- On April 15, 1992, Lawrence McCormick filed and signed his
1991 tax return, but wrote under protest beneath his
signature. The IRS did not consider the return to be
properly filed and penalized the taxpayer for filing a
frivolous return. The district court in New York's Eastern
District sided with McCormick. It held that adding under
protest didn't alter the meaning of the signature on the
return. The court stated that McCormick was merely
expressing his First Amendment right to protest while
fulfilling his obligation to file a timely return. (
McCormick v. Peterson , 73 AFTR 2d
Court Just Says No
- A CEO and owner of a company was responsible for
collecting and paying his company's taxes. Because of a drug
and alcohol addiction, he argued, he was not a responsible
person under Internal Revenue Code section 6672 and
therefore not subject to any penalties for not paying taxes.
The Second Circuit Court of Appeals, however, found that the
CEO willfully failed to remit the taxes. (US v. Landau, CA2
- A corporation can deduct the worthlessness of stock of an
affiliate as an ordinary loss if it meets the two main
requirements of IRC section 165(g)(3). First, the
corporation must directly own at least 80% of the voting
stock and of each class of nonvoting stock of the affiliate.
Second, the affiliate must have received more than 90% of
its gross receipts from active sources. To determine if
interest, rent, and the like qualify as an active source,
examine the assets generating the revenue. If the sale of
these assets would result in ordinary income, the receipts
are counted as coming from an active source. If the sale
would result in a capital gain, the source of the receipts
is considered passive (PLR 9817002).
Michael Lynch, CPA, Esq., is an
associate professor of tax accounting at
College, Smithfield, Rhode Island.
Edward Schnee, CPA, PhD, is the
Professor of Accounting and
director, MTA program,
School of Accountancy, University of
Alabama, Tuscaloosa .