Appropriate a Book of Business, Capital or Ordinary Gain?

Houston Tax Attorney

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If an investment advisor is terminated by the bank he works for and the bank keeps the advisors book of business, is the bank compensating the investment advisor for the sale of his book of business or is it paying compensation for services? One would seem to produce capital gain and the other ordinary gain. […]

Line of Credit Standby Fees, to Deduct or to Capitalize?

Houston Tax Attorney

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Many businesses rely on a standby line of credit to cover their expenses, to weather downturns, and to grow.  But this credit can be expensive in terms of interest and fees. The fees can be problematic as they may not be deductible for federal income tax purposes at the time they are paid.  The IRS […]

Litigation Award for Damage to Dairy Farm Ordinary Not Capital

Houston Tax Attorney

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If a dairy farmer receives an award for damages to the farm, is the damage award capital or ordinary?  The distinction is important.  Unlike ordinary income, capital gains are generally afforded lower tax rates and not subject to self-employment taxes.  The court considered this fact pattern in Allen v. United States, No. 16-C-1412 (E.D. Wis. 2018). Facts & […]

Payment for Failed Real Estate Deal, Capital or Ordinary Gain?

Houston Tax Attorney

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How is a termination payment for a failed real estate deal taxed?  Does it trigger capital or ordinary gain?  The court recently addressed this in CRI-Leslie, LLC v. Commissioner, 147 T.C. 8. Facts & Procedural History The taxpayer owned a Radison-branded hotel in Florida.  It entered into a contract to sell the hotel to a third […]

Payment to Terminate Agent Agreement Ordinary Income for Insurance Agent

Houston Tax Attorney

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In Lendard v. Commissioner, T.C. Summary Opinion 2009-165, the U.S. Tax Court concluded that contract payment to an independent insurance agent to terminate his agent contract was ordinary income to the agent. This case is an example of how advanced tax planning could have produced a more favorable outcome. The facts and procedural history are […]

Sale of Lottery Payments, Capital or Ordinary?

Houston Tax Attorney

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While lottery winnings may be subject to tax at ordinary tax rates, what about the sale of the right to receive annual lottery payouts?  The court addressed this in Prebola v. Commissioner, T.C. Memo 2006-240. Facts & Procedural History The taxpayer won $17.5 million from the lottery.  She selected the annual installment option, which would pay out […]