PORTFOLIO

Trade or Business Expenses and For-Profit Activity Deductions (Portfolio 505)

Be a trusted advisor to your clients with Bloomberg BNA Tax Portfolios. This portfolio analyzes the deductions allowable for taxpayers carrying on a trade or business or a for-profit activity.

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DESCRIPTION

Trade or Business Expenses and For-Profit Activity Deductions  analyzes the deductions allowable for taxpayers carrying on a trade or business or a for-profit activity.

 

 

 

Specifically, the Portfolio  provides an overview and an introduction to the terminology and substantive requirements of the statute or other provision that apply.

 

 

 

The analysis of the deductions begins with an exploration of the definitional aspects of trade or business and for-profit activity deductions. Following that discussion, the analysis focuses on specific types of trade or business and for-profit activity deductions. Deductions for expenditures that otherwise must be capitalized and deductions arising for specific types of trades or businesses complete the detailed analysis.

 


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AUTHORS

Bloomberg BNA Portfolios are written by leading tax professionals who set the standard as leaders in their fields. The Trade or Business Expenses and For-Profit Activity Deductions portfolio was authored by the following attorney.  

 

JAMES EDWARD MAULE

James Edward Maule obtained his J.D. from Villanova University and his LL.M. (Taxation) from George Washington University. He is a Lecturer at Villanova University Graduate Tax Program and Tax Forum CLE Programs and a former Lecturer from the Philadelphia Tax Conference, former Lecturer from the Philadelphia Bar Association Tax Section, former Lecturer ALI-ABA, former Lecturer, Tax Management, Inc. & Continuing Legal Education Satellite Network; former Lecturer, Pennsylvania Bar Institute; former Lecturer, The Dickinson School of Law CLE Programs; member, American Bar Association, Section of Taxation, Committee on Formation of Tax Policy; member, American Bar Association, Section of Taxation, Committee on S Corporations (former Consultant and former Chair, Subcommittee on Subchapter S and State Law; former Chair, Subcommittee on Comparison of Partnerships and S Corporations; former member, Task Force on Legislative Recommendation No. 86–1); member, American Bar Association, Section of Taxation, Committee on Teaching Taxation (former Chair, Subcommittee on Manuscripts and Unpublished Teaching Materials); member, American Bar Association, Section of Taxation, Tax Practice Management Committee; former member, American Bar Association, Section of Taxation, Committee on Tax Structure and Simplification (former Chair and Reporter, Phase-out Tax Elimination Project); former member, American Bar Association Tax Section Task Force on Pass-Through Entities; former member, Philadelphia Bar Association Tax Section; author and owner, TaxJEM Inc., publisher of computer assisted legal instruction programs; owner and publisher, JEMBook Publishing Co.; former co-owner, StarJEM LLC; developer, TaxCruncherPro, income tax planning software; author of numerous books, monographs, and book chapters; contributor to various tax and legal periodicals.

 

 

 

Credentials /

 

James Edward Maule: J.D. from Villanova University and his LL.M. (Taxation) from George Washington University. He is a Lecturer at Villanova University Graduate Tax Program and Tax Forum CLE Programs and a former Lecturer from the Philadelphia Tax Conference, former Lecturer from the Philadelphia Bar Association Tax Section, former Lecturer ALI-ABA, former Lecturer, Tax Management, Inc. & Continuing Legal Education Satellite Network; former Lecturer, Pennsylvania Bar Institute; former Lecturer, The Dickinson School of Law CLE Programs; member, American Bar Association, Section of Taxation, Committee on Formation of Tax Policy; member, American Bar Association, Section of Taxation, Committee on S Corporations (former Consultant and former Chair, Subcommittee on Subchapter S and State Law; former Chair, Subcommittee on Comparison of Partnerships and S Corporations; former member, Task Force on Legislative Recommendation No. 86–1); member, American Bar Association, Section of Taxation, Committee on Teaching Taxation (former Chair, Subcommittee on Manuscripts and Unpublished Teaching Materials); member, American Bar Association, Section of Taxation, Tax Practice Management Committee; former member, American Bar Association, Section of Taxation, Committee on Tax Structure and Simplification (former Chair and Reporter, Phase-out Tax Elimination Project); former member, American Bar Association Tax Section Task Force on Pass-Through Entities; former member, Philadelphia Bar Association Tax Section; author and owner, TaxJEM Inc., publisher of computer assisted legal instruction programs; owner and publisher, JEMBook Publishing Co.; former co-owner, StarJEM LLC; developer, TaxCruncherPro, income tax planning software; author of numerous books, monographs, and book chapters; contributor to various tax and legal periodicals.

 


TABLE OF CONTENTS

Detailed Analysis

I. Introduction

II. Trade or Business Deductions Generally

A. In General

B. Trade or Business

1. In General

2. Profit Motive

a. In General

b. Generation of Tax Benefits

c. Pleasure, Exhibition, or Social Diversion Purposes

d. Factual Nature of Determination

e. Factors Indicating Profit Motive Exists

f. Factors Indicating Lack of Profit Motive

3. Scope of the Activity

4. Number of Trades or Businesses

5. Specific Trades or Businesses

6. Employment as Trade or Business

a. In General

b. Corporate Officers and Directors

7. Activities of Corporations

a. In General

b. Use by Shareholder

c. For Shareholder's Benefit

d. Disguised Dividends

8. Fiduciary Activities

a. Estates and Trusts

b. Personal Representatives

c. Beneficiaries

d. Guardianships

C. Ordinary and Necessary Expense

1. In General

2. Ordinary

3. Necessary

a. In General

b. Reasonableness

c. Voluntariness

(1) Lack of Legal Obligation

(a) In General

(b) Reimbursements

(c) Compensation Repayments

(2) Acknowledgment of Legal Obligation

d. Reimbursement and Refunds

4. Applicability to Particular Situations

a. Payments for Employees

b. Assistance of Clients and Customers

c. Corporate Officers and Directors

d. Shareholder and Employee Taxes

e. Personal Purposes

D. Carrying On

1. In General

2. Start-up Expenses in General

3. Relationship to Trade or Business

4. Suspension of Operations

E. Paid or Incurred During the Taxable Year

III. For-Profit Activity Deductions Generally

A. In General

B. Lack of Trade or Business

C. Pre-Opening Expenses

D. Production of Income

1. Income Motive

a. In General

b. Factual Nature of Determination

c. Factors Indicating Income Motive

d. Factors Indicating Not Held for Production of Income

2. Income

E. Ordinary and Necessary

F. Particular Endeavors

1. Fiduciary Activities

a. Trusts and Estates

b. Guardianships

c. Beneficiaries

d. Business Trustees

2. Publishing

3. Electioneering and Other Political Activity

G. Determination, Collection, or Refund of Any Tax

1. In General

2. Tax Advice

3. Tax Return Preparation

4. Tax Liability Proceedings

5. Taxpayers Entitled to Deduct Tax Determination Expenses

a. Fiduciaries

b. Nonresident Aliens

c. Donees and Beneficiaries

IV. Specific Types of Deductible Expenses

A. Compensation Related Expenses

1. Compensation Generally

a. Allowance in General

b. Services Actually Rendered

(1) In General

(2) Requisite Service Providing Relationship

(3) Payment or Accrual

c. Form of Compensation

(1) In General

(2) Bonuses

(3) Other Benefits

d. Reasonableness

(1) In General

(2) Treatment of Disallowed Amounts

e. Compensation in Excess of $1,000,000

2. Social Security Payments Made With Respect to U.S. Citizens Employed by Foreign Subsidiary Corporations

a. In General

b. Section 3121(l) Agreement

c. Foreign Subsidiary Corporation

3. Employer Contributions to Qualified Plans

a. In General

b. Prerequisites

(1) Payments

(2) Deductibility Qualification

(3) Plan Qualification

c. Plan Based Computations and Limitations

(1) Payments to Pension Trusts

(a) Basic Computations

(b) Maximum Limitations

(2) Purchases of Employees' Annuities

(3) Payments to Stock Bonus and Profit-Sharing Trusts

(4) Payments to Other Plans

(5) Payments to Multiple Plans

(6) Self-Employed Individuals

(7) Employee Stock Ownership Plans

(a) Principal Payments

(b) Interest Payments

(8) Simplified Employee Pensions

(9) Independent Contractor Deferred Compensation

(10) Absence of Plan

d. Benefit Based Limitations

e. Participant Compensation Based Limitations

f. Deductible Dividends on Employer Securities

(1) In General

(2) Applicable Dividends

(3) Applicable Employer Securities

(4) Timing

4. Employer Contributions to Certain Foreign Deferred Compensation Plans

a. In General

b. Qualified Foreign Plan

c. Prerequisites

(1) Payments

(2) Deductibility Qualification

(3) Plan Qualification

d. Plan-Based Computations and Limitations

(1) Qualified Funded Plans

(a) Payments With Respect to Pension Type Plan

(b) Payments With Respect to Other Type Plan

(c) Carryforwards

(d) Payments to Multiple Plans

(2) Qualified Reserve Plans

e. Foreign Law Based Limitations

f. Nature of Services Limitation

g. Information Limitation

5. Contributions to Funded Welfare Benefit Plans

a. In General

b. Welfare Benefit Fund

(1) In General

(2) Fund

c. Deductibility Qualification

d. Limitations

(1) In General

(2) After-Tax Income Reduction

(3) Qualified Direct Cost

(4) Qualified Asset Account

(5) Carryforwards

e. Independent Contractor Benefits

f. Absence of Plan

6. Employer's Deduction for Property Transferred Subject to Substantial Restriction

7. Black Lung Benefit Trust Contributions

a. In General

b. Payment

c. Limitation

(1) In General

(2) Funding Determinations

d. Carryforwards

8. Employer Liability Trust Contributions

a. In General

b. Allocable to the Taxable Year

B. Cost of Goods Sold

1. In General

2. Elements of Cost of Goods Sold

a. Purchase Price

b. Use of Related Assets

c. Costs of Acquisition and Protection

d. Assurance of Supply

e. Future Costs

f. Personal or Other Use

g. Consignments and Holdbacks

3. Inventory Adjustments

4. Proof

C. Renting Expenses

1. In General

2. Lease Acquisition Expenditures

3. Nature of Payments

4. Reasonableness

5. Existence of Lease

6. Leasehold Improvements

7. Lease Cancellation Payments

D. Repairs

1. In General

a. Limitations

b. Effect of Depreciation and Amortization

c. Recently Acquired Property

2. Expenditure Required

3. Timing of Deduction

4. Obligation to Make Repair

5. Type of Expenditures

E. Payments for Insurance Coverage

1. In General

2. Connection with Trade or Business

a. In General

b. Health-Related Policies

c. Life Insurance

d. Casualty Insurance

3. Paid or Incurred

a. Self Insurance

b. Payments to Related Parties

c. Payments to Captive Insurance Companies

(1) In General

(2) Defective Subsidiary

(3) Risk of Loss Shift

(4) Subsidiary's Deductions

d. Reinsurance with Subsidiary

e. Payments to Industry Associations

4. Self-Employed Individuals' Health Insurance

a. In General

b. Limitations

c. Eligible Individuals

5. Types of Insurance

a. In General

b. Worker Compensation

c. Unemployment and Nonoccupational Disability Insurance

d. Miscellaneous

F. Advertising

1. In General

2. Relationship to Trade or Business

3. Reasonableness

4. Specific Types of Advertising

a. Conventional Advertising

b. Business Gifts

c. Samples

d. Prizes Awarded to Customers

e. Travel

f. Racing and Other Event Sponsorship

g. Animals

h. Miscellaneous

G. Business Protection

1. In General

2. Connection to Trade or Business

3. Ordinary and Necessary

4. Protection of Goodwill

5. Competition Related Payments

a. Elimination of Competition

b. Matching Competition

c. Avoiding Disadvantageous Contracts

d. Lease Cancellations

e. Patent Infringement

6. Asset Related Payments

a. Prevention of Physical and Similar Harm

b. Protection of Contract Rights

c. Maintaining or Improving Liquidity

7. Avoiding Interruptions and Disruption

a. Prevention of Disruptive Litigation

b. Prevention of Labor Difficulties

c. Material Supplies Procurement

8. Ownership and Management Controversies

a. Stock Ownership

b. Voting Trusts

c. Proxy Fights

H. Entertainment

I. Transportation, Travel, and Relocation Expenses

1. Transportation

2. Ordinary and Necessary

3. Trips Between Places of Business or Investment Properties

4. Commuting

a. In General

b. Tools Exception

c. On-Duty Exception

d. Transportation of Goods Exception

5. Travel

a. In General

b. Ordinary and Necessary

c. Away From Home

(1) In General

(2) Temporary Assignments

(3) Members of Congress

(4) State Legislators

(5) Members of the Armed Forces Reserve of the United States

d. Overnight

e. In Pursuit of a Trade or Business

(1) In General

(2) Spouses and Family Members

(3) Conventions and Meetings

f. Types of Traveling Expenses

6. Relocation and Moving Expenses

a. In General

b. Capitalization Limitation

c. Types of Moving Expenses

d. Reimbursement

J. Supplies

K. Education Expenses

1. In General

2. Allowance Tests

a. In General

b. Maintaining or Improving Skills

c. Expressly Required

3. Disallowance Tests

a. In General

b. Minimum Educational Requirements

(1) In General

(2) Educational Institution Positions

c. Qualification for New Trade or Business

(1) In General

(2) Changes in Employee's Duties

(3) Examples of New Trade or Business

(4) Not New Trades or Businesses

4. Types of Education Expenses

a. In General

b. Travel, Meals and Lodging

c. Training Costs

L. Professional Expenses

1. In General

2. Preparation for and Acquisition of Profession

3. Status as Professional

4. Types of Professional Expenses

M. Dues, Memberships, and Certifications

1. In General

2. Capital Expenditures

3. Investments

4. Insurance

N. Payments for Professional Services

1. Accounting Fees

2. Business Advice

3. Investment Advice

4. Corporation Services

5. Appraisal Fees

6. Actuarial Fees

7. Business Services

8. Legal Counseling

a. In General

b. Personal Matters

c. Acquisition of Property

9. Litigation Fees and Expenses

a. In General

b. Collection or Generation of Income

c. Connected to Trade or Business

d. Acquisition or Retention of Property

O. Trade or Business and For-Profit Activity Losses

1. In General

2. Measurement of the Loss

3. Limitations

a. Capital Losses

b. Wagering Losses

c. Registration-Required Obligations

4. Timing

a. In General

b. Reimbursement

c. Decline in Value

d. Theft Losses

e. Disaster Losses

f. Worthless Securities

g. Obsolescence of Nondepreciable Property

P. Net Operating Loss Deduction

1. In General

2. NOL Carrybacks and Carryovers

a. In General

b. Special Carryback and Carryover Periods

3. Computation of NOL

a. In General

b. Modifications

Q. Antitrust, Infringement, and Contractual Losses

1. In General

2. Compensable Injury

3. Compensatory Amount

a. In General

b. Settlement

c. Amounts to Secure the Award or Settlement

4. Unrecovered Losses

a. In General

b. Injury Period

c. Net Operating Loss Attributable to Compensable Injury

5. Effect on Net Operating Loss Carryovers

R. Unused Business Credits

1. In General

2. Appropriate Taxable Year

3. Qualified Business Credit

S. Special Provisions

1. Federal National Mortgage Association Contributions

2. Depositors' Guaranty Fund Set Asides

T. Prepaid Dues Income Doubly Included in Gross Income

U. Miscellaneous Trade or Business Deductions

1. Telephone Expense

2. Governmental Impositions

3. Financing Expenses

4. Safety Devices

5. Public Officials' Expenses

6. Family Day Care Providers

V. Expenditures Otherwise Capitalized

A. In General

B. Start-Up Expenditure Amortization

1. In General

2. Period of Amortization

3. Start-Up Expenditure

4. Time Active Trade or Business Begins

5. Election to Amortize Start-Up Expenditures

C. Organizational Expenditures

1. Corporations

a. In General

b. Period of Amortization

c. Organizational Expenditure

(1) In General

(2) Types

d. Time Corporation Begins Business

e. Election to Amortize Organizational Expenditures

2. Partnerships

a. In General

b. Period of Amortization

c. Organizational Expenditures

(1) In General

(2) Types

d. Time Partnership Begins Business

e. Election

D. Depreciation

1. In General

2. Depreciable Property

a. Tangible Property

b. Intangibles

c. Term Interests

3. Computational Structure

a. In General

b. Depreciable Basis

c. Acceptable Methods

(1) In General

(2) Limitations

(a) Straight-Line Method

(b) Special Rules

(c) Income Forecast Method

(3) Change in Method

(4) Useful Life

d. Salvage Value

4. Taxpayer Entitled to Computation

a. In General

b. Life Estates and Income Interests with Remainders

E. Accelerated Cost Recovery System Deductions

1. In General

2. MACRS Property

a. In General

b. Exceptions

(1) Other Specified Methods

(2) Certain Public Utility Property

(a) In General

(b) Public Utility Property

(c) Normalization Method of Accounting

(3) Films and Video Tapes

(4) Sound Recordings

(5) Anti-Churning Property

(a) In General

(b) Identifying Anti-Churning Property

(i) In General

(ii) Exceptions

3. Computational Systems

a. General Depreciation System

b. Alternative Depreciation System

c. Improvements

d. Transferee Limitations

(1) In General

(2) Covered Transactions

e. Reacquisition Limitations

f. Special Rules

4. Property Subject to ADS

a. In General

b. Property Used Predominantly Outside the United States

(1) In General

(2) Used Outside the United States

(3) Predominantly

(4) Exceptions

(a) United States Aircraft

(b) United States Rolling Stock

(c) United States Vessels

(d) United States Motor Vehicles

(e) United States Containers

(f) Continental Shelf Property

(g) Domestic Corporation Property

(h) Communications Satellites

(i) Telephone Cables

(j) Western Hemisphere Ocean Property

(k) Ocean Thermal Energy Conversion Equipment

(l) United States Satellites

c. Tax-exempt Use Property

(1) In General

(2) Nonresidential Real Property

(a) In General

(b) Disqualified Lease

(c) Special Rules

(3) Property Other Than Nonresidential Real Property

(4) Exception for Short-Term Leases

(5) Exception for Use in Unrelated Trade or Business

(6) Exception for Certain High Technology Equipment

(a) In General

(b) Exception

(7) Special Rules for Pass-Through Entities

d. Tax-Exempt Bond Financed Property

e. Imported Property Covered by Executive Order

(1) In General

(2) Limitations

f. Election to Apply Alternative Depreciation System

5. Applicable Depreciation Method

a. Double Declining Balance Method

b. Exceptions

(1) 150% Declining Balance Method

(a) In General

(b) 150% Declining Balance Property

(c) 150% Declining Balance Election

(2) Straight-Line Method

(a) In General

(b) Straight-Line Property

(c) Straight-Line Election

6. Applicable Recovery Period: General Depreciation System

a. In General

b. Three-Year Property

c. Five-Year Property

(1) In General

(2) Qualified Technological Equipment

(a) In General

(b) Computers and Peripheral Equipment

(i) In General

(ii) Exceptions

(c) High Technology Medical Equipment

(3) Qualified Energy Property

(4) Qualified NYLZ Leasehold Improvement Property

d. Seven-Year Property

(1) In General

(2) Motorsports Entertainment Complex

(3) Alaska Natural Gas Pipeline

(4) Natural Gas Gathering Lines

e. Ten-Year Property

(1) In General

(2) Single Purpose Agricultural or Horticultural Structure

(a) In General

(b) Single Purpose Livestock Structure

(c) Single Purpose Horticultural Structure

f. Fifteen-Year Property

(1) In General

(2) Qualified Leasehold Improvement Property

(3) Qualified Restaurant Property

(4) Qualified Retail Improvement Property

g. Twenty-Year Property

h. Water Utility Property

i. Residential Rental Property

j. Nonresidential Real Property

k. Railroad Grading or Tunnel Bores

7. Applicable Recovery Period: ADS

a. In General

(1) Class Life Rule

(2) Class Life

(3) Special Class Lives

(a) Qualified Rent-to-Own Property

(b) Semi-Conductor Manufacturing Equipment

(c) Computer Based Telephone Central Office Switching Equipment

(d) Railroad Track

(e) Alaska Natural Gas Pipeline Property

(f) Natural Gas Gathering Line

(g) Single Purpose Agricultural and Horticultural Structures

(h) Fruit or Nut Trees and Vines

(i) Municipal Wastewater Treatment Plants

(j) Two-Way Communications Equipment

(k) Retail Motor Fuels Outlet

(l) Qualified Leasehold Improvement Property

(m) Qualified NYLZ Leasehold Improvement Property

(n) Qualified Restaurant Property

(o) Initial Grading and Clearing Improvements of Gas Utility Property

(p) Electric Transmission Property

(q) Natural Gas Distribution Lines

(r) Initial Grading and Clearing Improvements of Electric Utility Transmission and Distribution Plants

(s) Qualified Retail Improvement Property Placed in Service in 2009

(t) Farm Equipment Placed in Service in 2009

b. Nonresidential Real and Residential Rental Property

c. Railroad Grading or Tunnel Bores

d. Water Utility Property

e. Tax-Exempt Use Property

f. Qualified Technological Equipment

g. Automobiles and Light General Purpose Trucks

h. Property With No Class Life

8. Applicable Convention

a. Half-Year Convention

b. Mid-Month Convention

c. Mid-Quarter Convention

(1) In General

(2) Property Not Taken into Account

(3) Special Rules

F. Amortization of Certain Intangibles

1. In General

2. Amortizable § 197 Intangibles

a. In General

b. Section 197 Intangible

3. Special Rules

a. Transferee Limitations

(1) In General

(2) Covered Transactions

b. Covenants Not to Compete

c. Franchises, Trademarks, Trade Names and Licenses

d. Reinsurance Transactions

e. Subleases

G. Certain Asset Expensing

1. In General

2. Applicable Dollar Limitations

a. Overall Limitation

b. Reduced Overall Limitation

c. Income Limitation

d. Carryover of Amounts Disallowed by Income Limitation

e. Application of Limitations in Special Situations

(1) Spouses Filing Separate Returns

(2) Partnerships and S Corporations

(3) Controlled Groups

(4) Short Periods

3. Eligible Property

a. In General

b. Purchase

c. Cost

4. Excluded Taxpayers

5. Election

H. Pollution Control Facility Amortization

1. In General

2. Certified Pollution Control Facility

a. In General

b. New Identifiable Treatment Facility

c. Certification Procedure

3. Amortizable Basis

4. Computation

5. Amortization Period

6. Elections

7. Termination

8. Taxpayer Entitled to Amortization

I. Clean-Fuel Vehicles and Certain Refueling Property

1. In General

2. Qualified Clean-Fuel Vehicle Property

3. Qualified Clean-Fuel Vehicle Refueling Property

4. Limitations

5. Recapture of Deduction

a. In General

b. Qualified Clean-Fuel Vehicle Property Recapture

c. Qualified Clean-Fuel Vehicle Refueling Property Recapture

6. Basis Adjustments and Application of § 1245

J. Research and Experimental Expenditures

1. In General

2. Current Expense Deduction Method

a. In General

b. Adoption

c. Scope

3. Amortization Deduction

a. In General

b. Period of Amortization

c. Election

4. Research and Experimental Expenditures

a. In General

b. Nature of Project

c. Identity of Researcher or Experimenter

d. Excluded Expenditures

K. Architectural and Transportation Barrier Removal Expenditures

1. In General

2. Limitation

3. Architectural and Transportation Barrier Removal Expenses

4. Qualified Architectural and Transportation Barrier Removal Expenses

a. In General

b. Specific Standards

(1) In General

(2) Grading

(3) Walks

(a) Size, Grade, and Surface

(b) Intersections

(c) Platforms

(4) Parking Lots

(a) Location and Size

(b) Layout

(5) Ramps

(a) Grade and Surface

(b) Handrails

(c) Platforms

(d) Curb Ramps

(6) Entrances

(7) Doors and Doorways

(a) Size and Characteristics

(b) Adjacent Floor

(8) Stairs

(a) Nosing and Risers

(b) Handrails

(9) Floors

(10) Toilet Rooms

(a) Space and Lavatories

(b) Stalls and Urinals

(c) Accessories

(11) Water Fountains

(12) Public Telephones

(13) Elevators

(14) Controls

(15) Identification

(a) Room Doors

(b) Dangerous Doors

(16) Warning Signals

(17) Hazards

(18) International Accessibility Symbol

(19) Additional Standards for Rail Facilities

(20) Standards for Buses

(a) Access Mechanism

(b) Steps

(c) Information

(d) Handrails

(e) Surfaces

(f) Illumination

(g) Fare Box

(21) Standards for Rapid and Light Rail Vehicles

(a) Doors and Doorways

(b) Handrails

(c) Surfaces

(d) Illumination

(22) Other Barrier Removals

5. Handicapped Individual

6. Elderly Individual

7. Election

a. Manner of Electing

b. Deadline for Election

c. Scope of Election

d. Records to be Retained

L. Circulation Expenditures

1. In General

2. Taxable Year of Amortization

3. Deductible Circulation Expenditures

a. Qualifying Expenditures

b. Production Expenditures

c. Acquisition Expenditures

4. Election to Forego § 173 Amortization

a. In General

b. Expenditures Properly Chargeable to Capital Account

c. Election Procedure

M. Franchises, Trademarks, and Trade Names

1. Contingent Serial Payments

2. Payments in Discharge of Principal Sums

N. Railroad Rolling Stock Rehabilitation Expenditures

1. In General

2. Qualified Rehabilitation Expenditures

a. In General

b. Railroad Rolling Stock

c. Used by a Domestic Common Carrier by Railroad

(1) Use

(2) Domestic Common Carrier by Railroad

d. Expenditures Made in Connection with Rehabilitation

e. Twenty Percent Condition

(1) Time Made

(2) Twelve-Month Period

(3) Basis

(4) Inability to Apply Twenty Percent Condition

3. Election

4. Recordkeeping Requirements

a. In General

b. Separate § 263(d) Record

c. Aggregated § 263(d) Records

O. Railroad Tie Expenditures

P. Environmental Clean-Up Expenditures

1. Qualified Environmental Remediation Expenditures

a. In General

b. Qualified Environmental Remediation Expenditure

c. Qualified Contaminated Site

d. Hazardous Substance

e. Recapture of Deduction

f. Making the § 198 Election

2. Other Environmental Clean-Up Expenditures

a. In General

b. Underground Storage Tanks

c. Asbestos Removal

d. Nuclear Waste Containment

Q. Commercial Revitalization Expenditures

1. In General

2. Qualified Revitalization Building

3. Election

4. Qualified Revitalization Expenditures

5. Dollar Limitation

a. In General

b. Commercial Revitalization Expenditure Amount

c. Timing Requirement

d. Commercial Revitalization Agency Responsibilities

R. Energy Efficient Commercial Building Property

1. In General

2. Deduction Limitation

3. Energy Efficient Commercial Building Property

a. In General

b. Partial Allowance

c. Interim Lighting System Rules

4. Public Property

5. Certifications

S. Film or Television Production Costs

1. In General

2. Qualified Film or Television Production

3. Qualified Film and Television Production Costs

a. In General

b. Production Costs

c. Amount of Production Cost and Amount of Deduction

(1) In General

(2) Significantly Incurred in an Eligible Area

d. Allocation

(1) Controlled Groups

(2) Partnerships and S Corporations

(3) Multiple Producers

(4) Estates and Trusts

4. Special Rules

a. Recapture

b. Principal Photography Not Commencing Before January 1, 2009

c. Amount of Recapture

5. Election

T. Advanced Mine Safety Equipment Property

1. In General

2. Advanced Mine Safety Equipment Property

U. Qualified Disaster Expenses

VI. Specific Situations

A. Employee Expenses

1. In General

2. Specific Expenses

a. Labor Union Dues

b. Unemployment and Nonoccupational Disability Insurance

c. Job Search Expenses

d. Uniforms and Work Clothing

e. Rural Mail Carrier Expenses

f. Other Employee Business Expenses

3. Reporting and Recordkeeping

a. In General

b. Expenses for Which Accounting to Employer Required

c. Expenses for Which Accounting to Employer Not Required

d. Substantiation

e. Recordkeeping

4. Housing Cost Amount Not Attributable to Employer Provided Amounts

B. Farming

1. Application of § 162 to Specific Expenses

a. In General

b. Operating Expenses

(1) In General

(2) Crop Method

(3) Seed, Feed, and Fertilizer

c. Machinery and Buildings

d. Animals

e. Preparatory Expenditures

f. Development Expenditures

2. Soil and Water Conservation and Endangered Species Recovery Expenditures

a. In General

b. Adoption of Method

c. Scope of Method

d. Percentage Limitation

(1) In General

(2) Carryover

e. Soil and Water Conservation and Endangered Species Recovery Expenditures Defined

(1) In General

(2) Exceptions

(3) Conservation and Drainage District Assessments

(a) In General

(b) Nine Year Amortization

(4) Land Used in Farming

f. Policy Limitations

(1) Conservation Plan Consistency

(2) Wetlands

g. Engaged in the Business of Farming

(1) In General

(2) Landlords

(3) Farms

3. Land Conditioning Expenditures

a. In General

b. Limitations

c. Land Conditioning Expenditures Defined

(1) In General

(2) Land Used in Farming

d. Engaged in the Business of Farming

(1) In General

(2) Landlords

(3) Farms

e. Election

C. Timber, Oil and Gas, and Minerals

1. In General

2. Application of § 162 to Specific Expenses

a. Lease Payments and Royalties

b. Forest Management

c. Timber Cruising

3. Depletion

a. In General

b. Computation For Property Other Than Timber

(1) In General

(2) Basis for Depletion

(3) Number of Units Remaining As of the Taxable Year

(4) Number of Units Sold During the Taxable Year

c. Computation for Timber Property

(1) In General

(2) Number of Units Cut

(3) Depletion Unit

(a) In General

(b) Recomputed Basis

(c) Adjusted Units

d. Taxpayers Entitled

(1) In General

(2) Multiple Owners or Interests

4. Percentage Depletion

a. In General

b. Excluded Properties

(1) In General

(2) Natural Gas Exception

(3) Independent Producer Exception

c. Gross Income from the Property

(1) In General

(a) Measurement of Gross Income

(b) Exclusions

(2) Mining

(a) In General

(b) Treatment Processes Considered as Mining

d. Specified Percentage

e. Taxable Income Limitations

5. Development Expenditures

a. In General

b. Exceptions

(1) Expenditures Otherwise Deductible

(2) Depreciable Property

(3) Fractional Share Limitation

(4) Prior Owner's Expenditures

(5) Election of Deduction Based on Production

(6) Foreign Development Expenditures

(7) Alternative Minimum Tax Election

6. Mining Exploration Expenditures

a. In General

b. Exceptions

(1) Expenditures Otherwise Deductible

(2) Depreciable Property

(3) Fractional Share Limitation

(4) Prior Owner's Expenditures

(5) Percentage Depletion Qualification

(6) Foreign Development Expenditures

(7) Alternative Minimum Tax Election

c. Election

(1) Time and Manner

(2) Scope

7. Reforestation Expenditures

a. In General

b. Qualified Timber Property

c. Reforestation Expenditures

d. Limitations

(1) Maximum Dollar Limitation

(a) In General

(b) Related Taxpayers

(2) Trusts

(3) Estates

(4) Life Tenants and Remainders

e. Amortization Deduction Computation

f. Election

8. Tertiary Injectant Expenses

a. In General

b. Exceptions

c. Qualified Tertiary Injectant Expenses

(1) In General

(2) Tertiary Recovery Method

(3) Hydrocarbon Limitations

(a) In General

(b) Insignificant Amount of Recoverable Hydrocarbons

(c) Limitation Computation

9. Intangible Drilling and Development Costs

a. In General

b. Qualified Taxpayer

c. Deductible Costs

(1) In General

(2) Drilling and Production Preparation

(3) Time of Expenditure

d. Failure to Make Election

(1) Productive Wells

(2) Nonproductive Wells

e. Election

f. Exception

10. EPA Sulfur Regulation Compliance Costs

a. In General

b. Small Business Refiners

c. Qualified Capital Costs

d. Applicable Percentage

e. Cooperative Owners

11. Qualified Refinery Property Costs

a. In General

b. Qualified Refinery Property

c. Deduction Prohibited

d. Cooperative Owners

e. Election

12. Geological and Geophysical Expenditure Amortization

VII. § 199 U.S. Domestic Production Activities Deduction

A. In General

B. Qualified Income

1. In General

2. Qualified Production Activities Income

a. In General

b. Domestic Production Gross Receipts

(1) Definition

(2) Determining Gross Receipts and Domestic Production Gross Receipts

(3) Allocation Between DPGR and Non-DPGR

c. Determining Costs

(1) In General

(2) CGS Allocation

(a) In General

(b) Imported Items or Services

(c) Inventories Valued at Market or Bona Fide Selling Prices

(d) Inventories Accounted for Under the LIFO Method

(e) Taxpayers Using Simplified Production Method or Simplified Resale Method for Additional § 263A Costs

(3) Allocation of Direct and Indirect Expenses

(a) In General

(b) Section 861 Method

(c) Simplified Deduction Method

(4) Small Business Simplified Method for Allocating CGS and Direct and Indirect Expenses

(5) Rules Applicable to All Methods

d. Timing Rules for Determining Qualified Production Activities Income

C. Eligible Taxpayers

1. Corporations and Expanded Affiliated Groups

2. Individuals

3. Pass-through Entities

D. Wage Limitation

1. Percentage Limitation

2. Definition of Wages Under § 199

a. Definition of W-2 Wages for Tax Years Beginning On or Before May 17, 2006

b. Definition of Paragraph (e)(1) Wages for Tax Years Beginning After May 17, 2006

3. Calculating W-2 Wages and Paragraph (e)(1) wages: The Three Methods

4. Acquisition of Trade or Business Allocation

5. Pass-through Entity Allocation


WORKING PAPERS

Working Papers

Table of Worksheets

Worksheet 1 Chart of Key Deductible Trade or Business Expenses

Worksheet 2 Sample § 173 Election to Capitalize Circulation Expenditures

Worksheet 3 Sample § 263(d) Election to Deduct Expenditures for Rehabilitation of Railroad Rolling Stock

Bibliography

OFFICIAL

Statutes:

Public Laws:

Other:

Committee Reports:

Treasury Regulations:

Treasury Rulings and Procedures:

Cases:

UNOFFICIAL

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