lack_of_business_purpose - Why would Kaufman rent a backhoe...

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Lack of Business Purpose Kaufman Corporation paid $25,000 to rent a backhoe and deducted the payment as an ordinary and necessary business expense. Kaufman operates a retail clothing store. It had no real need for a backhoe and, in fact, never used the equipment for any purpose. In auditing Kaufman’s tax return, the IRS disallowed a deduction for the rental payment, arguing that the expense lacked any business purpose.
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Unformatted text preview: Why would Kaufman rent a backhoe it did not need? The owner of the equipment was a candidate for mayor in the city where Kaufman’s store is located. Kaufman’s management believed that the candidate’s proposals would benefit their business. Since political contributions are not tax deductible, management arranged the rental scheme in an attempt to deduct the payment....
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