Venture Funding, Ltd. - Page 17

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                    Under these regulations, the former general rule                  
               and special rule are replaced by a revised general rule                
               that more closely follows the statutory language of                    
               section 83(h).  The service recipient is allowed a                     
               deduction for the amount "included" in the service                     
               provider's gross income.  For this purpose, the amount                 
               included means the amount reported on an original or                   
               amended return or included in gross income as a result                 
               of an IRS audit of the service provider.                               
                    Because of the potential difficulty of                            
               demonstrating actual inclusion by the service provider,                
               a special rule provides that, if the service recipient                 
               timely complies with applicable Form W-2 or 1099                       
               reporting requirements under section 6041 (or 6041A),                  
               as appropriate, with respect to the amount includible                  
               in income by the service provider, the service provider                
               is deemed to have included the amount in gross income                  
               for this purpose.  Thus, the regulations allow the                     
               deduction without requiring the service recipient to                   
               demonstrate actual inclusion by the service provider.                  
               * * *                                                                  
               *    *         *         *         *       *     *                     
                    The deemed inclusion rule may be used only by a                   
               service recipient whose compliance with applicable Form                
               W-2 or 1099 reporting requirements is timely.  Thus,                   
               for example, under the current reporting requirements,                 
               if amounts attributable to one or more section 83                      
               transfers of property are includible in an employee's                  
               income in year 1 (and are not eligible for any                         
               reporting exemption), the employer generally is                        
               required to furnish the employee a Form W-2 reflecting                 
               that amount by January 31 of year 2 and generally is                   
               required to file a copy of the Form W-2 with the                       
               federal government by the last day of February of year                 
               2.  If the employer reports to the employee and the                    
               government in a timely manner, the employer can rely on                
               the deemed inclusion rule to claim a deduction for the                 
               amount in year 1.  If the employee's Form W-2 is not                   
               furnished until after January 31 of year 2 or the                      
               government's copy of Form W-2 is not filed until after                 
               the last day of February of year 2, the employer                       
               generally is required to demonstrate that the employee                 
               actually included the amount in income in order to                     
               support its deduction of the amount.  * * *                            
               *    *         *         *       *      *         *                    




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Last modified: May 25, 2011