Karns Prime & Fancy Food, Ltd. (Karns), is a Pennsylvania corporation that operates grocery stores in the Harrisburg, Pennsylvania,area. In 1998,Karns’s management determined that the company required $1.5 million for capital improvements to its stores. Karns approached its primary supplier, Super Rite, Inc., about borrowing funds from it to make
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C Corporation Income Taxation
Hurricane GO Zones: An Update on Relevant Tax Provisions
The widespread devastation left in the wake of hurricanes has resulted in numerous tax provisions aimed at revitalizing and rebuilding the affected areas. Congress passed the Gulf Opportunity Zone Act of 2005, P.L. 109-135 (the GO Zone Act), in response to Hurricane Katrina and then revised it as Hurricanes Rita
The WOTC Expanded
Editor: Kevin F. Reilly, J.D., CPA The work opportunity tax credit (WOTC) has been in existence for years; however, the Small Business and Work Oppor-tunity Tax Act of 2007, P.L. 110-28 (SBWOTA), expanded the definition of some of the target groups, creating tax incentives that will affect more clients than
New Prop. Regs. Clarify Tax Deductible Entertainment Use of Private Aircraft
Editor: Kevin F. Reilly, J.D., CPA The use of private aircraft eliminates the inconvenience of commercial flights, but clients do not normally call their CPAs in midflight to inquire about the tax ramifications of taking a detour with the family on the company jet to visit Aunt Margaret. Nevertheless, it
Tax Considerations for Corporate Aircraft
Editor: Joel E. Ackerman, CPA, MST In recent years, the number of entrepreneurs acquiring airplanes for their business operations has increased dramatically. Often the aircraft will be placed in a separate entity for legal liability protection and other reasons. Tax advisers need to be aware of the numerous federal income
Payments for Future Remediation Expenses Are Not Insurance Premiums
Editor: Joel E. Ackerman, CPA, MST The IRS ruled in Rev. Rul. 2007-47 that payments to an insurance company to cover future capped costs were not insurance payments for tax purposes. The “premium” was an amount equal to the present value of estimated future remediation costs required by the government.
Final Regulations on Dual Consolidated Losses: A Practical Guide (Part II)
This article discusses triggering events for dual consolidated losses and their consequences, as well as the transition rules from the 1992 to the 2007 regulations.
Advantages of a C Corporation
Editor: John L. Miller, CPA In deciding which form of entity to use for a new small business venture, the potential benefits of a C corporation should be considered. A C corporation may have relative advantages and benefits over other entity forms. The significant disadvantages of a C corporation are
Final Regulations on Dual Consolidated Losses: A Practical Guide (Part I)
The 2007 dual consolidated loss regulations generally provide that a DCL of a dual-resident corporation or a separate unit of a U.S. corporation is not included in the computation of the taxable income of a consolidated group, unaffiliated DRC, or unaffiliated domestic owner.
IRS Reaffirms and Clarifies Its Position on Nonaccrual Loan Interest
Editor: Frank J. O’Connell, Jr., CPA, Esq. For accrual-basis financial institutions, there has long been a debate on the taxability of interest for loans that are past due. This debate centers on the difference in treatment between federal banking and IRS rules. Bank regulatory guidance always requires that the interest
Prop. Regs. Create Capital Gains and Losses for Non-bank Lenders
Editor: Frank J. O’Connell, Jr., CPA, Esq. On August 7, 2006, the IRS issued Prop. Regs. Sec. 1.1221-1(e), in an attempt to clarify the character of gains and losses resulting from sales of loans and notes receivable acquired through purchase or loan origination; see REG-109367-06. While the character of such
Deductibility of Nonqualified Deferred Compensation in Mergers and Acquisitions
Editor: Frank J. O’Connell, Jr., CPA, Esq Determining the tax treatment and timing of an employer corporation’s deduction for amounts paid under nonqualified deferred-compensation arrangements under Sec. 404 can be a daunting task, depending on the circumstances. Even if such arrangements have not triggered any of the pitfalls in Sec.
Expensing Restaurant Smallwares
Editor: Albert B. Ellentuck, Esq. Restaurants and taverns can deduct the cost of smallwares in the year in which the smallwares are received and used, instead of having to capitalize those expenditures; see Rev. Proc. 2002-12. The smallwares method applies to businesses engaged in the trade or business of preparing
New Regs. for Use of Foreign Losses Included in U.S. Tax Filings: Dual Consolidated Losses
Editor: Anthony S. Bakale, CPA, M.Tax. On March 19, 2007, new regulations were issued to control the use of losses generated in a foreign jurisdiction and included in a U.S. tax filing; see TD 9315. These final regulations apply to dual consolidated losses (DCLs) incurred in tax years beginning after
Transfers to Investment Companies: Pitfalls of Secs. 351 and 721
Editor: Anthony S. Bakale, CPA, M.Tax. In many instances, property can be contributed to an entity by its owners in exchange for ownership interests, without gain or loss being recognized on the contribution. For corporations, the general rule under Sec. 351(a) is that “no gain or loss shall be recognized
New Law Contains Small Business Tax Provisions
On May 25, 2007, President Bush signed into law the Small Business and Work Opportunity Act of 2007 (SBWOA ’07) (P.L.110-28), which included several tax provisions. Return preparer penalties: The SBWOA ’07 expands the scope of return preparer penalties and alters the standards of conduct that must be met to
Professional Corporations: To Be or Not to Be a Member of a Consolidated Group
Editor: Annette B. Smith, CPA Many independent professional medical and dental practices are incorporated under state law as professional corporations (PCs). Generally, these state laws require that PCs issue shares only to individuals who are duly licensed or otherwise legally authorized to render the same type of professional services as
Sec. 199 Final Regs. Affect Online Software and Advertising
Editor: Annette B. Smith, CPA Sec. 199 generally provides a deduction for qualifying domestic production activities equal to 9% (3% for tax years beginning in 2005 or 2006 and 6% for tax years beginning 2007–2009) of the lesser of the taxpayer’s (1) qualified production activities income for the tax year
Choice of Entity for Expansion of Operations into a Foreign Country
Executive Summary When flowthrough treatment is desired, a U.S. business may expand into a foreign country with a branch office or plant. A foreign partnership is advantageous when foreign operations are expected to generate flowthrough losses to a U.S. partner, and foreign taxes are high. A foreign corporate entity
How Debt Can Become Draconian Boot in a Sec. 351 Exchange
Editor: Mary Van Leuven, J.D., LL.M. Sec. 351 allows property to be transferred to a controlled corporation by one or more persons without gain or loss recognition. Example 1: Taxpayer A contributes a building (with a $1 million basis and $3 million fair market value (FMV)) to a new corporation
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