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Essay / Research Paper Abstract
A 3 page paper assessing a scenario in which a businessman paid some of the debts of a separate failed business in which he was a shareholder but not a principal. The man wants to deduct the payments to reduce his own company's revenues. The paper uses Section 162 of the Internal Revenue Code and the cases of Welch v. Helvering (1933) and Kersting v. Commissioner of Internal Revenue (1999) to demonstrate why the payments are not deductible. Bibliography lists 3 sources.
Page Count:
3 pages (~225 words per page)
File: CC6_KSacctTaxRes.rtf
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Unformatted sample text from the term paper:
of an architectural firm, invested in an oil company that went bankrupt; shortly afterward the architectural firm began to suffer as well. The architectural firm counted among its clients
several of the creditors of the oil company; John believed the architectural firm should pay the oil companys debts. John now wants to deduct the payments from the architectural
firms taxable income; he is distressed to learn that the payments are not deductible. Section 162(a) Section 162(a) of the Internal Revenue Code
(IRC) provides three broad guidelines for judging whether a business expense is deductible. Deductible expenses are defined as being "all the ordinary and necessary expenses paid or incurred during
the taxable year in carrying on any trade or business" (Synopsis of IRC Section 162, 2006). These "ordinary and necessary expenses" include: * "reasonable allowance for salaries or other
compensation for personal services actually rendered ... * "traveling expenses ... while away from home in the pursuit of a trade or business; and * "rentals or other payments required
to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken, or is
not taking title, or in which he has no equity" (Synopsis of IRC Section 162, 2006). Nowhere does the IRC provide any condition
under which the expenses that John is contemplating would be deductible. He believes that his 25 percent ownership in the oil company is responsible at least in part for
the downturn in the architectural firms downturn, but he has no way of knowing whether such actually is the case. Johns belief constitutes a moot point in that paying
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