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Taxes Re: repayment of misappropriated funds
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Confused
May 15, 2012, 5:12:35 PM5/15/12
to
John Smith is the majority stockholder of ABC Corp.
In 2007 ABC pays Smith a $1M bonus.
In 2012 the minority stockholders win a judgement ordering Smith to repay the bonus plus interest as misappropriation.
Since it is too late to amend the 2007 return can Smith get his tax payment back.
Can he deduct the repayment from his 2012 return? (were he to have the income...)
Will the repayment be income to ABC?
What does ABC do about their 2007 return where they deducted it?
--
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<< ------------------------------------------------------- >>
In 2007 ABC pays Smith a $1M bonus.
In 2012 the minority stockholders win a judgement ordering Smith to repay the bonus plus interest as misappropriation.
Since it is too late to amend the 2007 return can Smith get his tax payment back.
Can he deduct the repayment from his 2012 return? (were he to have the income...)
Will the repayment be income to ABC?
What does ABC do about their 2007 return where they deducted it?
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
Arthur Kamlet
May 15, 2012, 5:37:20 PM5/15/12
to
In article <2267292.312.1337114215028.JavaMail.geo-discussion-forums@ynjj16>,
If the repayment of income declared and taxed in an earlier year
is not more than $3000, that amount can be claimed as a Schedule A Misc
deduction subject to reduction by 2% of AGI.
But if more than $3000, it is subject to recovery under the Claim of
Right doctrine.
Under the CofR doctrine, taxpayer may chose one of two methods to
recover:
a) A Schedule A Misc deduction Not subject to 2% reduction, or
b) Calculate and recover as a tax credit the difference between
tax paid in the earlier year assuming no income corresponding
to the repayment amount, and actual tax paid.
See IRS Pub 525 for a longer discussion on Repayments and how to
calculate the tax credit due to asserting the Claim of Right.
Since the repayment was in a later year, there is no amended return
even if SOL is still running.
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
Confused <*@lippman.info> wrote:
>John Smith is the majority stockholder of ABC Corp.
>In 2007 ABC pays Smith a $1M bonus.
>In 2012 the minority stockholders win a judgement ordering Smith to
>repay the bonus plus interest as misappropriation.
>
>Since it is too late to amend the 2007 return can Smith get his tax
>payment back.
>Can he deduct the repayment from his 2012 return? (were he to have the
>income...)
>Will the repayment be income to ABC?
>What does ABC do about their 2007 return where they deducted it?
This sounds like a Repayment.
>John Smith is the majority stockholder of ABC Corp.
>In 2007 ABC pays Smith a $1M bonus.
>In 2012 the minority stockholders win a judgement ordering Smith to
>repay the bonus plus interest as misappropriation.
>
>Since it is too late to amend the 2007 return can Smith get his tax
>payment back.
>Can he deduct the repayment from his 2012 return? (were he to have the
>income...)
>Will the repayment be income to ABC?
>What does ABC do about their 2007 return where they deducted it?
If the repayment of income declared and taxed in an earlier year
is not more than $3000, that amount can be claimed as a Schedule A Misc
deduction subject to reduction by 2% of AGI.
But if more than $3000, it is subject to recovery under the Claim of
Right doctrine.
Under the CofR doctrine, taxpayer may chose one of two methods to
recover:
a) A Schedule A Misc deduction Not subject to 2% reduction, or
b) Calculate and recover as a tax credit the difference between
tax paid in the earlier year assuming no income corresponding
to the repayment amount, and actual tax paid.
See IRS Pub 525 for a longer discussion on Repayments and how to
calculate the tax credit due to asserting the Claim of Right.
Since the repayment was in a later year, there is no amended return
even if SOL is still running.
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
Confused
May 15, 2012, 7:53:19 PM5/15/12
to
> But if more than $3000, it is subject to recovery under the Claim of
> Right doctrine.
>
>
> Under the CofR doctrine, taxpayer may chose one of two methods to
> recover:
>
> a) A Schedule A Misc deduction Not subject to 2% reduction, or
> b) Calculate and recover as a tax credit the difference between
> tax paid in the earlier year assuming no income corresponding
> to the repayment amount, and actual tax paid.
>
>
> See IRS Pub 525 for a longer discussion on Repayments and how to
> calculate the tax credit due to asserting the Claim of Right.
>
Is the credit refundable?
If not, can it be carried forward or backward?
Presumably the interest ordered to be repaid is simply lost.
Arthur Kamlet
May 15, 2012, 8:36:51 PM5/15/12
to
In article <27555265.594.1337123669051.JavaMail.geo-discussion-forums@ynia9>,
>If not, can it be carried forward or backward?
>
>Presumably the interest ordered to be repaid is simply lost.
I would certainly assume so.
Confused <*@lippman.info> wrote:
>>
>> See IRS Pub 525 for a longer discussion on Repayments and how to
>> calculate the tax credit due to asserting the Claim of Right.
>>
>I read through 525.
>Is the credit refundable?
Believe it or not, yes. It is a line 71 refundable tax credit.
>>
>> See IRS Pub 525 for a longer discussion on Repayments and how to
>> calculate the tax credit due to asserting the Claim of Right.
>>
>I read through 525.
>Is the credit refundable?
>If not, can it be carried forward or backward?
>
>Presumably the interest ordered to be repaid is simply lost.
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
ArtKamlet at a o l dot c o m Columbus OH K2PZH
removep...@yahoo.com
May 16, 2012, 12:58:45 AM5/16/12
to
On Tuesday, May 15, 2012 5:36:51 PM UTC-7, Arthur Kamlet wrote:
> In article <27555265.594.1337123669051.JavaMail.geo-discussion-forums@ynia9>,
> Confused <*@lippman.info> wrote:
> >If not, can it be carried forward or backward?
> >
> >Presumably the interest ordered to be repaid is simply lost.
>
> I would certainly assume so.
Could it be a misc deduction subject to 2%?
> In article <27555265.594.1337123669051.JavaMail.geo-discussion-forums@ynia9>,
> Confused <*@lippman.info> wrote:
> >If not, can it be carried forward or backward?
> >
> >Presumably the interest ordered to be repaid is simply lost.
>
> I would certainly assume so.
Message has been deleted
Message has been deleted
removeps-groups
May 17, 2012, 11:54:57 AM5/17/12
to
"D. Stussy" <spam+ne...@bde-arc.ampr.org> wrote in message
news:jp179o$bne$1...@snarked.org...
> I wouldn't make that assumption so quickly. If one can show that he was
> "in the trade or business of embezzlement," he might get a deduction as
> business interest.
Is there are IRS statute that prohibits deductions for illegal activities?
For example, there is 280E which disallows deductions for illegal sale of
controlled substances (ie. drugs).
news:jp179o$bne$1...@snarked.org...
> I wouldn't make that assumption so quickly. If one can show that he was
> "in the trade or business of embezzlement," he might get a deduction as
> business interest.
Is there are IRS statute that prohibits deductions for illegal activities?
For example, there is 280E which disallows deductions for illegal sale of
controlled substances (ie. drugs).
Message has been deleted
Bill Brown
May 18, 2012, 12:56:23 PM5/18/12
to
On May 18, 10:50 am, "D. Stussy" <spam+newsgro...@bde-arc.ampr.org>
wrote:
> "removeps-groups" wrote in messagenews:jp3701$33q$1...@speranza.aioe.org...
> "D. Stussy" <spam+newsgro...@bde-arc.ampr.org> wrote in message
>
> The payment of interest is not an illegal transaction unless the interest
> exceeds 25%.
>
I'm confident that interest payments made in support of an illegal
activity will be classified as non-deductible personal interest upon
IRS audit.
wrote:
> "removeps-groups" wrote in messagenews:jp3701$33q$1...@speranza.aioe.org...
> "D. Stussy" <spam+newsgro...@bde-arc.ampr.org> wrote in message
>
> news:jp179o$bne$1...@snarked.org...
>
> > I wouldn't make that assumption so quickly. If one can show that he was "in
> > the trade or business of embezzlement," he might get a deduction as business
> > interest.
>
> Is there are IRS statute that prohibits deductions for illegal activities?
> For example, there is 280E which disallows deductions for illegal sale of
> controlled substances (ie. drugs).
>
> ====================
> news:jp179o$bne$1...@snarked.org...
>
> > I wouldn't make that assumption so quickly. If one can show that he was "in
> > the trade or business of embezzlement," he might get a deduction as business
> > interest.
>
> Is there are IRS statute that prohibits deductions for illegal activities?
> For example, there is 280E which disallows deductions for illegal sale of
> controlled substances (ie. drugs).
>
>
> The payment of interest is not an illegal transaction unless the interest
> exceeds 25%.
>
I'm confident that interest payments made in support of an illegal
activity will be classified as non-deductible personal interest upon
IRS audit.
Alan
May 18, 2012, 3:56:51 PM5/18/12
to
On 5/18/12 8:50 AM, D. Stussy wrote:
> "removeps-groups" wrote in message news:jp3701$33q$1...@speranza.aioe.org...
deductions against income derived from an illegal activity (sale of
controlled of substances). E.g., a bookie operating his/her business
contrary to the law can take ordinary and necessary business expenses
against income. Obviously, you don't usually see criminals declaring
their ill-gotten gains. However, if they did, they would get the
deduction. Also obviously, they open themselves up to an audit of their
income and expense. This is why, we have money launderers.
--
Alan
http://taxtopics.net
> "removeps-groups" wrote in message news:jp3701$33q$1...@speranza.aioe.org...
>
> "D. Stussy" <spam+ne...@bde-arc.ampr.org> wrote in message
> news:jp179o$bne$1...@snarked.org...
>
>> I wouldn't make that assumption so quickly. If one can show that he
>> was "in the trade or business of embezzlement," he might get a
>> deduction as business interest.
>
> Is there are IRS statute that prohibits deductions for illegal activities?
> For example, there is 280E which disallows deductions for illegal sale of
> controlled substances (ie. drugs).
>
> "D. Stussy" <spam+ne...@bde-arc.ampr.org> wrote in message
> news:jp179o$bne$1...@snarked.org...
>
>> I wouldn't make that assumption so quickly. If one can show that he
>> was "in the trade or business of embezzlement," he might get a
>> deduction as business interest.
>
> Is there are IRS statute that prohibits deductions for illegal activities?
> For example, there is 280E which disallows deductions for illegal sale of
> controlled substances (ie. drugs).
>
> ====================
>
> The payment of interest is not an illegal transaction unless the
> interest exceeds 25%.
280E is the only section that I am aware of that denies business expense
>
> The payment of interest is not an illegal transaction unless the
> interest exceeds 25%.
deductions against income derived from an illegal activity (sale of
controlled of substances). E.g., a bookie operating his/her business
contrary to the law can take ordinary and necessary business expenses
against income. Obviously, you don't usually see criminals declaring
their ill-gotten gains. However, if they did, they would get the
deduction. Also obviously, they open themselves up to an audit of their
income and expense. This is why, we have money launderers.
--
Alan
http://taxtopics.net
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