Friday, August 12, 2022
Benjamin Alarie (Osler Chair in Business Law, University of Toronto; CEO, Blue J Legal) & Kathrin Gardhouse (Legal Research Associate, Blue J Legal), Situational Awareness: Accurate Financial Recordkeeping and Business Deductions, 176 Tax Notes Fed. 713 (Aug. 1, 2022):
In this article, Alarie and Gardhouse explore the Tax Court decision in Skolnick [v. Commissioner, T.C. Memo. 2021-139 (Dec. 16, 2021)], which emphasizes the importance of keeping accurate financial records for activities that may be subject to IRS scrutiny regarding their business nature.
The Tax Court decision in Skolnick emphasizes the importance of keeping accurate financial records of activities that may be subject to IRS scrutiny regarding their business nature. Whether this is the case can be most easily determined with a machine-learning tool such as Blue J’s section 162 trade or business predictor.
This tool also allows practitioners at the planning stage to play around with the factors, assess the risks of setting up an activity in one way or another, and then adjust their arrangements until the desired outcome can be achieved with a degree of confidence that the client is comfortable with. As takeaways from our analysis, consider that for financial records to be considered accurate and complete, (1) ownership interests should be clearly documented, as well as any changes thereto; (2) there should be documentation on the nature of capital contributions; and (3) taxpayers should document any efforts they are relying on to establish their use of records to make changes in their business practice to enhance profitability.
Prior TaxProf Blog coverage:
- Blue J Predicts: An Unprofitable Pretax Venture Can Still Be A Partnership (June 29, 2021)
- Blue J Predicts With 68% Confidence That IRS's Economic Substance Challenge Will Fail In District Court Perrigo Case (Aug. 6, 2021)
- Blue J Predicts With 77% Confidence That Reserve’s § 501(c)(15) Appeal Will Be Dismissed By The Tenth Circuit (Sept. 10, 2021)
- Blue J Predicted With 95% Confidence That 7th Circuit Would Affirm Tax Court In Innocent Spouse Cases (Oct. 5, 2021)
- Blue J Predicts With 74% Confidence That 8th Circuit Will Find Customary/Usual Management Fees Are Deductible Under § 162 (Nov. 3, 2021)
- Blue J Predicts: Taxpayers Face Uphill Battle In Assignment Of Income Cases (Dec. 8, 2021)
- Blue J Predicts: Worker Classification In The Gig Economy (Dec. 20, 2021)
- Blue J: Using Machine Learning To Crack The Tax Code (Feb. 8, 2022)
- Blue J Predicts With 86%-95% Confidence That 10th Circuit Will Find That Taxpayer In Olsen Was Not Engaged In A Trade Or Business (Feb. 28, 2022)
- Blue J Predicts With 65%-94% Confidence Federal Circuit's Step Transaction Decision In GSS Holdings (Apr. 5, 2022)
- Blue J Predicts With 86% Confidence Debt-Equity Decision In Tribune Media (May 4, 2022)
- Blue J's AI Prediction Of Result Of Tax Court Appeal Faces First Test In Federal Circuit Court (June 14, 2022)
- Blue J: Reserve Mechanical Microcaptive Insurance Arrangement Denied On Appeal (July 7, 2022)