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Irs Article 535 : Business Expenses

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IRS Publication 535: Business Expenses [2015] defines rent as any amount you pay for the use of property you do not own. In general, you can deduct rent as an expense only if the rent is for property you use in your trade or business. Additionally to be deductible, the rent must be reasonable which means that the same amount you would pay to a stranger for use of the same property and the rent is paid to a related person. Chapter 2 of Publications 544 gives a list of related persons, and for the given scenario the related person is an individual and a corporation if the individual directly or indirectly owns more than 50% in value of the outstanding stock of the corporation. In this case, Haddock Corporation could have deducted the payments since it does not own the building and the payments are made to a related person who owns 75 percent of the business. However the problem arises from the amount paid; three times the normal rate for rentals of similar property in the area is not reasonable. In the USTC case [78-1 USTC ¶9176]United Builders Supply, Inc. v. United States of America, the taxpayer-corporation could deduct only the base rent, as reasonable rental paid on business property in 1971.
In light of these findings I will not sign the tax return unless I am allowed to correct the error even for the prior years.
2. What potential ethics issues do you see in this situation?
Personal Morality The fact that Haddock Corporation has deducted the rent payments for years

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