Masonry Magazine February 1973 Page. 32
Taxes
(Continued from page 13)
in connection with the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body, are expenses paid for medical care and as such are deductible from federal income taxes. (Rev. Rul. 72-593.)
INCAPACITATED OFFICER
The founder and major stockholder of a family owned and run machine factory suffered a stroke and lost most of his faculties. The company decided to continue to pay him his salary-an amount in excess of $20,000. The Tax Court refused to allow the corporation to deduct the "salary" paid as an ordinary and necessary business expense. It was this Court's opinion that the amounts paid to the stricken owner were dividends and were not compensation for past services.
Once again the tax news indicates that taxpayers may be in for a rude awakening when the IRS gives its interpretation to acts thought to be free of tax consequences. (American Foundry v. Commissioner, 59 TC-No. 23.)
TAX-OPTION CORPORATIONS
In a tax-option corporation, the shareholders of a small business can elect alternative tax consequences to be taxed as a partnership. If no election is made, the corporation is liable for corporate taxes, the shareholders cannot deduct corporate losses, and only distributed dividends are subject to the personal income tax. However, if the election is made, the corporation is exempt from corporate taxes and the shareholders may deduct corporate net operating losses. Of course, the shareholders must then pay personal income tax on all corporate income whether distributed or not.
In a recent case involving a tax-option corporation, the Court had to determine whether the taxpayer who owned substantially all of the stock of a corporation could invoke his privilege against self-incrimination and refuse to produce the records of the corporation. It is fairly well established that the privilege against self-incrimination cannot be invoked by a corporate officer to prevent disclosure of corporate records which might incriminate him even though the corporation is a mere alter ego of its owner. This privilege is personal.
The idea of treating small corporations as partnerships and on the other hand of treating certain partnerships and proprietorships as corporations was strictly permitted by Congress for tax purposes. While a corporation may elect (for tax purposes) to be treated as a partnership, it still retains all of its corporate characteristics. Thus the Court ruled that the corporation in question retained its corporate character and therefore its records were not protected by the stockholder's privilege against self-incrimination. U.S. V. Richardson (10th cir. 1972).
EMPLOYMENT AGENCY FEE
The Tax Court has once again ruled that the fee paid to an employment agency by an engineer was deductible even though no employment or offers of employment resulted from the agency's efforts. (Blewitt v. Commissioner. T.C. Memo 1972-247.)
SOCIAL SECURITY IN 1973
As you probably know, there will be higher Social Security taxes in 1973. The maximum Social Security tax will be 35% higher on employers and employees. The maximum rate for the self-employed will increase 28%. CCH has prepared the following chart showing the maximum tax for 1972-1974:
1972 1973 1974
Employers and $468 $631.80 $702
Employees ($9000 ($10,000 (12,000
X X X
5.2%) 5.85%) 5.85%)
Self-Employed $675 $864 $960
($9000 ($10,000 (12,000
X X X
7.5%) 8%) 8%)
MAYCO C3OD
SMALL LINE CONCRETE PUMP
For more uses than any other
small line concrete pump!
• Masonry and high-lift grouting, lightweight cellular concrete floors.
• Wet-gunning.
Slabs and foundations.
• Handles ½" minus aggregate.
• Pumps stiff mixes 400-500' horizontally and 100' vertically.
Diversify with the C30D into a concrete pumping service.
For name of local MAYCO distributor contact:
MAYCO PUMP CORPORATION
4560 Sperry St., Los Angeles, Ca. 90039/(213) 245-8821
COST OF BUSINESS CAR
In 1963, a taxpayer bought a car for his own personal use. Two years later he converted it to business use. However, after one year of use in the taxpayer's business the car had to be abandoned as a total loss. The taxpayer took as a business loss the difference between the original cost and the depreciation taken on it. The Tax Court ruled that this could not be done. Under such circumstances as these, a taxpayer should figure his loss on the basis of the fair market value of the car on the day that it was converted from personal to business use less the depreciation taken. Such fair market value, the Tax Court ruled, truly reflected the business cost of the car. (T.C. Memo 1972-22.)
masonry • February, 1973