Below are info on one of the firm's client. Your Senior Manager has asked you to...

Addison Brooks is a self-employed attorney who operates his law practice as an unincorporated sole proprietorship. In 2015, the IRS disallowed several business deductions he took in 2013 and 2014. In addition, to paying the deficient and assessed penalties, he also pays $18,000 in interest on the tax owed. Can he deduct that interest in the current year?
A partial list of sources is:
• § 162, 163
• Reg. § 1.163-9T
• Kikalos v. Comm., 84 AFTR 2d 99-5933

Solutions

Expert Solution

Issue

Analysis

If addison brooks paying late federal income taxes or are otherwise in violation of the US tax code, the Internal Revenue Service (IRS) may charge penalty in addition to any taxes failed to pay. The IRS will also charge interest as described in Tax Topic 653, on both taxes you didn't pay and on any penalties they tacked onto the bill.

Interest paid to IRS is not deductible and no tax benefit will get to the client.The IRS believes that penalties and interest assessed for breaking local, state or federal laws should not be deductible because those fines are intended to discourage people from acting illegally. If taxpayers could deduct these fines, it would lessen their impact. If you do receive a penalty for breaking a tax law, either from the IRS or from your state Revenue Department, it's best to pay the fine immediately so that you won't be charged interest on it.

Conclusion

Based on the above analysis, Addison brooks cannot deduct the interest in the current year.

ekkarill92 answered 1 year ago

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