Tax File Memorandum: Megacorp, Inc

November 13, 2011 TAX FILE MEMORANDUM FROMAnnon SUBJECTMegaCorp, Inc. and Business Expense instantly I spoke with our client, Peaceful MegaCorp, Inc. regarding their recent audit signalize from the IRS. They essential to know if the IRS is correct when they told MegaCorp, Inc. that they couldnt measure up the $5 one thousand million stipend to Ideas, Inc. as needed business depreciate. Instead, they need to characterize it as a jacket crown expenditure, so they wont be able to start this conciliatement. FACTSMegaCorp, Inc. purchased a union c onlyed Little, Inc. including all their assets and liabilities. previous to the purchase, Little was complex in a patent incursion with Ideas, Inc. MegaCorp, Inc. agreed to pay $5 million in damages, and derive it as necessity business expense. However, the IRS states that MegaCorp, Inc. must characterize the accept as capital expenditure. That is why MegaCorp, Inc. has come for help to detect if they are emp ower to the deduction. ISSUECan companies deduct salarys as business expense if they incurred the liability through the purchase of another comp some(prenominal)? expiryMegaCorp, Inc. must profit the $5 million payment for the infringement liability as capital expenditure.

ANALYSISAccording to class 162, a deduction is allowed on all ordinary and inevitable expenses paid or incurred during the taxable twelvemonth in carrying in on all trade or business. Unfortunately for MegaCorp, Inc., the payment of a liability owned by a company that they acquired does not qualify as necessary business expense. part 263 states that any amount paid out for new! buildings or for permanent improvements or betterments made to increase the value of any property or estate, is not allowed any deduction. Since MegaCorp, Inc. had purchased Little, Inc. and obtained all their assets, the payment for the infringement liability must be capitalized in the year that it is incurred.If you want to get a mount essay, order it on our website: OrderCustomPaper.com

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