Masonry Magazine March 1974 Page. 26
Taxes
(Continued from page 22)
The taxpayers' lawyer was the trustee and carried on his duties as trustee independently of the taxpayer. As soon as the property was transferred to the trusts, the trustee leased the property back to the taxpayer. From then on the trustee collected the rents due, paid the trust's expenses and distributed the net income to the minor children.
The Commissioner determined that the rental payments were nondeductible as business expenses because of the fact that the funeral director had retained a reversionary interest and that this constituted an equity in the property. Section 162 (a) (3) provides that rent can be deducted as a business expense only if paid for the business use of property in which the taxpayer has no equity.
Fortunately for this taxpayer, the Tax Court disagreed with the Commissioner. The Court ruled that property in which the taxpayer should have no equity does not include a reversionary interest, not derived from the lease or the lessor, which is scheduled to become possessory after the expiration of a lessor's term of years.
This reversionary interest is not detrimental to the lessor. Prior to making its specific ruling, the Court did note that the following conditions had been met by the taxpayer: the trustee acted independently of the taxpayer, the lease was in writing, the payments were reasonable, and after the trusts were created the taxpayer had a true need for the property in order to carry on his business. (Mathews v. Commissioner, 61 TC-No. 3.)
PROPER EMPLOYER
A Federal District Court in Kentucky was asked to decide whether a corporation was entitled to deduct contributions paid by it to the profit-sharing plan of another corporation.
A furniture and appliance company (Co.#1) enacted a profit-sharing trust plan. The District Director of Internal Revenue determined that the plan qualified. There was involved (probably with the same stockholders) a second corporation (Co.#2.) It was the deductibility of the contributions made by Co.#2 to the trust plan that was before the Court.
The Court ruled that Co.#2 could not deduct contributions it made to the trust plan because it had not sufficiently adopted the trust plan. The second corporation failed to become a party to the trust agreement between Co.#1 and the administering trust company.
The employees must be informed of a plan, its salient provisions and any amendments thereto. The trust involved here was never amended. Therefore, the Court could only deny the right of Co.#2 to deduct any contributions made to such trust. Smith's Appliance & Furniture Co.#2 v. U.S. (D.C. Ky. 1973).
DISTRICT SETTLEMENTS
The IRS has announced that it has authorized District Conferees to settle cases involving proposed tax deficiencies up to $2,500. Previously such small tax deficiencies could not be settled in the district office but had to be sent to one of the 38 appellate division offices. This change was made because it was believed that the small taxpayer would not