Masonry Magazine February 1969 Page. 21
TAXES
By MIRIAM McD. MILLER
SERVICES AND TRUCK USE
A Missouri corporation hired a driver and his truck to haul stone from its quarry to a loading dock at a fixed amount per load. Under the Missouri Workmen's Compensation Law, it had been determined that one-third of the amount paid to such an employee should be considered wages and two-thirds as payment for the use of his truck. The corporation-taxpayer asked the IRS whether it could report the wages on the same basis for Federal employment tax purposes. The IRS advised that it could.
The allocation of the amount paid to any individual where the payment is in consideration of both personal services and the use of equipment must be governed by the facts in each case. If the contract of employment does not specify a reasonable division of the total amount paid between wages and equipment, a proper allocation may be arrived at by reference to the prevailing wage scale in a particular locality for similar services in operating the same class of equipment with the fair rental value of similar equipment. Rev. Rul. 68-624.
POINTS
The IRS has issued another Ruling on the often asked question-may a loan charge paid by the seller of a residence to assist the purchaser in obtaining a mortgage loan be deducted as interest? This loan charge is commonly referred to both as a "loan placement fee" and as "points."
The IRS explained that in order to deduct a charge as interest, the charge must be on a taxpayer's own obligation. As this charge is on the indebtedness of the purchaser, the taxpayer-seller cannot deduct this charge as interest. However, as a seller incurs a direct cost in connection with the sale of his house, he may reduce the amount realized by him on the sale of the house by the amount he paid for the loan charge and thus lower his gain or increase any loss experienced. Rev. Rul. 68-650.
TAX BENEFITS FOR DISABLED
Congressman Wilbur Mills has introduced a bill that if passed would give special tax allowances to certain disabled individuals. The bill provides that a disabled taxpayer would be entitled to an additional $600 exemption. This exemption could be claimed as well for a disabled dependent spouse. In addition, the bill provides that a disabled taxpayer would be entitled to an itemized deduction of up to $600 annually for expenses paid for transportation to and from his work. In general, this disability exemption would be limited to a person who has lost (or lost the use of) one or more of his extremities to such an extent that he was unable during the entire taxable year to use public transportation as a means of going to and from work.
EMPLOYMENT TAXES
Advice was recently requested from the IRS as to whether amounts paid by a company to certain employees when its factory is not operating are subject to withholding and other employment taxes.
In the facts presented, under an insurance contract, it was provided that in the event of a shut-down due to fire, explosion, or certain other causes, the insurance company would bear the cost of salaries of some of the company's employees during the period the business was discontinued. The particular employees received their regular salaries but while some were engaged in repairing and replacing damaged property, conducting correspondence, others were not doing any work during the period of shut-down.
The IRS ruled that even though the company was reimbursed by the insurance company for the amounts paid to the employees during the shut-down period, the amounts paid to them were wages for the purpose of employment taxes. Rev. Rul. 69.9.
FRACTIONAL SHARES
The IRS has updated its position on the tax treatment of the sale of fractional shares received as a result of the declaration of a stock dividend.
In the case presented, the board of directors of a corporation declared a stock dividend that was nontaxable. However, in its resolution the board provided that no fractional shares of stock would be issued but rather that all fractions of shares would be united into whole shares and sold by the treasurer.
The IRS takes the position that the fractional shares are part of the stock dividend and is therefore nontaxable. However, gain or loss is recognized to the shareholder on the sale of the fractional shares. This gain or loss is to be measured by the basis allocated to such fractional shares. Rev. Rul. 69-15.
SUPREME COURT
The Internal Revenue Code provides that an accumulated earnings tax shall apply to every corporation formed or availed of for "the purpose" of avoiding the income tax on their shareholders by accumulating earnings instead of paying them out as dividends. In brief, the purpose of the law was to deter the use of a corporate entity to avoid personal income taxes. In other words, to cause a company to distribute any profits not needed for the conduct of its business so that the profits would become subject to tax in the hands of the individual stockholders.
However, for many years there was a wide disagreement on the interpretation of this law. Some of the courts felt that tax avoidance must be shown to be the sole purpose behind an accumulation in order to impose this tax. Other courts felt that corporation could avoid the accumulated earnings tax simply by showing that the tax avoidance purpose was not the dominant or primary purpose in its accumulation. So to resolve the conflict and to clarify the law, the Supreme Court granted certiorari.
The case presented involved a corporation engaged in the manufacturing of bubble gum and candy and in the operation of a farm. As in many of the tax problems involving questionable accumulation of earnings, this corporation was a small, controlled corporation. All of its stock was owned by one person. During the years in question, a period of some 7 years, the corporation increas-