Cost Allocations in Group Purchases

Western Bank & Trust purchased land and a building for the lump sum of $3,000,000. To get the maximum tax deduction, Western allocated 90% of the purchase price tot he building and only 10% to the land. A more realistic allocation would have been 70% to the building and 30% to the land.

Requirements

1. Explain the tax advantage of allocating too much to the building and too little to the land.

2. Was Western's allocation ethical? If so, state why. If not, why not? Identify who was harmed.

Instructions: Your initial response should be no less than 250 words with at least one scholarly journal reference (dictionary-type websites are excluded). In-text citations and references must be in APA format. Refer to the Forum Grading Rubric below for additional guidelines.

Make sure you are using credible sources in your discussions and assignments. Scholarly journals are the preferred source of credible/quality references. These consist of peer-reviewed articles published in academic journals related to the field, which are found via our Library. Websites such as Investopedia, ask.com, answers.com, or dictionary-type of websites limit the insight to the topics. Wikipedia is not acceptable as it is not a reliable, credible source of reference. The purpose is to bring in new information and how does it apply to our topic from a real-world perspective, instead of extending on definitions that are found in the book.

More information what a credible source consists of can be found here: http://writingcommons.org/evidence/supporting-sources/630-what-might-be-a-more-credible-reliable-source.