Research assignment about Tax

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Maseno University *

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ABA 301

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Economics

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Nov 24, 2024

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docx

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Uploaded by UltraKomodoDragon152

1 Gross Income and Trade or Business Expense Controversies Name Institution Course Professor Date

2 Gross Income and Trade or Business Expense Controversies The top 10 Most Litigated issues on the historical approach and revised methodology refer to similar issues. These two categories are gross income (IRC § 61) and Trade or Business Expenses (IRC § 162 (a)). According to the revised methodology, taxpayers recorded 13558 cases in the Tax Courts where the gross income was the examination issue and 2255 cases involving trade or business expenses. Many controversies surrounding these two issues warrant taxpayers' concerns in subsequent filing suits. For example, in the 2021 financial year, there were many times when taxpayers had their adjusted gross income not matching the IRS data. This situation occurs because the IRS determines the qualification of the taxpayers for specific protection using the Federal Poverty level procedure. The federal poverty level specifies when taxpayers can be considered low-income and subjected to reduced taxation. Low-income earners cannot access basic living expenses and are less likely to have stable housing, reliable childcare support, quality internet access, or bank accounts. Therefore, the determination of the lawsuits about the taxpayers failing to report other sources of income to benefit from the low-income benefits. There are also frequent and recurring issues with debt income and failure to indicate wages. A bundle of cases reported in this 2021 financial year report occurred due to processing delays caused by the impacts of the COVID-19 pandemic and, at times resulting in premature collection action that taxpayers do not content with. Shortage of staff due to the impacts of the pandemic also continued to delay or suspend the processing of lawsuits related to gross income. Many taxpayers also experienced reduced gross income, reflecting the rise in lawsuits. Many business expenses and trade joined the most litigated issues because of the controversies surrounding the statutes and regulations of taxpayers and how expenses contribute to taxation. These business owners were vulnerable to threats caused by the pandemic and

3 mainly reported dwindling profits and business operations; as a result, many opted not to report evidence of business expenses. Others failed to distinguish between business and personal assets and home office deductions. Therefore, several lawsuits have been filed because taxpayers and businesses fail to prove or produce receipts to justify certain expenses and the use of business assets and losses. In Mylan, Inc. V. Commissioner of Internal Revenue, 2021, the question of necessary and ordinary business expenses was determined to include legal fees when defending itself. Therefore, they can be deducted and not capitalized. The court added that legal fees depend on the origin and character leading to the expense, and nondeductible expenses are those incurred while defending a lawsuit filed based on §271(e)(2). Another controversy affecting trade and business expenses is observed under Plentywood Drug, Inc. V. IRS, 2021; the court intruded into the fair market rent for the business building and determined that the business overpaid its owners. Therefore, significant controversies are observed in the taxpayers, trade, or business attempts to circumvent the need to pay due taxes, leading to a more significant number of lawsuits recorded.

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