If this was an intentional scheme or artifice to defraud, then it could be considered tax evasion.
Otherwise, the result is an ordinary (short-term) gain that would be reported on Form 4797 assuming the entire purchase price was expensed.
I have a different opinion: you would simply treat the refund amount as income. Enter as "other income", rather than "Gross receipts or sales".
@Hal_Al wrote:
I have a different opinion: you would simply treat the refund amount as income. Enter as "other income", rather than "Gross receipts or sales".
That procedure would also be appropriate, but the end result would be exactly the same either way.
Regardless, if the sole intention of the proposed transaction is tax avoidance, that is a problem.
Thank you for your replies. The purpose of the question wasn't to propose tax avoidance; rather, the company is considering purchasing equipment that it may need to return if it doesn't work out for its needs.
Simply wanted to know if returning items the following year severely complicates tax reporting or triggers an audit, and if so, perhaps they should just wait until the following year to purchase to avoid any issues.
But if such a scenario is common and the refund is simply declared as income the following year, it doesn't sound too cumbersome to act on purchasing the equipment now.