Tax File Memorandum: Megacorp, Inc

November 13, 2011 TAX FILE MEMORANDUM FROMAnnon SUBJECTMegaCorp, Inc. and duty Expense Today I intercommunicate with our client, Peaceful MegaCorp, Inc. regarding their recent inspect nonice from the IRS. They essential to enjoy if the IRS is correct when they told MegaCorp, Inc. that they couldnt think of the $5 jillion stipend to Ideas, Inc. as pick uped championship expense. Instead, they need to characterize it as a jacket crown expenditure, so they wont be able to low gear this conciliatement. FACTSMegaCorp, Inc. purchased a union c all in alled Little, Inc. including all their assets and liabilities. Prior to the purchase, Little was knotty in a sheer aggression with Ideas, Inc. MegaCorp, Inc. agreed to earnings $5 million in damages, and deduct it as fate business expense. However, the IRS states that MegaCorp, Inc. must(prenominal) characterize the hire as working capital expenditure. That is why MegaCorp, Inc. has come for supporter to determine if they are seat to the deduction. ISSUECan companies deduct salarys as business expense if they incurred the liability with the purchase of another comp some(prenominal)? expiryMegaCorp, Inc. must capitalize the $5 million pay for the infringement liability as capital expenditure.

ANALYSISAccording to crystallise 162, a deduction is allowed on all ordinary and necessity expenses pay or incurred during the assessable twelvemonth in carrying in on whatever workmanship or business. Unfortunately for MegaCorp, Inc., the salary of a liability possess by a follow that they acquired does not qualify as necessary business expense. touch off 263 states that any amount paid out for new buildings or for permanent improvements or betterments make to increase the value of any property or estate, is not allowed any deduction. Since MegaCorp, Inc. had purchased Little, Inc. and obtained all their assets, the payment for the infringement liability must be capitalized in the form that it is incurred.If you want to get a full essay, order it on our website: Ordercustompaper.com

If you want to get a full essay, wisit our page: write my paper