Robust Company, Inc., acquired all the assets of Depleted Company, Inc. In addition, Robust assumed certain liabilities of Depleted. Robust agreed that it would be legally responsible for any judgment in a patent infringement claim being litigated against Depleted Company. Experts’ opinions indicated that the likelihood that a significant change and liability would result was remote (less than 10%). After a trial, the jury concluded that an illegal patent infringement had occurred, and it awarded the judgment of $5 million. Robust paid $5 million and deducted it as an ordinary and necessary business expense. Upon audit, the IRS classified the $5 million payment and treated it as a capital expenditure under IRC section 263. For discussion: How would you evaluate the positions taken by Robust Company, Inc., and by the IRS? Support your positions by using the tax code, regulations, IRS rulings, and/or case law.
Robust Company, Inc., acquired all the assets of Depleted Company, Inc. In addition, Robust assumed certain liabilities of Depleted. Robust agreed that it would be legally responsible for any judgment in a patent infringement claim being litigated against Depleted Company. Experts’ opinions indicated that the likelihood that a significant change and liability would result was remote (less than 10%). After a trial, the jury concluded that an illegal patent infringement had occurred, and it awarded the judgment of $5 million. Robust paid $5 million and deducted it as an ordinary and necessary business expense. Upon audit, the IRS classified the $5 million payment and treated it as a capital expenditure under IRC section 263. For discussion: How would you evaluate the positions taken by Robust Company, Inc., and by the IRS? Support your positions by using the tax code, regulations, IRS rulings, and/or case law.
SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter18: Comparative Forms Of Doing Business
Section: Chapter Questions
Problem 4P
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Robust Company, Inc., acquired all the assets of Depleted Company, Inc. In addition, Robust assumed certain liabilities of Depleted. Robust agreed that it would be legally responsible for any judgment in a patent infringement claim being litigated against Depleted Company. Experts’ opinions indicated that the likelihood that a significant change and liability would result was remote (less than 10%). After a trial, the jury concluded that an illegal patent infringement had occurred, and it awarded the judgment of $5 million. Robust paid $5 million and deducted it as an ordinary and necessary business expense. Upon audit, the IRS classified the $5 million payment and treated it as a capital expenditure under IRC section 263.
For discussion: How would you evaluate the positions taken by Robust Company, Inc., and by the IRS? Support your positions by using the tax code, regulations, IRS rulings, and/or case law.
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