Sam is an accountant who works at KPMG

by | Mar 18, 2020 | Uncategorized

  
: Sam is an accountant who works at KPMG. Sam has invented an “improved” squeegeefor cleaning windows and dreams of making it a commercial success. He forms a corporation“Squeegee, Inc.” for which he properly elects Subchapter S tax status. He invests $20,000for 100% of its stock, and lends it $30,000. Sam continues to work at KPMG, but uses all hisfree time to develop the Squeegee business. The corporation uses its funds to develop aprototype and tooling for manufacture. Sam then secures a spot on the TV show “SharkTank” where he pitches his product and business, but is unable to get any of the participantsto invest in his company. He spent $15,000 of his own money to travel to the California studiowhere shark tank was filmed and to stay at a hotel during the filming of the show, and toproduce presentation materials to use for his appearance. Sam eventually is able to produceand sell 100,000 squeegees at $10 each, but his business spent more than the million dollarsof gross receipts in doing so and fails. Sam gets nothing when the business is finallyliquidated. In addition, Squeegee Inc is audited by New York State for its sales taxobligations, which assesses the Corporation 80,000 of sales tax, 20,000 of penalty and 10,000of interest. Since the corporation is defunct, NY collects the entire 110,000 sales tax debtfrom Sam as a Responsible party.Question:

What are the tax consequences of these transactions for Sam? In particular, howare the business receipts and losses treated, the costs of the appearance on Shark Tanktreated, and will Sam be able to deduct the Sales Tax collected from him by New York State?
  

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