Question

A. Page 5-7 of the text mentions “qualified tuition reduction plans” under which an educational institution may reduce or pay the tuition for its employees, and the employees will not be taxable on the assistance.

What criteria are used to determine whether the employer qualifies to provide nontaxable qualified tuition reductions or payments under such a plan?

Which individuals may receive the nontaxable qualified tuition reductions or payments?

Are there circumstances in which a tuition reduction or payment made by a qualifying employer for a qualifying individual will nevertheless be taxable to the employee? If so, describe these circumstances.

B. On pages 6-13 and 6-14, the text explains that taxpayers are not allowed a business deduction for political contributions or for expenses incurred for lobbying activities.

How does the IRS define what is a “political contribution” that cannot be deducted? Is the disallowance limited to outright gifts, or does it extend to less direct methods of providing funds to a candidate or party? If the latter, please explain the circumstances in which the disallowance applies to something that is not an outright gift.

How does the IRS define what is “lobbying,” so that a taxpayer may determine what expenses are not deductible as lobbying expenses?

Many not-for-profit organizations are engaged in lobbying, but still qualify to receive deductible charitable contributions. Does this activity affect an individual’s ability to claim a charitable deduction for contributions to an otherwise qualified organization? If so, in what circumstances, and how is the deduction affected?

C. On pages 7-7 and 7-8, the text explains what are casualty and theft losses that an individual may deduct, even though the losses are related to personal use property. The text gives examples of occurrences that cause losses that do not qualify as casualty losses, and states that misplacing items does not count as a “theft.” However, the IRS gives more detailed guidance on these issues.

What occurrences do not result in deductible casualty losses according to the IRS in addition to those listed in the text?

What occurrences do not result in deductible theft losses according to the IRS in addition to those listed in the text?

At the same time, it is explaining the occurrences that do not result in deductible casualty or theft losses, the IRS states that deductible losses can result from two specific occurrences that would seem to fall into the “nondeductible” category. Briefly describe these provisions.

Please answer each question in complete sentences, and cite the name and number of the IRS publication or form/instruction where you found each answer, and the page number on which the answer is found. Use your own words in the answer – do not copy the IRS’ language. Thank you!

Answer 1

A)

A elligible educational institution can exclude the amount of a qualified tuition reduction it provides to an employee from the employee’s wages. According to the IRS, an eligible educational institution is “an institution that maintains a regular faculty and curriculum and normally has a regularly enrolled body of students in attendance at the place where it carries on its educational activities.”

The rules for determining if a tuition reduction is qualified, and therefore tax free, are different if the education provided is below the graduate level or is graduate education

A tuition reduction for undergraduate education generally qualifies for this exclusion if it is for one of the following types of individuals:

A current employee
A former employee who retired or left on disability
A widow or widower of an individual who died while an employee
A widow or widower of a former employee who retired or left on disability
A dependent child or spouse of any individual listed in these categories

A tuition reduction for graduate education qualifies for this exclusion only if it is for a graduate student who performs teaching or research activities for the educational organization.

Qualified tuition reductions apply to officers, owners, or highly compensated employees only if benefits are available to employees on a nondiscriminatory basis. This means that the tuition reduction benefits must be available on the same basis to each member of a group of employees, which is defined by the employer. This classification must not discriminate in favor of owners, officers, or highly compensated employees.

Section 414(q) of Internal Revenue Code details two tests for determining if an employee is a Highly Compensated Employee (HCE )– an ownership test and a compensation test. An employee is considered an HCE if he or she satisfies either of these tests.

Ownership Test: Generally, an employee that is a 5% owner at any time during the current plan year, also known as the determination year, or the 12-month period immediately preceding the determination year, also known as the lookback year
Compensation Test: An employee who has received compensation from the employer in excess of $80,000 during the lookback year and, if elected by the employer, is in the top 20% of employees ranked by compensation for the lookback year. The employer may make the election for any year and it will be applicable for all subsequent years until it is revoked. There is no filing or reporting requirement with the Service. However, the plan document must be consistent with the election, so a plan amendment may be required to reflect the election, depending upon the terms. For more information, please see Sections IV, V and VII of Notice 97-45.

An employer with a non-calendar year plan can elect to have the lookback year be the calendar year that begins with or within the 12-month period immediately preceding the determination year. This election may not be made for the ownership test. The requirements for making a calendar year election are set forth in Section V of Notice 97-45.

B)

LOBBYING POLICY
The Federal government, each State, and certain localities have laws requiring registration
and reporting by lobbyists and in some cases, also by the lobbyist's employer. In addition,
certain expenses for lobbying activity are not deductible as business expenses under U.S.
tax law. Lobbying activity generally includes attempts to influence the passage or defeat of
legislation. The U.S. Government and many States, however, have extended the definition
of lobbying activity to cover efforts to influence formal rulemaking by executive branch
agencies or other official actions of agencies, including the decision to enter into a contract
or other financial arrangement. Moreover, "grassroots" lobbying activity (where one
communicates with the public or segment of the public encouraging others to contact public
officials for the purpose of influencing the passage of legislation or a rulemaking) is in many
cases also considered lobbying activity. The activities described in this paragraph are
collectively referred to as “Lobbying Activities.”
To ensure that Celgene and its employees are in compliance with these laws, including
certain registration, reporting and recordkeeping requirements, employees must comply with
the following:
• An employee, contractor, or agent may not engage in any Lobbying Activities, as
described above, on behalf of Celgene without prior approval and coordination with the
Corporate Affairs Department and must be in full compliance with applicable Federal,
State, and local laws.
• An employee, contractor, or agent may not retain an outside consultant to provide
Lobbying Activities, services in support of Lobbying Activities, or services otherwise
related to government affairs or public policy without prior approval and coordination with
the Corporate Affairs Department.
If you are not sure whether your activities would be considered Lobbying Activities, please
contact the Corporate Affairs Department.

First, let's make it clear that political expenses of any kind are not tax deductible as business expenses or personal expenses. Now, let's look at some details about the types of political expenses that are non-deductible. The IRS covers practically everything you can think of in its mission to tell you that political and lobbying costs are never deductible.

Lobbying Expenses

Lobbying expenses - money used to influence a legislative body at the local, state, or federal level - are non-deductible.

According to the IRS (Publication 529), this includes expenses for these types of activities:

Influence legislation,

Participate, or intervene, in any political campaign for, or against, any candidate for public office,

Attempt to influence the general public, or segments of the public, about elections, legislative matters, or referendums, or

Communicate directly with covered executive branch officials in an attempt to influence the official actions or positions of those officials.

A "covered executive branch official" includes the President, Vice President, an officer or executive of the White House, or Cabinet-level officials and their deputies.

Expenses for doing research, preparing for lobbying activities, and travel to and from these types of activities is non-deductible.

Campaign Expenses

If you or someone else in your business is running for political office, you may not deduct the expenses involved in running a political campaign as a business or personal tax deductions.

In Publication 529, the IRS also says:

You cannot deduct campaign expenses of a candidate for any office, even if the candidate is running for reelection to the office. These include qualification and registration fees for primary elections.

Contributions to a campaign committee or a newsletter are also non-deductible.

Other Political Expenses and Contributions

Other types of political activities that are not allowed as tax deductions:

Expenses for political activities, such as campaign dinners and events for political parties or candidates
Political contributions or gifts to political candidates.
Donations to political action committees (PAC's)
The portion of dues to professional organizations that are designated for political lobbying.
Amounts you pay in union dues that are related to lobbying or political activities.

In addition, you cannot claim a charitable deduction for contributions to a group which conducts lobbying activities that have a direct effect on your business.

One Small Loophole

You might be able to take advantage of this small loophole in the "no deductions for political stuff" decree. Your business may be able to deduct up to $2,000 per year in expenses to influence local legislation (state, county, or city). But this doesn't include deductions for hiring a lobbyist to do the influencing.

C)

What’s a casualty?

A casualty is damage, destruction, or property loss resulting from one of these identifiable events:

• Sudden event — swift, rather than gradual or progressive
• Unexpected event — ordinarily unanticipated and unintended
• Unusual event — not a day-to-day occurrence

Nondeductible losses

You can’t deduct a casualty loss if the damage or destruction is caused by any of these:

Accidentally breaking items, like glassware or china, under normal conditions
Damage a family pet does, unless the casualty requirements are met. Ex: Your new puppy, who’s not housebroken, damaged your antique Oriental rug. Since the damage isn’t unexpected or unusual, you can’t deduct the loss.
Fire you willfully set or you paid someone else to set
Car accident if your willful negligence or willful act caused it. The same is true if someone acting for you caused the accident.
Progressive deterioration if the damage results from a steadily operating cause or a normal process, like:

Steady weakening of a building due to normal wind and weather conditions
Deterioration and damage to a water heater that bursts. However, the damage to rugs and drapes caused by the bursting of a water heater qualifies as a casualty.

Most losses of property caused by droughts. To deduct it, you must have incurred a drought-related loss in one of these:

Trade or business, like farming
Transaction entered into for profit

Termite or moth damage
Damage or destruction of trees, shrubs, or other plants by:

Fungus
Disease
Insects, worms, or similar pests. However, a sudden destruction due to an unexpected or unusual insect infestation might result in a casualty loss.

Failure to file an insurance claim for reimbursement

If your property is covered by insurance, you must file a timely insurance claim for your loss. Otherwise, you can’t deduct the loss as a casualty or theft. However, the portion of the loss not covered by insurance, like a deductible, isn’t subject to this rule. To learn more, see Publication 547: Casualties, Disasters, and Thefts at www.irs.gov.

What’s a theft?

A theft is the taking and removing of money or property with the intent to deprive the owner of it. The taking of property must be:

Illegal under the law of the state where it occurred
Done with criminal intent

Theft includes the taking of money or property by:

Blackmail
Burglary
Embezzlement
Extortion
Kidnapping for ransom
Larceny
Robbery
Fraud or misrepresentation

Taxpayer Theft Loss Deduction
(IRC §165(c)(2)(3))

Under IRC §165, an individual may deduct losses arising from “fire, storm, shipwreck, or other casualty or from theft.”

Under IRC §165(c)(2), an individual may deduct theft losses involving a transaction entered into for profit.

Under IRC §165(c)(3), an individual may deduct losses due to theft (see Treas. Reg. Section 1.165-8(d)).

A loss arising from theft is treated as sustained during the taxable year in which the Taxpayer discovers the loss (IRC §165(e)(1)).

The deductible amount is the lesser of the fair market value or basis of the property stolen (Treas. Reg. §1.165-8(c)), IRC §165(b).

An individual is permitted to deduct losses to her property arising from “fire, storm, shipwreck, or other casualty, or from theft.” The term “other casualty” defined as a sudden, unexpected event that is unusual in nature and beyond the control of the taxpayer.

A theft loss technically is not a casualty loss, but theft losses are aggregated with casualty losses for most purposes. The first $500 (2009) of each personal casualty or theft loss is not deductible, and personal casualty and theft losses are generally deductible only to the extent they exceed 10 percent of the taxpayer’s AGI.

Casualty and theft losses that arise in a trade or business or activity engaged in for profit are deductible (as are other losses arising in these activities) and may qualify for beneficial treatment under Code Section 1231.

The portion of a loss that is reimbursed by insurance is not deductible (Code Section 165(a)). A personal casualty or theft loss is deductible only if the taxpayer files a timely claim for any insurance covering the loss. Code Section 165 (h) (5) (E).

Taxpayers claiming casualty and theft losses must file Form 4684, Casualties and Thefts, with their tax returns to claim the deduction. The IRS has also made available two workbooks, IRS Publication 584, Casualty, Disaster, and Theft Workbook, and IRS Publication 584B, Business Casualty, Disaster, and Theft Workbook, which contain schedules used to compute personal and business casualty and theft losses, respectively.