Chapter 7 Overview of Deductions and Losses Deductions Authorized by General Sections of the IRC Positive Criteria (general allowance of ded.): Sec. 162: Expenses of carrying on a T/B Sec. 212: Expenses for production of income Sec. 165: Losses Sec. 172: NOL
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Except for “points” paid for loan on personal residence.
Example: Warranties, contingent liabilities may not be accrued unless there is reasonable basis to estimate the amount
Example: One-time payment in November for snow removal for season, may be accrued.
Services rendered personally
Hiring, supervising, and paying assistants
Employer-defined hours of work
Doing work on the employer’s premises
Setting the order or sequence of work
Self-employed v. Employee
Oral or written reports required
Payment by the hour, week, month*
Payment of business or travel expense
Furnishing of tools, materials
Realization of profits or loss
Working for more than one firm at a time
Making services available to the general public
Right to discharge*
Right to terminate*Common Law Factors That Indicate “Control” (IRS)
Losses are disallowed between related parties. But, disallowed losses may be used to offset gains on a subsequent sale to an unrelated party.
Basis = 30
FMV = 35
Basis = 20
assetDisallowance of Losses on Transactions Between Related Parties -- Sec. 267(b)
Father (F) sells Daughter (D) an antique asset
realized loss, not recognized
Later, D sells the asset to an unrelated party
15 realized gain
(10) F’s previously disallowed loss
5 gain recognized by D