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Feeling hosed by IRS

Installer of heating and air conditioning gets a gust of hot air from the taxman.

Daily News personal finance columnist Harry Gross
Daily News personal finance columnist Harry GrossRead more

DEAR HARRY: I own a corporation that sells and installs heating and air-conditioning equipment. Most of our work is on new construction, some of it very large.

In 2011, I got tired of using chewing gum and rubber bands to fix my home unit, so I installed a new one. I paid my company the exact cost of the unit and did my own installation.

I'm now in a dispute with an IRS examiner who says that it is required that I pay income tax on the profit that "the company would have if it sold the unit." Not only that, but he wants the company to pay a tax on the same money! His supervisor agrees with him. This is nuts! What do I do?

WHAT HARRY SAYS: Let me explain their theory. You got a bargain that a nonowner of the company could never get. The amount of that bargain is unreported income to the company. Because you got the bargain "money" and own the company, this becomes income to you in the form of a dividend.

Crazy? It sure sounds like it to me. They are trying to hit you twice when once is too much - a neat trick. I think your examiner is too gung ho, and someone has to shape him up. There have been a number of court cases on this issue in which the taxpayer won. The most recent is Welle, 140 T.C. No. 19 (2013). Refer the examiner to this case. Good luck!