Clever Techniques To Defer Capital Gains – Maybe Too Clever
This is the technique that is most exciting Using an installment obligation as collateral will generally trigger gain recognition. The Monetized Installment Sale (MIS) purports to work around this allowing you to have the overwhelming bulk of the proceeds available for whatever purpose you want, while still deferring gain.
The support for this technique comes from a 2012 advisory letter from the IRS Chief Counsel Office – 20123401F . It’s important to note that this letter is not a blessing of the transaction. The revenue agent was asking whether the transaction should be attacked with either “substance over form” or “step transaction”. The Associate Chief Counsel told the revenue agent that it should not. So the answer was not that the taxpayers are right, just that they are not wrong in those particular ways.
Cannabis Company Harborside Goes Public – Will Appeal Multi-million $ Tax Court Ruling
The fundamental tax problem of the state-legal cannabis industry is Code Section 280E which denies ordinary and necessary business deductions for taxpayers trafficking in controlled substances. That was added to the Code in 1982.
Because we have an income tax, not a gross receipts tax, deductions still had to be allowed for the cost of goods sold. The Tax Reform Act of 1986 expanded the costs that were included in the cost of goods sold(Code 263A). This was generally not a taxpayer-friendly provision since it had the effect of deferring deductions in inventory.
Having deductions running through the cost of sales was good for the “traffickers” though. It is better to get a deduction later rather than never. In 2015, the IRS Chief Counsel snatched even this half loaf off the table with CCA 201504011.
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Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.