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Dk Case Summary

Decent Essays

Memorandum-to-the-file
Date: December 5, 2015
From: Nyatiah Nickens NN
Re: DLK Corporation: Tax Implications Facts: Five years ago, Lacey, Kaylee, and Doug organized a software corporation, DLK, which develops and sells Online Meetings software for businesses. DLK is a C corporation and each individual contributed $10,000 to the company in exchange for 1,000 shares of DLK stock (for a total of 3,000 shares). The corporation also borrowed $250,000 from ACME Venture Capital to finance operating costs and capital expenditures. It was suggested by Lacey that Kaylee and Doug (original investors) contribute an additional $25,000 to DLK in exchange for five 20-year debentures. The debentures will be unsecured and subordinate to ACME’s debt. Annual …show more content…

Hardman v. U.S., Cite as 60 AFTR 2d 87-5651 (827 F.2d 1409), Code Sec(s) 163, (CA9), 09/18/1987. Rudolph A. Hardman, Frances N. Hardman and Hardman, Inc., Plaintiffs-Appellants v. U.S., Defendant-Appellee. Hardman, Inc. bought twenty acres of land abutting Hale Field. In 1977, the corporation resold the property, including the extra twenty acres of land, for $600,000. It paid Mrs. Hardman $109,568 (one third of the net profit attributable to the 100 acres of land of Hale Field). Hardman Inc. characterized the $109,568 as part consideration for the purchase of property from Mrs. Hardman. The Hardman’s treated the payment as a “capital gain” and then Hardman, Inc. added the payment to its basis in the property. The IRS felt that the payment from Hardman Inc. to Mrs. Hardman was considered a “payment” as a dividend to Frances Hardman. The IRS felt that the payment was taxable as “ordinary income” to Mrs. Hardman and improperly added to the corporation's basis on resale. As a result, Rudolph and Frances Hardman and Hardman, Inc. appealed the district court decisions upholding tax deficiencies assessed by the Internal Revenue …show more content…

1419] treated for tax purposes as a valid "indebtedness." Were intent the sole consideration, we would have to agree that the parties here intended, both subjectively and objectively, to create an indebtedness. But the question is not so simple. Despite what many decisions state or imply, the issue is not so much what the parties intended, but whether for tax purposes the transaction will be so

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