Sometimes one person or company will compensate another for paying the tax payable to the first. An agreement for this agreement is called a tax compensation agreement. For example, Company No. 1 compensates Company No. 2 for taxes levied on Company No. 2. The #1 company could do this because the two companies have business activities together (for example.B one company can sell the other`s products). What is the tax treatment of the #2 company if it is cleared by the #1 company – if it receives a tax offset payment? The e-mail address cannot be subscribed. Please try again.
For planning reasons, it is always advisable that the client first pays the tax and then receives a refund from the returnee to avoid inclusion in income. Because if the returnee first pays the additional taxes or penalties that the customer incurs, then this payment is taxable income for the customer according to Treas. Reg. 1.61-14 (a). See also Ltr. Rul 7749029. . . .