DJT, Inc. is a commercial building contractor in Gotham. DJT entered into a contract with Gotham to construct a new school administration building. The cost of the administration building is $200 million. The project is to be completed by December 31, 2019. In addition, the contract has an incentive clause which, if the project is completed by July 1, 2019, DJT could be paid an additional $25 million.

As a requirement of the contract, DJT purchases a performance bond to secure its performance if it should fail to complete the project. The performance bond requires two equal payments of $20 million dollars. DJT makes the two payment with $5 million in cash and the balance in the form of a promissory demand note along with the personal guarantee of its owner.

In addition, DJT orders building supplies from PM, Inc. for $100 million. To secure the needed supplies, DJT on January 2, 2017 gives PM, Inc. $50 million. The balance is due on January 2, 2018.

On January 2, 2017, DJT leases construction equipment from MP, LLC. for the equipment to be used on the project and pays MP $15 million under the lease.

On July 1, 2017, DJT pays $5 million to the constructions workers union welfare fund. It does the same on July 1, 2018.

Due to poor management, two construction works were injured on February 15, 2017. On March 2018 the workers are awarded $1,000,000 each in damages. DJT is self-insured for workers compensation claims. Rather than paying the awards, DJT hires Dewey, Cheetem, and Howe, LLP to file an appeal contesting the award. To hedge its liability, DJT pays the $2 million to the foreign branch of a foreign bank, in escrow, to pay the claim should it be required to.

Construction begins on January 1, 2017; by the end of 2018 3/4 of the building is completed. Unfortunately, on January 20, 2019, DJT, Inc. and it owners are caught is a sting in an attempt to bribe Gotham construction officials. As a result, the company is taking over by the Justice Department under the RICO statute. The Justice Department awards the balance of the contract to HC Inc. who completed the project before July 1, 2019 at an additional cost of $100 million. Because of the default by DJT, the bonding company pays Gotham $100 million under the performance bond.

As the project was completed before July 1, 2019, HC, Inc. receives the $25 million incentive payment.

Discuss the relevant tax issues presented.

Suppose- instead of being self-insured for workers compensation, DJT on January 2, 2017 paid $1,000,000 to VP, Inc. a foreign insurance company to cover potential worker compensation claims?