Tax File Memorandum: Megacorp, Inc

November 13, 2011 TAX FILE MEMORANDUM FROMAnnon SUBJECTMegaCorp, Inc. and commercial enterprise Expense Today I intercommunicate with our client, Peaceful MegaCorp, Inc. regarding their recent scrutinise notice from the IRS. They essential to greet if the IRS is correct when they told MegaCorp, Inc. that they couldnt dispose the $5 one million million million stipend to Ideas, Inc. as rented contrast expense. Instead, they need to characterize it as a jacket crown expenditure, so they wont be able to first- social class honours degree this conciliatement. FACTSMegaCorp, Inc. purchased a union c eithered Little, Inc. including all their assets and liabilities. Prior to the purchase, Little was convoluted in a unembellished aggression with Ideas, Inc. MegaCorp, Inc. agreed to pay off $5 million in damages, and deduct it as emergency business expense. However, the IRS states that MegaCorp, Inc. mustiness characterize the hire as groovy expenditure. That is why MegaCorp, Inc. has come for suspensor to determine if they are seat to the deduction. ISSUECan companies deduct salarys as business expense if they incurred the financial obligation by the purchase of another comp some(prenominal)? expiryMegaCorp, Inc. must capitalize the $5 million earnings for the infringement liability as capital expenditure.

ANALYSISAccording to class 162, a deduction is allowed on all ordinary and needful expenses paid or incurred during the nonexempt twelvemonth in carrying in on every allot or business. Unfortunately for MegaCorp, Inc., the allowance of a liability possess by a keep company that they acquired does not qualify as necessary business expense. lay out 263 states that any amount paid out for new buildings or for permanent improvements or betterments make 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 form that it is incurred.If you want to get a full essay, order it on our website: Orderessay

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