Masonry Magazine May 1974 Page. 23
TAXES
By MIRIAM McD. MILLER
TRAVELING EXPENSES
The IRS has announced that its agents and auditors have been instructed once again to scrutinize deductions for business trips, conventions and cruises which appear to be vacations in disguise. The IRS believes that the practice by professional, business or trade organizations and associations of sponsoring cruises, trips and conventions, during which only a small portion of the time is devoted to business activity, is increasing.
Taxpayers are cautioned not to assume that the entire cost of going on the cruise or trip or attending the convention is deductible. Whether a trip or convention is primarily personal will differ in each case and depend, of course, on the particular facts involved. One obvious method of determining the nature of a trip is to make a comparison of the time spent on business affairs and the time spent on personal activities.
Where little time is devoted to business on a cruise or a convention, taxpayers should know that the IRS will be carefully scrutinizing the deduction for the expenses involved. Taxpayers will be required to substantiate the amount of time spent on business activities. IRS has announced that where there are indications of abuse, the IRS will request lists of names and addresses of the participants on vacation trips which purport to provide professional or business activities during or in combination with recreation. (T.I.R. No. 1275.)
CORPORATE DONATION
When it can be shown that charitable donations were made for the stockholder's benefit, the IRS Commissioner will not allow the deduction and instead will find that the donations were taxable dividends to the stockholder. This problem arises more often in closely held corporations, where the sole officer-stockholder selects the charities which are to be the recipients of the corporate contributions.
In a recent case, a corporate taxpayer had claimed charitable deductions for payments made to a church and to a non-profit organization that maintained a national historical site. The corporation's controlling shareholder was a member of both these organizations. The corporate payments were made after the stockholder had executed pledge cards to these organizations on behalf of the corporation. Both the controlling shareholder and his wife had made individual pledges to and contributions to the church. And, the stockholder had also made contributions to the non-profit organization.
The Commissioner disallowed the charitable deductions and ruled that they were instead taxable dividends to the stockholder. The Commissioner felt that the payments in question were made for the stockholder's individual benefit. However, the Commissioner would allow the stockholder to turn around and take a personal charitable deduction for the payments after first receiving them as income.
It was the ruling of the Tax Court that where a corporation makes contributions to charitable organizations in which its major stockholder is a member, the facts should be carefully examined to determine if, in fact, the contribution is that of the corporation or a payment by the corporation of the stockholder's contribution. The Court ruled with the stockholder and held that in both instances the corporation had made charitable payments that were deductible by the corporation. The nature of the corporate taxpayer's business (an automobile agency) and the fact that the stockholder and his wife had both made contributions to the church led the court to hold that the corporation's contribution to both organizations were deductible charitable contributions.
In 1966 the corporation had paid $100 to a club that was part of a university alumni association. The stockholder subsequently was listed as a member of the club. On this matter the Court held that the corporation could not deduct the payment to the alumni club and also held that the payment was dividend income to the stockholder because it had been made for his personal benefit. The stockholder was denied a personal charitable deduction for the payment. (Sturgill v. Commissioner, T.C. Memo, 1973-281.
CORPORATE ESTIMATED TAX
For taxable years beginning in 1974, a corporation will have to make estimated tax payments if it can expect its total income tax less credits to be $100 or more (IRS Announcement 74-18.)
BASEBALL BONUS
After receiving a large cash bonus when he signed a contract with a major league baseball team, a ballplayer tried to ease his tax burden by averaging his income over several years. He could do this if he could show that his bonus was attributable to work he performed during the base period years. During some of this time the ballplayer had been pitching on his college team.
The Tax Court did not help him out. It ruled that the taxpayer's base period baseball playing did not constitute "work." Although it sharpened his skills as a baseball player and eventually induced the major league team to pay him a bonus, it was not gainful employment for which he was compensated at the time. The Court felt that his activities during the base period merely generated a hope that he would some day become sufficiently proficient at baseball to become a professional. (Frost v. Commissioner, 61 TC No. 54.)
TAX-OPTION CORPORATION
A small business corporation, with only two shareholders, elected, pursuant to section 1371(a) of the Code, not to be taxed as a corporation but to have all of its income taxed directly to its shareholders.
In 1973, the shareholders performed services for the corporation. However, to avoid the payment of Federal employment taxes, they drew no salary from the corpora- (Continued on page 24)