If activity is not a business, the loss is capital
Article Abstract:
The Tax Court ruled that an individual cannot deduct capital losses as ordinary losses if he was not engaged in a trade or business. However, an individual can realize an ordinary loss if he abandons a worthless property. The Tax Court based its decision on Section 165(c)(1) that allows full deductions for a person's losses if the losses were made in a trade or business. It also analyzed Section 1211 focusing on the deduction limit of capital losses. In addition, several factors were analyzed to determine whether the individual was in pursuit of a trade or a business. These factors correlate with the nature and purpose of purchasing properties, the extent of the individual's efforts to sell them, and the use of a business office for promoting the sale of properties.
Publication Name: Practical Tax Strategies
Subject: Law
ISSN: 0040-0165
Year: 1998
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Keeping company afloat was not reasonable cause
Article Abstract:
A bankruptcy court ruled that the use of tax trust funds for business expenses to keep the company operating was not a valid reason to abate nonpayment penalties. The taxpayer used the funds to pay off employees and trade creditors to keep the business operating. The individual filed for Chapter 11 voluntary bankruptcy and agreed with the tax liability and interest. However, the individual disagreed with the penalties and interest on the penalties claiming that he had a justifiable reason to abate the penalties. The bankruptcy court considered the circumstances surrounding the taxpayer's decision to abate the penalties. In addition, the court found that the individual willfully neglected to not deposit trust fund taxes.
Publication Name: Practical Tax Strategies
Subject: Law
ISSN: 0040-0165
Year: 1998
User Contributions:
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