Masonry Magazine October 1969 Page. 20
TAXES
By MIRIAM McD. MILLER
ACQUIRING A LOSS
The Tax Court recently disallowed a taxpayer's deduction for a net operating loss carryover. The taxpayer, a company engaged in the manufacture and sale of industrial materials, including firebricks, acquired a corporation which manufactured second-class firebricks and was operating at a loss.
The taxpayer-company argued that its purpose in acquiring the corporation was not tax avoidance by utilizing the acquired corporation's net operating loss. The company claimed that it acquired the corporation in a desire to increase its overall foundry business, that it had a need for the property of the corporation for expansion purposes and that it desired the services of the corporation's principal stockholder and president.
The Tax Court ruled against the taxpayer on the ground that it had not carried its burden of proving that its principal purpose in the acquisition was not tax avoidance. The Court found that the demand for second class fire-bricks, the sole product of the acquired corporation, had been steadily declining prior to the acquisition. It was the Court's opinion that it was improbable that the taxpayer would continue to operate the corporation as a division and that the taxpayer had never followed through with a plan to improve the business it had acquired.
Thus, the Court held that the Commissioner's disallowance of the taxpayer's deduction for a net operating loss carryback was correct. (Brumley-Donaldson Co. v. Com'r, T.C.Memo 1969-183.)
SOME STATISTICS
The IRS has just released its report on the statistics of income from business for 1966. One interesting item was that over half of the total income reported by proprietors of businesses, farms, or professional offices is obtained from outside sources, such as dividends, interest, rentals, and wages of a spouse.
MAGNETIC TAPE REPORTS
The IRS continues its urging that businesses use magnetic tape in lieu of original copies of paper documents to report information required on Form W-2, wage and tax statement. Employers who wish to use magnetic tape reporting must first obtain permission from the IRS. The Director of IRS in the region in which an employer normally filed his returns can furnish all necessary information on the use of magnetic tape.
CIVIC DONATION
A taxpayer asked the IRS as to the deductibility of money and the value of merchandise given by him in connection with a governors' conference in his state. One-third of the cost of hosting the conference was solicited by the state from private sources. Also certain manufacturers were invited to give gifts of merchandise as personal mementoes of the conference to the visiting governors and their wives.
The IRS explained that a charitable deduction may be taken for a contribution or gift to or for the use of a State, but only if the contribution or gift is made for exclusively public purposes. Here the money spent by the State to host the convention is an exclusively public purpose and the money given for that purpose would be deductible. But, the merchandise given by an individual manufacturer for mementoes from the conference were found by the IRS not to be for an exclusively public purpose and hence not subject to a charitable deduction. (Rev. Rul. 69-459).
WITHHOLDING ALLOWANCES
You may be able to increase your take-home pay by having your withholding for federal income taxes reduced. Under certain conditions, taxpayers who itemize deductions on their income tax returns are entitled to get what are called additional withholding allowances. A taxpayer who is entitled to an extra withholding allowance would likely receive a fairly large refund after he files his return. But, that is the next year and he may prefer to have the income during the year when his expenses (and deductions) are running high.
There is a mathematical formula to determine if you have "excess deductions." Excess deductions are considered to be deductions that exceed by $700 what the IRS considers to be normal deductions. The normal amount of deductions is shown on the back of Schedule A of the W 4 Form.
In general, for every $700 of excess deductions that you estimate, one extra withholding allowance may be claimed. The effect of such a withholding allowance is to remove $700 of annual salary or wages from your income that is subject to withholding. There are certain guidelines to be followed but it may be worth the effort to check because one extra withholding allowance would be equivalent to having an additional dependent plus $100.
CASUALTY LOSS
In investigating the cause of considerable cracks in the foundation and walls of his home, the taxpayer discovered that his home had been built over a former drainage ditch. The result of this error in construction caused the taxpayer's home to gradually sink, and over a period of three years there was considerable damage done.