Date: September 23, 2019
Subject: The Internal Revenue Code (IRC) Provision(s) and the Internal Revenue Service (IRS) Regulations that are Applicable to the Client’s Business-related Expenses
Relevant Facts and Issues
Several tax regulations and pertinent laws provided by the IRC and IRS are applicable to the client’s case. This is based on the evaluation of the client’s business-related expenses which include payment of a speeding ticket to Chicago, payment of overweight fine to the state of Illinois, payment of a late delivery penalty to a client, and the contribution to a candidate to Congress.
Based on the assessment of the aforementioned business-related expenses, the specific issue here is whether the expenses are tax-deductible. This is because some of the expenses are associated with the truck that the client uses for business operations. As such, it is crucial to discern whether these expenses can be deducted from the client’s tax returns.
The IRS and IRC provide several guidelines on the business expenses that are tax-deductible. Looking at the client’s business-related expenses, it can be construed that only the payment of a late delivery penalty to a client qualifies as a tax-deductible expense. This is based on the IRC provisions and IRS regulations. Thus, it is only expenses that can be termed as “pro” to the taxpayer.
To start with, the IRS regulations stipulate that no tax deduction can be considered on fines that are associated with civil infractions and/or moving violations (CCH Tax Law, 2019). In the client’s case, these fines or expenses include the payment of a speeding ticket in Chicago and the payment of overweight fine in the State of Illinois. For instance, in the case of Fresenius Medical Care Holdings, Inc., V. The U.S, the court held that Fresenius should be refunded its tax deductions for the civil infraction fine it had paid to the government (Wood, 2014).
Further, according to IRC provisions, the contribution that the client made to a congressional candidate also does not qualify as a tax-deductible expense. This is specified in the IRC 162(e) (1) (A) which indicates that no tax deductions are allowed on contributions which are meant to influence legislation (IRS, 2012).
Lastly, the IRS regulations, through section 162(f) (2) of the Internal Revenue Code, stipulate that penalties related to restitutions are tax-deductible (CCH Tax Law, 2019). This, therefore, means that the penalty that the client paid to a customer for late delivery is part of the business expenses that qualify as tax-deductible. This is because the penalty is a form of restitution for causing harm/damages to the customer.
Action(s) to Be Taken
Based on the analysis of the four business-related expenses, the client should deduct the payment of late delivery penalty from the company’s taxable returns. This is allowed under IRC 162(f) (2). However, the client should not deduct the other three expenses because they do not qualify as tax-deductible expenses and any action to exclude them can result in a lawsuit.
CCH Tax Law. (2019). Internal Revenue Code: Income, Estate, Gift, Employment and Excise Taxes. New York, NY: CCH Inc.
IRS. (2012). Internal Revenue Service Data. New York, NY: U.S. Government Printing Office.
Wood, R. (2014). Some fines and penalties are deductible, and it just got easier. The M&A Tax Report , 1-4.