{"id":37662,"date":"2024-12-20T16:30:25","date_gmt":"2024-12-20T06:30:25","guid":{"rendered":"https:\/\/myassignmenthelp.info\/assignments\/?p=37662"},"modified":"2024-12-24T14:13:32","modified_gmt":"2024-12-24T04:13:32","slug":"steps-of-tax-research-2348322","status":"publish","type":"post","link":"https:\/\/myassignmenthelp.info\/assignments\/steps-of-tax-research-2348322\/","title":{"rendered":"Steps of Tax Research-2348322"},"content":{"rendered":"<p><div class=\"ppw-restricted-content\"><\/p>\n\n\n\n<p>The president of Jones and Son\u2019s Building Supply and Warehousing, Dave Jones, works about 4 hours a week and makes about as much salary as a full time executive to oversee a company with over 500 employees. Of course this raises questions about how reasonable his compensation is. Also, Dave and his son Junior, have equal shares of a construction company that they co own. After the audit period, the construction company redeemed a total of 50% of Dave&#8217;s and Junior\u2019s stock. They made this decision after meetings of the board to reduce tax liability. Junior needed to raise funds to buy a vacation home and stock redemption was preferred over loans or dividends, because it would likely mean lower tax obligations. The gain is to be treated as a capital gain pursuant to the redemption designed to redeem Dave.<\/p>\n\n\n\n<p><strong>Step 1: Summarize the Facts<\/strong><strong><\/strong><\/p>\n\n\n\n<p>The IRS audit identified three key issues:<\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>How reasonable was Dave\u2019s compensation, considering his few work hours.<\/li>\n\n\n\n<li>Whether the stock redemptions should be treated as sales or as capital gains (exchanges) of the stock or as dividend distributions (ordinary income).<\/li>\n\n\n\n<li>The validity of a claimed rental loss.<\/li>\n<\/ol>\n\n\n\n<p><strong>Step 2: Identify the Issues<\/strong><strong><\/strong><\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Unreasonable Compensation: How reasonable is Dave Jones\u2019s remuneration for such minimal hours of work, and for comparable industry standards?<\/li>\n\n\n\n<li>Stock Redemptions: Should the redemption of stock be considered as a sale or exchange for tax treatment of capital gains or does it constitute taxable income by due to its similarity to dividend distributions?<\/li>\n<\/ol>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Rental Loss: Is the claimed rental loss consistent with active participation or material participation requirements under IRS rules?<\/li>\n<\/ul>\n\n\n\n<p><strong>Step 3: Locate Applicable Authorities<\/strong><strong><\/strong><\/p>\n\n\n\n<ol class=\"wp-block-list\">\n<li>Unreasonable Compensation:<\/li>\n\n\n\n<li>IRC Section 162(a)(1): It permits deduction of amounts required to be paid for services rendered.<\/li>\n\n\n\n<li>Regulation \u00a71.162-7(b): Defines criteria for setting reasonable compensation, which considers the amount of compensation against the services provided. (Internal Revenue Code, n.d.)<\/li>\n\n\n\n<li>Stock Redemptions:<\/li>\n\n\n\n<li>IRC Section 302(b): defines the conditions under which stock redemptions are to be treated as sales or exchanges rather than as dividend distributions.<\/li>\n\n\n\n<li>Regulation \u00a71.302-2: Describes criteria under which a stock redemption is to be considered substantially identical to a dividend.<\/li>\n\n\n\n<li>Rental Loss:<\/li>\n\n\n\n<li>IRC Section 469: Explains passive activity losses, including when they are deductible and when they cannot be deducted (when the passive activity losses far exceed passive activity income).<\/li>\n\n\n\n<li>Regulation \u00a71.469-2: Details rules governing passive activity losses and exceptions for active participation in rental real estate activities. (Internal Revenue Code, n.d.)<\/li>\n<\/ol>\n\n\n\n<p><strong>References <\/strong><strong><\/strong><\/p>\n\n\n\n<p>Internal Revenue Code (IRC) Section 162(a)(1): &#8220;Trade or Business Expenses.&#8221; Available at: <a href=\"https:\/\/www.irs.gov\/\"><u>https:\/\/www.irs.gov\/<\/u><\/a><\/p>\n\n\n\n<p>Internal Revenue Code (IRC) Section 469: &#8220;Passive Activity Loss Rules.&#8221; Available at: <a href=\"https:\/\/www.irs.gov\/\"><u>https:\/\/www.irs.gov\/<\/u><\/a>&nbsp;<\/p>\n\n\n<p><\/div><\/p>\n","protected":false},"excerpt":{"rendered":"","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[359],"tags":[],"class_list":["post-37662","post","type-post","status-publish","format-standard","hentry","category-education"],"_links":{"self":[{"href":"https:\/\/myassignmenthelp.info\/assignments\/wp-json\/wp\/v2\/posts\/37662","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/myassignmenthelp.info\/assignments\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/myassignmenthelp.info\/assignments\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/myassignmenthelp.info\/assignments\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/myassignmenthelp.info\/assignments\/wp-json\/wp\/v2\/comments?post=37662"}],"version-history":[{"count":2,"href":"https:\/\/myassignmenthelp.info\/assignments\/wp-json\/wp\/v2\/posts\/37662\/revisions"}],"predecessor-version":[{"id":37680,"href":"https:\/\/myassignmenthelp.info\/assignments\/wp-json\/wp\/v2\/posts\/37662\/revisions\/37680"}],"wp:attachment":[{"href":"https:\/\/myassignmenthelp.info\/assignments\/wp-json\/wp\/v2\/media?parent=37662"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/myassignmenthelp.info\/assignments\/wp-json\/wp\/v2\/categories?post=37662"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/myassignmenthelp.info\/assignments\/wp-json\/wp\/v2\/tags?post=37662"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}