Taxation: Risk Minimization and Business Efficiency Term Paper

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Introduction

In the recent past in the US, people have switched from one career to another due to the economy the environment demands nature. Bill Robinson, a physician, and his wife Joy were not an exception, as the circumstances led them to adopt different survival strategies. Richard had to terminate his career since the insurance agencies spoilt the party for him, while Joy who was an administrator with a home health agency ventured into marketing.

She had to diversify the risks through the direct marketing of some products that were likely to increase the taxpayers’ taxation burden by $5,000. She expected to gain a certain percentage of her recruits’ sales and, fortunately, her retained position as an administrator from the commissions on sales.

Given the nature of the tasks undertaken daily, she came up with a working plan to minimize risks, as well as maintain business efficiency. Unfortunately, the planned time schedule did not bear profits as she expected but instead $20,000 loss incurred annually from her direct sale a scenario that was hard to consume. This paper seeks to determine the way forward in minimizing the losses, as well as application of law in her business for taxpayer exemptions provisions.

Research Problem and Research Questions

  • Were the tax deductions legitimate according to the federal courts on taxation?
  • Is there business misinterpretation or misunderstanding by the taxation law enforcers?
  • What actions should Joy take to ensure the settlement of the dilemma on her deductions?

Justification

There is a need to carry out this study since the law is very clear on taxation and the rights of the taxpayers. Taxpayers have a say in the process of an audit by Internal Revenue Service (IRS) and addressing their grievances on improper audits through overtaxing in the court or internally with IRS is vital. Provisions for all the rights of a taxpayer are in publication 1 that elaborates examination, appeal, collection, as well as refunding process (“IRC § 183: Activities Not Engaged in For Profit (ATG)” 1).

Discussion

There must have been a misconception on the role played by Joy since though she was carrying business, it did not qualify for taxation given that she worked on commission. Much legislation on healthcare has attracted the state’s attention where institutions that participate in Medicaid & Medicare that share saving programs under Accountable Care Organizations (ACOs) do not pay taxes.

In addition, there was the enactment of the Affordable Care Act Tax Provisions. This act helped in providing new laws reflecting on health coverage policies and requirements that sought to exempt taxation among the hospitals and Accountable Care Organizations, a category her administration role depended on (IRS). We, therefore, do not expect taxation from her earnings from the health care.

As a direct marketer, we appreciate that she is in a business, though with low returns. What we can get from her is a focused and committed woman whose devotion to marketing extends to like-minded people through the recruitment process. More so, it is a painful situation given that she had to invest in this business through inventory buying, she incurred costs through hiring the Certified Public Accountants (CPA) for tax-related advice and evaluations of the legality of her sales products. Other costs she incurred were through sales advice, training programs, and recruitment she received. Based on the Internal Revenue Code (IRC) 183, some activities carried out which are not for the purpose of profit-making are termed as -Activities Not Engaged in For-Profit according to Audit Technique Guide (ATG). It is for that reason we refer to these activities as “hobby loss rule” (“IRC § 183: Activities Not Engaged in For Profit (ATG)” 1).

Evaluation of the nine prominent factors contained in Treasury Reg. § 1.183-2(b) is therefore important.

Evaluating Her Marketing Activities Depending On the Nine Factors.

To start with, her business was transparent and no instances of grievances from her customers. Secondly, she did not work on her own, but she sought the assistance from the Certified Public Accountants. Thirdly, as I explained before, there was much commitment expressed by the taxpayer regardless of limited time. In addition, there was no sign that the products she sold would be appreciated in future. In some instances, she had difficult times, especially when her recruits quit soon after recruitment. This reduced the possibilities of expanding her business. A consideration could have been fair given the losses she incurred through some expenditures that amounted to $20,000 annually. An exemption from taxation could also be fair given the fact that at no one time did she register a profit. In addition, the IRS should consider the present situation facing her family after the insurance cartels that led to her husband’s job termination. Lastly, the hardship undergone during this business is undoubtedly much and denies time for pleasure since the time she is free from normal duty is dedicated to this business.

Conclusion

After my critical evaluation, it was clear that this business was not-for-profit making, but a source of supplement financial support for her family. Given that weight is determined on how many factors prove a business profitable or non-profitable, there should be an exemption from paying taxes just like in the case of Dreicer v. Comr.

Works Cited

Dreicer v. Comr. 78 T.C. 642. 1982. Print.

“Examination of returns, appeals rights, and claims for refund.” Department of the Treasury Contents Internal Revenue Service. Publication 556. 2008. Web.

“IRC § 183: Activities Not Engaged in For Profit (ATG).” IRS. Audit Guide Rev. 6/09. 2011. Web.

“IRC § 183: Activities Not Engaged in For Profit (ATG).” irs.gov. irs, 2011. Web.

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