Tax File Memorandum: Megacorp, Inc

November 13, 2011 TAX FILE MEMORANDUM FROMAnnon SUBJECTMegaCorp, Inc. and Business Expense directly I spoke with our client, Peaceful MegaCorp, Inc. regarding their recent audit observance from the IRS. They essential to know if the IRS is correct when they told MegaCorp, Inc. that they couldnt characterise the $5 billion stipend to Ideas, Inc. as needed business put down. Instead, they need to characterize it as a jacket crown expenditure, so they wont be able to start this conciliatement. FACTSMegaCorp, Inc. purchased a union c alled Little, Inc. including all their assets and liabilities. earlier to the purchase, Little was complex in a patent invasion with Ideas, Inc. MegaCorp, Inc. agreed to pay $5 million in damages, and generalise it as necessity business expense. However, the IRS states that MegaCorp, Inc. must characterize the make as capital expenditure. That is why MegaCorp, Inc. has come for help to unsex if they are empower to the d eduction. ISSUECan companies deduct salarys as business expense if they incurred the liability through the purchase of another comp some(prenominal)? expiryMegaCorp, Inc. must gain the $5 million payment for the infringement liability as capital expenditure.

ANALYSISAccording to class 162, a deduction is allowed on all ordinary and unavoidable expenses paid or incurred during the taxable class in carrying in on all trade or business. Unfortunately for MegaCorp, Inc., the payment of a liability owned by a company that they acquired does not qualify as necessary business expense. part 263 states that any amount paid surface for new buildings or f! or permanent improvements or betterments made to step-up 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 year that it is incurred.If you want to get a skillful essay, order it on our website: OrderCustomPaper.com

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