Taxation-Federal Commons^™

The Income Tax Treatment Of Social Welfare Benefits, Jonathan Barry Forman

University of Michigan Journal of Law Reform

Part I of this Article describes the major social welfare programs in the United States. Part II outlines the basic structure of the federal income tax and describes how social welfare benefits are treated by the income tax system. Finally, Part III surveys some recent proposals to tax particular social welfare benefits and considers the arguments for and against taxing such benefits. The Article concludes that the need for new revenue sources will push the federal government to reconsider the tax treatment of social welfare benefits.

Tax Expenditure Budgets: A Critical View, Douglas A. Kahn, Jeffrey S. Lehman

Articles

During the past few months, Tax Notes has featured an extended discussion about the "normalcy" (or lack thereof) of accelerated depreciation. Two contributions to that discussion came from Professor Calvin Johnson of the University of Texas Law School, who disagreed with certain aspects of an article that Professor Kahn wrote in 1979. And the debate shows no sign of slowing down. The interchange over the details of accelerated depreciation offers a useful backdrop against which to consider a more general issue: the intellectual coherence of the tax expenditure budgets. The larger concept of tax expenditures was what motivated Kahn to …

Tax Policy And Panda Bears, Douglas A. Kahn, Jeffrey S. Lehman

Articles

In this article. Professors Kahn and Lehman argue that the concept of tax expenditure is flawed as a tool for measuring the propriety of tax provisions. It assumes the existence of on true and correct standard of federal income taxation that applies to all circumstances. To make that a assumption, the proponents of the concept implicitly make a particular moral claim about the relative importance of a wide range of values, including efficiency, consumption/savings neutrality, privacy, distributional equity, administrabiliy, charity, and pragmatism. They then measure a tax provision's "normalcy" exclusively by how it conforms to their Platonic concept of income. …

Realization, Recognition, Reconciliation, Rationality And The Structure Of The Federal Income Tax System, Patricia D. White

Michigan Law Review

There are a few structural requirements that are necessarily common to any tax system. In Part I of this article I examine those requirements. I show that by isolating the necessary structure of a tax system from its particular content or goals, we can better understand the role played within the federal system of certain of its most characteristic features. In particular, I trace the function of the realization requirement for the recognition of income and distinguish it from another sort of function that could lead to the recognition of income within an income tax system. This second function is …

The Two Faces Of Tax Neutrality: Do They Interact Or Are They Mutually Exclusive?, Douglas A. Kahn

Articles

The term "tax neutrality" refers to at least two quite different concepts. In its most common usage, tax neutrality refers to tax provisions that conform to an ideal tax system. A tax provision that is consistent with such an ideal system is described as "neutral." A tax provision that cannot be reconciled with the ideal system is sometimes referred to as a "tax expenditure" item. I will discuss tax expenditures later in this paper.

Tax Avoidance And Income Measurement, Joshua D. Rosenberg

Michigan Law Review

This article first will explain our system of "transaction taxation" and will further explore the problems caused by the transactional focus of our tax system. It then will consider the current judicial responses to these problems and examine their inadequacies. Finally, it will set forth and explore the alternative responses suggested above in more detail.

What Has Happened To The Tax Legislative Process?, Pamela Brooks Gann

Michigan Law Review

A Review of Showdown at Gucci Gulch: Lawmakers, Lobbyists and the Unlikely Triumph of Tax Reform by Jeffrey H. Birnbaum and Alan S. Murray

Should General Utilities Be Reinstated To Provide Partial Integration Of Corporate And Personal Income—Is Half A Loaf Better Than None?, Douglas A. Kahn

Articles

The General Utilities doctrine is the name given to the now largely defunct tax rule that a corporation does not recognize a gain or a loss on making a liquidating or nonliquidating distribution of an appreciated or depreciated asset to its shareholders. The roots of the doctrine, can be traced to a regulation promulgated in 1919 that denied realization of gain or loss to a corporation when making a liquidating distribution of an asset in kind. No regulatory provision existed which specified the extent to which realization would or would not be triggered by a nonliquidating distribution such as a …

The Rhetoric Of The Anti-Progressive Income Tax Movement: A Typical Male Reaction, Marjorie E. Kornhauser

Michigan Law Review

This article examines the arguments against progressivity and the supporting philosophic premises behind the mask of rhetoric. It neither treats exhaustively nor demolishes the legitimacy of the arguments or the underlying philosophy. Part I briefly summarizes the major arguments against progressivity. Part II examines the economic argument, its underlying assumptions, and its limitations. Part III examines the neoconservative philosophy which underlies the justification for a flat tax and contrasts it with an alternative feminist vision of people and society, which provides strong justification for progressive taxation.

Part IV concludes that there is a strong case for progressive taxation based not …

Distinguishing Between Capital Expenditures And Ordinary Business Expenses: A Proposal For A Universal Standard, Steven J. Greene

University of Michigan Journal of Law Reform

It is apparent from an examination of the various court decisions that there is no single, common standard used to distinguish between capital expenditures and ordinary business expenses. The courts are not completely to blame for this situation, however, because the Internal Revenue Code provides little guidance on the capital/ordinary distinction. This Note proposes an amendment to the Tax Code that would provide courts with a universal standard to apply in differentiating between the two types of expenditures and that best reflects the general purpose of the Code in matching income with its related expenses. Part I analyzes the historical …

Does Charity Begin At Home? The Tax Status Of A Payment To An Individual As A Charitable Deduction, Michigan Law Review

Michigan Law Review

In White v. United States, the United States Court of Appeals for the Tenth Circuit reversed a district court decision and held that the taxpayers could deduct expenses they paid directly to their dependent son to support his missionary activities away from home. In Brinley v. Commissioner, the Tax Court sitting in Texas refused to follow the Tenth Circuit in White, and held that while the missionary son was entitled to deduct his personal expenses, the parents could not deduct their payment of the son's expenses.

This Note supports the result in Brinley and argues that the …

The Supreme Court's Misconstruction Of A Procedural Statute-A Critique Of The Court's Decision In Badaracco, Douglas A. Kahn

Articles

When a taxpayer files an honest' federal income tax return for a taxable year, section 6501(a) of the Internal Revenue Code2 limits the period of time during which the Government can assess a tax for that year to a three-year period commencing with the date that the return was filed. The three-year limitations period is extended for an additional three years by section 6501(e)(1)(A) if the taxpayer's return omits properly includible gross income in an amount in excess of twenty-five percent of the gross income that was reported. If a taxpayer fails to file a return for a taxable year …

Disparate Tax Treatment Of Different Types Of Business Organizations: Where Should We Go From Here?, Douglas A. Kahn

Articles

If several persons wish to join together in a common enterprise in order to pool their capital or labor or some of each, they may choose among a variety of available organizational structures that will serve that purpose. The most common entity forms are partnerships (including joint ventures), corporations, and trusts. While, in its typical structure, each of those entity forms has its own distinct characteristics, the structure of such organizations often is modified by agreement so as to adopt attributes of another type of entity. Because of this, the substantive distinction between entity types is blurred.

The Treatment Of Mandatory Tax Withholdings In Calculating Afdc Benefits: Fairness As A Relevant Inference In Ascertaining Congressional Intent, Michigan Law Review

Michigan Law Review

This Note contends that the more appropriate construction of the statute is to view mandatory tax withholdings as nonincome and nonwork expense items. Part I traces the pre-OBRA legislative and administrative history and examines the judicial interpretations of 42 U.S.C. section 602(a)(7) "income" and section 602(a)(8) "earned income." It concludes that under the "availability" principle, tax withholdings have always been regarded as nonincome items distinct from work expenses. It contends that, notwithstanding contradictory language in the regulations implementing section 602(a)(8), the status of tax withholdings as nonincome items under section 602(a)(7) is controlling. Part II considers the legislative history and …

A New Export Policy: The Foreign Sales Corporation And State Unitary Taxation Of Foreign Source Income, Reed D. Rubinstein

Michigan Journal of International Law

Part I of this note will examine the structure of the FSC, and analyze its potential benefits in light of the Domestic International Sales Corporation (DISC) tax incentive. Part II discusses the use of the unitary tax as a disincentive to direct foreign investment by U.S. corporations. Finally, Part III outlines the new export policy based upon a combination of the FSC export incentive and state unitary taxation of foreign-source income. If implemented, this policy would increase export production and discourage direct foreign investment, thereby making a substantial contribution to U.S. economic well-being.

The Supreme Court's Misconstruction Of A Procedural Statute--A Critique Of The Court's Decision In Badaracco, Douglas A. Kahn

Michigan Law Review

Before addressing the lessons to be derived from Badaracco, it is necessary to make good on the author's claim that it can be demonstrated to the satisfaction of a reasonably skeptical reader that the Court's decision was patently wrong and resulted from a poor technique of statutory construction. This is a heavy burden, especially since the decision was reached by an overwhelming majority of the Court and since two courts of appeals and at least one student law review note reached the same result. The reader must judge whether the author succeeds in satisfying it. This Article will first …

An Essay On The Conceptual Foundations Of The Tax Benefit Rule, Patricia D. White

Michigan Law Review

My aim in this essay is to explore the foundations of the tax benefit notion. My strategy is simple, but it is probably best to state it explicitly at the outset. I begin with a straightforward and uncontroversial example of the application of the "inclusionary aspect" of the tax benefit rule. Using it as a paradigm, I try to discern why the law deems it appropriate to increase a taxpayer's taxable income. Next I examine the account of the tax benefit rule given by the Supreme Court in Hillsboro to see if it is consistent with the paradigm. I conclude …

Tax Treatment Of Prepublication Expenses Of Authors And Publishers, Michigan Law Review

Michigan Law Review

This Note analyzes the tax treatment of prepublication costs. Part I presents the analytic framework of the business expense/ capital expenditure distinction and searches for practical, income- reflecting criteria that achieve theoretically correct results. Part II covers the historic treatment of prepublication expenditures, concluding that neither the courts nor the Internal Revenue Service (IRS) have been consistent in their approach and that both have largely ignored the income-reflecting goals outlined in Part I. Part III applies the income-reflecting approach in order to develop a principled method of examining the tax consequences of various prepublication expenses.

Purchaser's Depreciation Rights In Property Subject To A Lease, Michigan Law Review

Michigan Law Review

This Note argues that the purchase of property subject to a lease may produce several types of depreciable interests. Part I of the Note examines the requirements for depreciability and the role that depreciation plays in tax law. It concludes that even where the method set out by Congress also accommodates other goals, depreciation primarily provides a way to recover costs during a depreciable asset's income-producing life. Part II applies these principles to the task of determining whether improvements - for example, buildings on the property subject to the lease - are depreciable in the purchaser's hands. It concludes that …

Dissenting Opinions By Supreme Court Justices In Federal Income Tax Controversies, Walter J. Blum

Michigan Law Review

What is to be learned from this review of the various analyses offered in dissenting tax opinions over the past five terms of the Supreme Court? When the Court has decisively interpreted narrow or technical language in the statute, dissenters all too often indulge in lengthy analyses that can only serve to create further confusion. Only when the Court focuses on a judicially made rule or an issue with constitutional implications is a broader dissent appropriate. If dissenters generally adhered to the guidelines set forth at the outset of this Article the tax world would, I believe, be at least …

Deducting The Cost Of Smoking Cessation Programs Under Internal Revenue Code Section 213, Michigan Law Review

Michigan Law Review

This Note argues that enrollment fees for a smoking cessation program should be classified as deductible medical expenses. Part I defends this conclusion without questioning the accepted interpretation of section 213(e). Recent medical evidence indicates that the nicotine addiction that cessation program patients seek to break is itself a disease. And even prior to the onset of more serious health consequences, sustained cigarette smoking significantly impairs the functioning of the lungs and heart. Under this analysis, enrollment fees should be deductible as expenses for the treatment of an existing disease or defect, and as "amounts paid . . . for …

Tax Treatment Of Previously Expensed Assets In Corporate Liquidations, Michigan Law Review

Michigan Law Review

This Note argues that although the Tennessee-Carolina majority adopts overbroad language and ignores established tax principles, a more careful refinement of its theory will yield the same proper result, without, in most situations, departing from accepted principles. The proper inquiry must focus first on whether the corporation has received any benefit, and then on whether that gain should be exempted by the nonrecognition provisions of section 336, or on any other basis. Part I of this Note examines these questions from a theoretical perspective, and concludes that expensed assets remaining at the time of liquidation give rise to corporate income, …

Accrual Of Gambling Debts Under Internal Revenue Code Section 451, Michigan Law Review

Michigan Law Review

This Note examines whether an accrual-basis taxpayer must include a legally unenforceable claim in taxable income when it is executed or satisfied. Section I of the Note interprets the "all events test" to require measurement of the likelihood of payment of a debt at the time it is executed: If payment is sufficiently certain, the debt must be accrued. The section concludes that the casinos must include the outstanding markers as income in the year of their execution, and cannot postpone their inclusion until the debts are repaid. Section II argues that accrual-method taxpayers are entitled to use a "bad …

The Decline And Fall Of Taxable Income, Glenn E. Coven

Michigan Law Review

After first exploring the intellectual climate that has facilitated the congressional disregard of taxable income, this Article will examine three areas in which taxable income is no longer the exclusive mechanism for allocating the burden of taxation. That examination will outline the undesirable consequences of the decline of taxable income, and demonstrate that Congress need not have disregarded taxable income to secure the desired pattern of taxation. Because the use of multiple rate schedules constitutes the most significant deviation from the concept of taxable income in terms of the number of taxpayers that it affects and the popular resentment against …

Home Office Deductions: May A Taxpayer Have More Than One Principal Place Of Business?, Michigan Law Review

Michigan Law Review

This Note argues that the Tax Court's more liberal interpretation is correct because it more nearly reflects Congress's intent. Part I seeks a basis for preferring one of the competing interpretations in the text of section 280A and in the section's legislative history, but finds none. Looking, of necessity, to the purposes that Congress sought to advance with section 280A, Part II argues that those purposes do not demand a restrictive reading of "principal place of business." Such a reading, moreover, would undermine fundamental and longstanding congressional tax policies. In the absence of a more explicit statement of congressional intent, …

Stock Redemptions: The Standards For Qualifying As A Purchase Under Section 302(B)., Douglas A. Kahn

Articles

This Article discusses the requirements of section 302(b) for characterizing a stock redemption as a purchase rather than as a dividend equivalent. The focus is primarily on two issues: (1) whether the election authorized by section 302(c)(2) to waive family attribution rules should be available to an entity such as a trust or estate; and (2) the determination of the standards to be applied in resolving whether a redemption is "not essentially equivalent to a dividend" so that section 302(b)(1) is applicable.

Accelerated Depreciation: A Proper Allowance For Measuring Net Income?!!, Walter J. Blum

Michigan Law Review

In a recent article in the Michigan Law Review, Douglas A. Kahn strives to demonstrate that, given the general postulates of the federal income tax, accelerated depreciation is a proper allowance for measuring net income and should not be classed as a tax expenditure. 1 His defense of accelerated depreciation is unusual if not novel, and his presentation is engaging. For anyone who shares my view that most tax expenditure stuff is mainly political rhetoric and who is sympathetic to my position that our tax system is far too harsh in taxing income from capital investments, a new plug for …

Accelerated Depreciation Revisited—A Reply To Professor Blum, Douglas A. Kahn

Articles

Professor Blum's comment addresses the proper or neutral tax treatment to be accorded three of the items discussed in my recent article on accelerated depreciation - namely, annuities, prepaid expenses, and exhaustible assets. Blum disputes my analysis in all three cases. While Blum's article is eminently readable, I do not believe that it refutes my earlier work to any extent. In this reply to Professor Blum, I will deal separately with each of the three items he examines. First, however, it is useful to consider the meaning of the term "tax neutrality" and to set forth my views as to …

The Haitian Vacation: The Applicability Of Sham Doctrine To Year-End Divorces, Michigan Law Review

Michigan Law Review

This Note examines the propriety of applying the sham doctrine to tax-motivated divorces. Section I outlines the evolution of the sham doctrine from its exposition in Gregory v. Helvering through its expression in two different tests for commercial transactions. Section II then studies the relationship between state divorce law and the marital status provisions of the Internal Revenue Code to demonstrate the clear congressional preference for incorporating state law by reference rather than creating an independent federal law of marriage. It also examines the history of the 1969 Tax Reform Act in a vain effort to discern a congressional desire …

Accelerated Depreciation—Tax Expenditure Or Proper Allowance For Measuring Net Income?, Douglas A. Kahn

Articles

Since the 1950s, it has become fashionable to attack various provisions of the Internal Revenue Code by calling them "subsidies" rather than "proper" means of measuring taxable income. These "subsidies" through Code provisions have come to be referred to as "tax expenditures," a term coined by Professor Stanley Surrey in a speech he made as Assistant Secretary of the Treasury for Tax Policy on November 15, 1967. In that speech, Professor Surrey stated that our tax system often deliberately departs "from accepted concepts of net income," so that by granting exemptions, deductions, and credits that are not appropriate to an …