and should be deductible. With this in mind, that these are nondeductible and capital expenditures under 263. The IRS prevails and its nondeductible since it was necessary because it was appropriate and helpful. It did not meet the ordinary characterization so on top of page 339 the payment is such circumstances. He said it was extraordinary.

The IRS says no we will treat it as two different planes. 1. Business plane 2. Non business. 1. Business: 14,298.90 - (13,777.92) = AB 520.98 → AR 9321.21 = 8800 to business 1245 recapture. and then AR 26,058 nonbusiness side loss. Section 165 puts the breaks on personal sale. But the loss is disallowed.

Taxpayer says that his basis was 54,273.50 - (13,777.92) = AB 40,445.58 Sells it for 35,380 74% was personal and 26% was business Sharpe purchases an airplane and made improvement, which made the basis go up. Picture on personal use of a plane you cant take any depreciation deductions. From IRS perspective says there are two planes here and the taxpayer sells it for AR 35,380 - AB 40,445.58 = (5000) loss and says they don't want to take the loss. What does IRS say and what is the outcome?

(a) Travel expenses, rent and 50% of the meals would be deductible (b) He can deduct the 8 month but cant after that under the rev ruling 99-7 (c) There's no duplication of expenses so at this point the expenses the incur are living expenses. SO here once there is an elimination of duplication they would all be personal under 262.

Temporary works for Employer in City where Temporary and his family live. A. Employer has trouble in Branch City office in another state. She asks Temporary to supervise the Branch City office for nine months. Temporary's family stays in City and he rents an apartment in Branch City. Are Temporary's expenses in Branch City deductible? B. What result in (a), above, if the time period is expected to be nine months, but after eight months it is extended to fifteen months? C. What result in (a), above, if Temporary and his family had lived in a furnished apartment in City and he and family gave the apartment up and moved to Branch City where they lived in a furnished apartment for nine months?

Commissoner v. Giannini Judge writes that the corporation "could have kept the money". The taxpayer wins under the theory that if you say you don't want something no one can force you into income and to take it.

The president of the company, before he earns it he was entitled to a bonus on the corporate profits. When he learns going to make a certain amount he essentially said I don't want the rest of the salary. The IRS decision is on page 269, the second paragraph. The IRS said essentially he pushed this toward the University of California. Was this income? Judge writes that the corporation "could have kept the money". The taxpayer wins under the theory that if you say you don't want something no one can force you into income and to take it.

Blair The father would not be taxed and that the assignment was effective. At the end of the day this was an effective assignment because he didn't have anything besides the interest and so he gave away the whole tree and the kids were taxed on it.

The taxpayer's wife dies and leaves her husband a 1 million in trust and gets an income interest for life. The husband then gifts it to his children. Who remains taxable on that income the child or the husband? The father would not be taxed and that the assignment was effective. At the end of the day this was an effective assignment because he didn't have anything besides the interest and so he gave away the whole tree and the kids were taxed on it.

The court held the drainage pipe was a capitalized expense because is Midland it was a new condition but in Mount Morris it was always there. So if they spent 100,000 to put the pipe in originally then it had to be capitalized the moment it was installed. It should have been there originally it wasn't like midland where it came about after the business was being conducted

They had a drive in movie theater and water was coming off the drive-in and neighbors were complaining saying they cant let the water seep into our property. So they put in pipes to stop the leakage.

(a) 1.162-2(b) 900 deductible since primarily business. (But if it was a week away with 2 days of business then its not) 300 for lodging (3 nights) and 60 for meals (50% of 3 days) = 120 (b)274(m)(3) put breaks on deducting spouses expenses. (c)You can deduct the 50% meals (60), 300 for lodging. If your company wants you to leave on Sunday instead they can argue that. But since it could also be more of a personal venture instead. If you have to fly overseas when its 9000. Can that be deductible? Yes, congress says it's a business judgment by the employer. If this makes you more relaxed and on top of your game then its worth it. Court cant say what's the difference. So its deductible. (d) 274(m)(1) Says if you want to take water transportation back you can deduct it but to the extent of double the per dium rate. Which say that rate is 100 per day you can deduct up to 200 per day for water transpiration. (e)Same facts as a. if it's personal then that portion. So then the airfare would be: i. 900 since it does not exceed one week 174(c)(2(A) ii. 300 lodging iii. 60 meals (f) Reg 1.274-4(d)(2)(v) if you conduct business that extends over a weekend then the Saturday and Sunday would be considered business days. i. 3/9 = 33% spent so 174(c)(2) exception does not apply. ii. 900* 6/9 = 600 iii. 100*6 = 600 iv. 40*6 /2 = 120 b. Suppose you had a business trip to china and the airfare is 1500. Spending 3 days in intense meetings and you spend 12 days climbing the walls of china. SO no it does not meet 162 only get to 274 unless 162 meets it. (g)Since he never left north America, we are not subject to the limitations to 274(h) only if we travel outside the north American area.

Traveler flies from her personal and tax home in New York to a business meeting in Florida on Monday. The meeting ends late Wednesday and she flies home on Friday afternoon after two days in the sunshine. Lets lay airfare round trip: 900; lodging: 100 per night; meals: 40 per day A. To what extent are Traveler's transportation, meals, and lodging deductible? See Reg. § 1.162-2(a) and (b). B. May Traveler deduct any of her spouse's expenses if he joins her on the trip? See § 274(m)(3). C. What result in (a), above, if Traveler stays in Florida until Sunday afternoon? D. What result in (a), above, if Traveler takes a cruise ship leaving Florida on Wednesday night and arriving in New York on Friday? See § 274(m)(1). E. What result in (a), above, if Traveler's trip is to Mexico City rather than Florida? See § 274(c). F. What result in (e), above, if Traveler went to Mexico City on Thursday and conducted business on Thursday, Friday, Monday, and Tuesday, and returned to New York on the succeeding Friday night? See Reg. § 1.274-4(d)(2)(v). G. What result in (e), above, if Traveler's trip to Mexico City is to attend a business convention? See § 274 (h).

use the straight line method and use the class life._______________

Under 168(g) alternative depreciation method you must

they are capitalized for tax purposes

Under 263A are interest and taxes capitalized or expensed ?

You can only deduct 3000 and amortize the 49000 over 15 years. So you lose dollar for dollar over the 50k.

Under section 195, if you incur 52,0000 of start-up expenditures what can you deduct this year under the code?

The applicable depreciation method o Buildings straight line o Double declining o 150% declining (for 15 and 20-year property) • the applicable recovery period (he will give it to us just refer to 168(e) table) • the applicable convention(mid-quarter, mid-month, full month)

Usually the test will consist of 3 things you multiply and it come from 168(a): What are the three?

The taxpayer main argument was that they never acquired any thing and relied on Lincoln Savings, that said in the mind of the taxpayer says that if you spend money and you create a separate and distinct intangible asset then this has to be capitalized. Taxpayer reads that case and get the proposition that if a spate and distinct asset is not created like this friendly merger then it should be deductible. The court says that it produces 'significant future benefits'. There was a lot of evidence that there would be synergies for years to come so that the enterprise would become more profitable. Its money being spent for some significant future benefits and it a capitalized under 263.

We have a company Unilever is going to acquire National Starch (INDOPCO). This is a friendly takeover and they spend over 2 million. SO they ultimately try to deduct it all in that period. But the IRS says you need to capitalize them and nondeductible under section 263. Is he ultimately allowed to deduct it?

o Employment is realistically expected to last (and does in fact last) for one year or less. o If employment is reasonably expected to last longer than one year but in fact does not, the employment is not temporary. If employment is realistically expected to last one year or less, but at some later date the employment is realistically expected to exceed one year, the employment is treated as temporary until the date the expectation changes, and thereafter is treated as permanent after that date.

What does "Temporary" mean in terms of revenue ruling 99-77?

if more that 40 percent of the value of property other than eligible real estate is placed in service during the last quarter of the year, a mid-quairter convention appplies.

What will we use mid quarter convention?

Golden parachutes

When a corporation changes hand through a merger or whatever. The executive that got the boot may land back in the job market and be cushioned by a "parachute payment" from the corp. When generous these severance packages are known as golden parachutes. Section 280G let the air out of the balloon by prohibiting a section 162 deduction to the payor corporation for excess parachute payments and by tagging the recipient of such payment with a 20% excise tax.

for property with 15 or 20 year lives.

Who do you use 150% DD?

Salvatore v. Commissioner The court determined that mom entered into this transaction and essentially right before the transaction transferred it to their kids so it would all be taxable to the wife

You have a taxpayer who inherited the house from her husband and some years later she and her kids help sell the gas station. They figure out what mom needs for living arrangement and decides she only needs half. The contract was almost entered into and immediately before try to transfer half to the kids. And then the kids will be taxed on one half and the wife would get half. Whos taxed?.

the remediation costs to the soil are a betterment to the land because the cost ameliorate a material preexisting condition or defect.

if a taxpayer buys a store located on a parcel of land that contained gasoline storage tanks that leaked causing soil contamination, would the cost be a repair or capitalization?

(1)Whatever that cost would be would have to be capitalized. Under Indoptco for use of services like a merger if you used in house people then they would be deductible in that period. (2) No section 263A mandates that those expenses be capitalized.

§ 263(a) provides "no deduction shall be allowed for any amount paid out for new buildings . . . " Thus if one pays for salaries or for painting etc. in construction of a building, the expenses are capitalized and the total cost of the building is then depreciation assuming the § 167 or § 168 requirements are met. (i) If Comp owns trucks that are used during yr exclusively in constructing a new storage plant for Comp, is Comp allowed a depreciation deduction for the trucks during the yr? (ii) Are interest on loans connected w/ prop and taxes on the prop which are paid during the construction period currently deductible?