Masonry Magazine July 1974 Page. 28
Taxes
(Continued from page 18)
in the trust. The risk of having the fund taxed currently is lessened where the deferred compensation is unsecured.
Many deferred compensation plans have the added feature that provides for the investment by the employer of the compensation deferred. Thus, provided the tax laws are carefully followed, not only will the taxpayer be taxed at a later and preferable tax time on the amount credited to him as deferred compensation but also the earnings on that amount will be taxed at the later date.
While the employer may deduct in full the amount of the deferred compensation when paid, it does not seem to be possible for the employer to deduct the amount that is earned by the deferred compensation. Needless to say, deferred compensation plans are well worth consideration by companies and their employees. However, good tax advice on all ramifications of such plans is essential.
ONE DAY
Most taxpayers are aware of the fact that in order to be entitled to long-term capital gain treatment, the property involved must be held for more than six months. However, not as many taxpayers realize the importance of that word "more." In a recent case before the Tax Court, an investor bought 100 shares of stock on December 2 and then sold the shares on the following June 2. The Court determined that the holding period ran from December 3 to June 2 six months to the day.
The Court explained that since 1864, it has been the law to calculate a holding period by beginning the day after the purchase day. Therefore, this taxpayer had not held his stock for "more than six months" and had realized a short-term capital gain. (Anderson v. Commissioner, T.C. Memo 1974-49.)
LATE CHARGE
Just about every taxpayer is familiar with the late payment charge that is so often stated on public utility bills. The IRS was recently asked for its advice as to whether such a late-payment charge assessed by a public utility is deductible as interest.
The IRS first noted that it is not necessary for the parties to a transaction to label a payment made for the use of money as "interest" for it to be so treated. The facts of the transaction control its character, not the terminology.
The IRS ruled that, in the absence of evidence that the late-payment charge assessed by the public utility is for a specific service performed in connection with a customer's account, such late-payment charge is deductible as interest. (Rev. Rul. 74-187.)
RESEARCH COSTS
The Supreme Court recently rendered a decision that can only be regarded as beneficial to the interests of the small businessman. The question presented to the Court was whether a taxpayer must be engaged in a business in order to deduct research and experimental expenditures. Several lower courts had held that the deduction for re-