Controversy Between the Tax Court and Appeals
Beck, E. Link
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In Cummings, the court held when an individual taxpayer, pursuant to notification of potential violation of section 16(b), pays an amount to a corporation to prevent injury to his business reputation and position as an officer or director of that corporation, the amount paid is deductible as an ordinary and necessary expense under section 162(a). Cummings, the author notes, underscores a growing controversy between interpretation of section 16(b) by the Tax Court and various courts of appeal. Here, the author suggests the Second Circuit, on appeal, should hold that that since the section 16(b) payment was triggered by the purchase of a capital asset, it represents an additional cost of acquiring the asset and should be treated as a section 1016(a)(1) adjustment to basis. This ideological shift, the author claims, will eliminate the conduction that has results from the existing controversy and establish an consistent interpretation of section 16(b).