Research Problem 1. Gray Chemical Company manufactured pesticides that were toxic. Over the course of several years, the toxic waste contaminated the air and water around the company's plant. Several employees suffered toxic poisoning, and the Environmental Protection Agency cited the company for violations. In court, the judge found Gray guilty and imposed fines of $15 million. The company voluntarily set up a charitable fund for the purpose of bettering the environment and funded it with $8 million. The company incurred legal expenses in setting up the foundation and defending itself in court. The court reduced the fine from $15 million to $7 million. Gray deducted the $8 million paid to the foundation and the legal expenses incurred. The IRS disallowed both deductions on the grounds that the payment was, in fact, a fine and in violation of public policy. Gray's president, Ted Jones, has contacted you regarding the deductibility of the $7 million fine, the $8 million payment to the foundation, and the legal fees. Write a letter to Mr. Jones that contains your advice, and prepare a memo for the tax files. Gray's address is 200 Lincoln Center, Omaha, NE 68182. Partial list of research aids: §$ 162(a) and (f). Reg. § 1.162-21(b).
Research Problem 1. Gray Chemical Company manufactured pesticides that were toxic. Over the course of several years, the toxic waste contaminated the air and water around the company's plant. Several employees suffered toxic poisoning, and the Environmental Protection Agency cited the company for violations. In court, the judge found Gray guilty and imposed fines of $15 million. The company voluntarily set up a charitable fund for the purpose of bettering the environment and funded it with $8 million. The company incurred legal expenses in setting up the foundation and defending itself in court. The court reduced the fine from $15 million to $7 million. Gray deducted the $8 million paid to the foundation and the legal expenses incurred. The IRS disallowed both deductions on the grounds that the payment was, in fact, a fine and in violation of public policy. Gray's president, Ted Jones, has contacted you regarding the deductibility of the $7 million fine, the $8 million payment to the foundation, and the legal fees. Write a letter to Mr. Jones that contains your advice, and prepare a memo for the tax files. Gray's address is 200 Lincoln Center, Omaha, NE 68182. Partial list of research aids: §$ 162(a) and (f). Reg. § 1.162-21(b).
SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter5: Business Deductions
Section: Chapter Questions
Problem 1RP
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Transcribed Image Text:Research Problem 1. Gray Chemical Company
manufactured pesticides that were toxic. Over the course
of several years, the toxic waste contaminated the air and
water around the company's plant. Several employees
suffered toxic poisoning, and the Environmental
Protection Agency cited the company for violations. In
court, the judge found Gray guilty and imposed fines of
$15 million. The company voluntarily set up a charitable
fund for the purpose of bettering the environment and
funded it with $8 million. The company incurred legal
expenses in setting up the foundation and defending
itself in court. The court reduced the fine from $15
million to $7 million. Gray deducted the $8 million paid
to the foundation and the legal expenses incurred. The
IRS disallowed both deductions on the grounds that the
payment was, in fact, a fine and in violation of public
policy. Gray's president, Ted Jones, has contacted you
regarding the deductibility of the $7 million fine, the $8
million payment to the foundation, and the legal fees.
Write a letter to Mr. Jones that contains your advice, and
prepare a memo for the tax files. Gray's address is 200
Lincoln Center, Omaha, NE 68182. Partial list of research
aids:
§$ 162(a) and (f).
Reg. § 1.162-21(b).
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