NCJ Number
64666
Journal
TAXES Volume: 57 Issue: 1 Dated: (JANUARY 1979) Pages: 60-65
Date Published
1979
Length
6 pages
Annotation
THE DEVELOPMENT OF TAX LAW AS APPLIED TO REBATES, BRIBES, AND KICKBACKS IS REVIEWED.
Abstract
THE TAX TREATMENT OF ILLEGAL REBATES, KICKBACKS, AND BRIBES MADE TO CUSTOMERS, EMPLOYEES, AND OTHERS HAS BEEN ANALYZED BY CONGRESS, QUESTIONED BY THE INTERNAL REVENUE SERVICE, AND RULED UPON BY THE COURTS. AFTER YEARS OF LEGISLATION, INTERPRETATION, AND LITIGATION, A SOLID LINE OF LEGAL REASONING HAS DEVELOPED. THAT LINE MAINTAINS THAT ILLEGAL REBATES, KICKBACKS, AND BRIBES INVOLVED IN SELLER-BUYER TRANSACTIONS CONSTITUTE REDUCTIONS OF SELLING PRICE OR COSTS OF GOOD SOLD, SUCH THAT GROSS INCOME IS THEREBY REDUCED. ILLEGAL REBATES, KICKBACKS, AND BRIBES NOT DIRECTLY INVOLVED IN THE SELLER-BUYER TRANSACTIONS, I.E., ILLEGAL PAYMENTS BETWEEN SELLER AND BUYER EMPLOYEE OR SELLER EMPLOYEE AND BUYER, ALONG WITH OTHER COMBINATIONS OTHER THAN SELLER-BUYER, ARE NOT CONSIDERED REDUCTIONS OF SELLING PRICE OR COSTS OF GOODS SOLD, SO THAT REDUCTION IN INCOME TAX MUST BE SOUGHT THROUGH BUSINESS DEDUCTIONS THAT AFFECT ADJUSTED GROSS INCOME. THE 1969 TAX REFORM ACT, HOWEVER, OUTLAWS THE USE OF ILLEGAL BUSINESS PAYMENTS AS BUSINESS DEDUCTIONS. IN INTERPRETING THE ACT, THE COURTS HAVE RULED, HOWEVER, THAT ONLY DEDUCTIONS OF ILLEGAL PAYMENTS ARE OUTLAWED IN TAX COMPUTATIONS, NOT THE REDUCTION OF GROSS INCOME THROUGH REDUCTIONS OF SELLING PRICE OR COSTS OF GOODS SOLD. WHILE THIS CLEARLY GIVES A TAX BREAK TO BUYER-SELLER KICKBACK, REBATE, AND BRIBE TRANSACTIONS, SUCH TRANSACTIONS INVOLVING INITIATIVES BY EMPLOYEES ARE COVERED UNDER THE ACT. SUCH DISCRIMINATORY JUDICIAL LOGIC MAY WELL PRESS CONGRESS TO RECONSIDER THE ISSUES INVOLVED. (RCB)