Research Problem 2. Your client supplies water to a housing development. The com- pany requires… 1 answer below »

Research Problem 2. Your client supplies water to a housing development. The com- pany requires new customers to pay for the extension of the water lines to their homes. The water lines are the company’s property. The company has consistently treated the amounts received from its customers as a nontaxable contribution to capi- tal and used the amounts received as a reduction in the cost of the water lines for tax purposes. In recent decisions, the courts have consistently ruled that the payments received from the utility customers in similar circumstances should be treated as income from services, rather than as a contribution to capital. Your client has con- cluded that it is only a matter of time before the IRS applies the recent court decisions to the company. The client would like you to explain the tax consequences of the  IRS’s likely adjustments based on these decisions.

 

 

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