AOPA Plane Giveaway and Taxes

wrote:
Of course as noted elsewhere in this thread, that won't help with
the
winner of this plane because you can't take depreciation against
an
asset you got for free.


Your basis is the amount included in income on Form 1040.

Fred F.

"Robert M. Gary" wrote:

Why buy it from the recipient? Why not just pick up trade-a-plane and
buy a plane? If your corp is going to buy a plane, winning one by the
owner doesn't effect anything. The owner still pays all taxes from the
winning.

Not if the s-corp owner and the winner are the same person.

--
Peter

"Robert M. Gary" wrote:

BTW: In California we have a minimum tax for S-corps, C-corps, LLC, etc
of $800/yr. You would have to pay the $800/yr for the privilege of
being incorporated.

If incorporated in CA, or incorporated in any state? Without knowing the
answer, my guess would be the latter, right?

--
Peter

wrote:

Sure, for the s-corp. But the recipient will still have to pay taxes
on the FMV of the plane that she received for free and sold to the
s-corp.

I agree that the owner will owe taxes on the winning aircraft.

However, assuming the winning recipient of the AOPA aircraft is also the
owner of the s-corp, then any tax benefit (aka tax over-payment refund)
that the s-corp receives from accelerated aircraft depreciation can be
passed through to the recipient's individual return, thus negating most of
the income tax owed on winning the aircraft, correct?

I am looking at the overall net affect (check sent to the IRS) of such a
transaction, not the impact of each tax event taken separately.

--
Peter

"Robert M. Gary" wrote:

Why buy it from the recipient? Why not just pick up trade-a-plane and
buy a plane? If your corp is going to buy a plane, winning one by the
owner doesn't effect anything. The owner still pays all taxes from the
winning.

Sorry, my original response was a result of reading your quote above too
fast. After understanding your comment, I should point out that the goal
of such a transaction would be to minimize the net income tax owed to the
IRS that year, not simply to acquire an aircraft.

--
Peter

"sfb" wrote in message
news:H3Fif.3507$P33.1126@trnddc01...
IRS pub 561 puts the responsibility for the appraisal on you
and the IRS is not obligated to accept the appraisal without
question. Despite the magic of the 1998 act, the taxpayer still
retains much of the burden of burden of proof with regard to
fair market value.


Since when is an IRS Pub legal authority vs. mere plain-language
guidance? The burden will indeed shift to IRS at some point in the
dispute process.

Of practical significance is where the t/p secures an appraisal to
determine the amount to be reported, but the 1099 has significantly
more. If the IRS audits and determines that AOPA didn't use an
appraisal for the 1099, then I'm afraid they don't have much of a
case. They may try to argue that AOPA knows airplanes, but that
doesn't make them a qualified appraiser. Sounds like favorable
settlement material to me.

Fred F.

Depends on the state you live in. Each winner would have to look at the
incorporation cost of their own state. In California its $800/yr. I
believe New York is similar. AZ and NV don't tax it at all. In
otherwords, as an example, California charges $800/yr, you may want to
check your state.

But I'm not sure how this is helping. I win an airplane and have to pay
tax on the value. I then sell it to my corp, receive a check from my
corp and pay the tax. I guess I don't see the difference. If you are
trying to sell it to your corp for less than FMV then I believe the IRS
provides jail terms for such fancy book work designed to avoid paying
tax. The legal word for this is "arm's length transaction". Even if you
"gift" the plane to your corp, you are required to report it as FMV as
if it was an "arm's length transaction" (i.e. you told it to someone
you didn't know.)

-Robert

"Robert M. Gary" wrote:

I then sell it to my corp, receive a check from my
corp and pay the tax. I guess I don't see the difference. If you are
trying to sell it to your corp for less than FMV then I believe the IRS
provides jail terms for such fancy book work designed to avoid paying
tax.

Robert, the goal here is not to avoid the income tax and tread illegal
waters as you deduced, but rather to legally use the tools of the tax code
to create an expense (accelerated depreciation) large enough to offset most
of the income tax due on the winnings.

Again, the big picture goal is to significantly reduce the size of the
check that the winner has to send to the IRS on April 15th of the following
year.

Of course, come the date of the sale of aircraft some time in the future,
any accelerated depreciation will be recaptured by the IRS in the form of a
capital gains tax, but this is only a straight 20% tax versus an individual
income tax bracket of normally a 32% to 40% tax (depending on one's taxable
income).

--
Peter

"Robert M. Gary" wrote:
Even if you "gift" the plane to your corp, you are required
to report it as FMV as if it was an "arm's length transaction".

Not if in exchange for stock as is the normal case. Called a
"section 351 transfer."

Fred F.