Masonry Magazine September 1973 Page. 30
TAXES
By MIRIAM. McD. MILLER
FOSHA
As an aftermath of the enactment of the Federal Occupational Safety and Health Act of 1970, many employers have had to make certain expenditures. They then had to resolve the problem of how to treat these expenditures for tax purposes. Can they be currently deducted or must they be capitalized and recovered through depreciation?
This question has been firmly answered by the Third Circuit. The Court explained that "the involuntary nature of the expenditure, under threat of injunction... does not render deductible as expense an item which would otherwise be non-deductible as capital." Woolrich Woolen Mills v. Commissioner (3rd cir. 1973.)
In other words, the cause for the expenditure is irrelevant. The tax treatment of the expenditure revolves around the nature of the expenditure.
Briefly stated, a capital expenditure is one which results in the creation or acquisition of a new asset with a life of more than one year. A capital expenditure can be found if there is an increase in the value of an existing asset or in a prolongation of its useful life or when an existing asset is fitted to a different use.
Where an expenditure for occupational health and safety is a repair, it can be currently deducted. However, if under the same reasoning the expenditure has to be regarded as a capital expenditure, then its cost can be recovered through depreciation.
CAMPAIGN CONTRIBUTIONS
Amendments to the procedure to be followed to allocate $1 per taxpayer to the Presidential Election Campaign Fund are being proposed. These amendments would provide for instructions on the 1973 Forms 1040 and 1040A themselves. The instructions would explain that the campaign fund designation can be made by using Form 4875. This designation was so greatly unused or overlooked on 1972 returns that this move by the IRS is an obvious effort to prevent that happening again in 1973.
TRANSPORTING TOOLS
When the various Circuit Courts of Appeals start to disagree in their interpretations of the law, the Supreme Court will grant certiarari and settle the dispute.
The Second and Seventh Circuits had ruled that there should be allowed a deduction for a portion of the costs of commuting to work when it was necessary to transport job-required tools or equipment. However, the Fifth Circuit had refused to follow those cases on the ground that there was no rational basis for any allocation between the nondeductible commuting component and the deductible business component of the total expense. The question had to be resolved by the Supreme Court because taxpayers subject to the rulings of one circuit would be given different treatment than taxpayers residing in another circuit.
In the case argued before the Supreme Court, the taxpayer was a commercial airlines pilot, who regularly traveled by private automobile from his home to his place of employment and back again, a round trip of approximately 84 miles. The pilot sought to deduct the entire cost of commuting on the theory that his automobile expenses were incurred to transport his flight bag and overnight bag and in this way constituted ordinary and necessary business expenses.
The Supreme Court has now ruled that there may be times when business expenses are incurred in order to transport job-required tools and materials to and from work. However, this was not the case here. Like many others, the pilot must commute to work. Commuting expenses have been designated by the Congress as nondeductible personal expenses. The Supreme Court explained that the fact that "by happenstance the taxpayer must carry incidentals of his occupation with him" would not provide a rational basis to pro rate his personal commuting expenses with the expenses necessary to transport his overnight bag. Fausner v. Commissioner, Su. Ct. 1973.
EMPLOYEE PLAN
The IRS was recently asked whether a pension plan would qualify if some former employees could continue to earn additional credits for years after separation from the service of the employer.
A state established a pension plan for the members of the state legislature. One of the provisions of the plan allowed a participant who ceased to be a member of the legislature, to continue his membership in the plan. He would do this by contributing the same annual amount he would have contributed had he remained a member of the legislature. By doing this he would be entitled to credited service for each such year.
The IRS ruled that a plan does not qualify if it provides benefits for persons who are not the employees of the organization maintaining the plan. The plan in this case provides benefits, not only for the employee's service for the employer, but also (if a former employee so elects), for the period between the termination of the employee's service and the time he reaches retirement age. Thus, the plan provides benefits for periods during which the individuals were not the employees of the organization maintaining the plan. Such a plan cannot qualify under Section 401 of the Code. Rev. Rul. 73-238.
EXPANDED AUDITS
The IRS is seeking from Congress some $40 million for an expanded audit program. The requested additional funds would be used in large measure for 2,926 new positions. These positions would be for more revenue agents, tax auditors, accounting aides and clerical help. The IRS believes that increasing its auditing program will yield far more revenue than the costs being requested from Congress.
MCAA Fall Executive Board Meeting, Hilton Palacio
Del Rio, San Antonio, Texas, November 15-18.
masonry
September, 1973