Rents allocated by payment schedule determine deduction

Article Abstract:

The court ruled in the 'Paccadilly Cafeterias Inc.' case that rental agreements that consist of schedule of required monthly payments allocated rents. The rent deduction covered by Sec. 467 could therefore not reflect the higher rents that would be paid in coming years. The court found that the taxpayer did not comply with Secs. 467(b)(2) and (3) in claiming a deduction for the average rent payable over the lease terms. These sections indicate that the constant rental amount, instead of the average rental, should be accrued if the agreement does not allocate the rent. The court also judged that the taxpayer would not have the right to subtract the average lease rentals for a certain year even though interpretation of Sec. 467 was correct because the taxpayer had employed a different approach in calculating rent deduction for two years prior.

Eating places, Commercial Cafeterias, Cafeterias, Restaurant industry, Leases, Piccadilly Cafeterias Inc., PIC

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Voluntary waiver of rent does not avoid taxation

Article Abstract:

The Tax Court decided in 'Hooper' that the shareholder-lessors should be taxed on rent despite the fact that they chose not to receive rent from a closely held corporation. The husband-and-wife taxpayers, who wholly owned a corporation that leased property from them and that did not pay any rent for three months, contributed the property to the corporation. The IRS argued that the couple had constructively received rent income for the three months and should be taxed under Reg. 1.451-2(a). The taxpayers countered that they had not made any entries on its books to indicate payment for the three months but were thwarted by the fact that they used the cash method of accounting instead of the accrual method. Moreover, the fact that they controlled the corporation made it hard to prove that unpaid funds were not constructively received.

Rent control

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