Federal Income Tax Liability Research Articles

The High Court Rules that Post-Petition Income Taxes on the Sale of Farm Assets Are Not Discharged Pursuant to Chapter 12 of the Bankruptcy Code

In Hall v. U.S., 132 S. Ct. 1882 (2012), the Supreme Court ruled that federal income tax liabilities due to individual debtors’ sales of farm assets during the pendency of a Chapter 12 bankruptcy reorganization are not subject to collection or discharge in the debtors’ plan. The Court opined that the post-petition income taxes are not unsecured claims under Bankruptcy Code §1222(a)(2)(A) as they were not “incurred by the estate” under Bankruptcy Code §503(b). Under Code §1222(a)(2)(A), a Chapter 12 plan must provide for full payment of all claims entitled to priority under Code §507 unless the claim is owed to a governmental unit arising from the sale of any farm asset used in the debtor’s farming operation, in which case it will be treated as an unsecured claim. Code §507(a)(8) gives priority to certain pre-petition taxes while Code §507(a)(2) gives priority to administrative expenses allowed under Code §503(b). Code §503(b)(1)(B)(i) allows for any tax “incurred by the estate” to be treated as an administrative expense. The Court gave the phrase “incurred by the estate” its plain meaning and applied I.R.C. §§1398 and 1399, reasoning that under I.R.C. the Chapter 12 estate was not a separate taxable entity and that the debtor was individually responsible for the tax. In reaching its decision, the Court viewed the statute’s plain language, context, and structure.

Income taxation of U.S. households: Facts and parametric estimates

We use micro data from the U.S. Internal Revenue Service to document how Federal Income tax liabilities vary with income, marital status and the number of dependents. We report facts on the distributions of average taxes, properties of the joint distributions of taxes paid and income, and discuss how taxes are affected by marital status and the number of children. We also provide multiple parametric estimates of tax functions for use in applied work in macroeconomics and public finance.

To Choose or Not to Choose: Federal Income Tax Credits and Deductions and College Choice Decisions

Education-related tax preferences studied in this paper (Hope credit, Lifetime Learning credit, and tuition and fees deduction) are a form of federal aid available for qualifying students who are currently enrolled in postsecondary institutions and paying certain college-related expenses. Such tax-based aid simply reduces personal federal income tax liabilities. The Hope and Lifetime Learning credits have been around since 1997 and education-expense deductions since 2001. Since then, the federal government has spent hundreds of billions of dollars on these tax preferences according to the Office of Management and Budget (OMB). In 2010 alone, the OMB estimates that education-related tax preferences for individuals cost the federal government about 36 billion dollars in foregone taxes. Despite the magnitude of these tax preferences and the fact that they have been around for fifteen years, research on the ability of tax preferences to actually promote college matriculation and success is very limited. Three prior articles examine this issue: all look at the effect of tax credits on the decision to enter college (Long, 2003; Turner, 2011; LaLumia, 2012); one additionally looks at the choice between two and four year institutions and college pricing (Long, 2003).I use four waves of a National Postsecondary Student Aid study (NPSAS) (NPSAS:96, NPSAS:00, NPSAS:04, and NPSAS:08) restricted-use data files to learn how tax-based aid affects college choice decisions. The Tax Relief Act of 1997 was an important change in tax code related to educational tax preferences which created a natural experiment. I estimate an instrumental variable difference-in-differences model, where the 1995-96 school year, two years before the major changes in tax preferences’ legislature occurred, is treated as a reference year. The other three waves of data are considered post years (two, six, and ten years after the policy implementation). I find that students eligible for the tax-based financial aid are more likely to attend private for-profit and two-year colleges. In addition, eligible students are more likely to attend college part-time.

Regal Hair Salon: Tax and financial reporting of gift cards

Abstract Regal Hair Salons Inc., an owner and operator of hair salons across the United States, has enhanced its brand recognition through gift cards and promotions. Using authoritative tax literature, you have to determine the amount and timing of its federal income tax liability for the gift cards of other retailers that Regal has sold, gift cards for its own products and services, and the gift cards that it has issued during a special promotion. You also have an opportunity to determine whether Regal’s financial reporting policies with respect to gift cards are consistent with Generally Accepted Accounting Principles (GAAPs), using FASB Accounting Standards Codification. Finally, based on your review of book-tax differences, you are to determine the appropriate current and deferred tax provision. The case provides an opportunity to examine several issues in a real-world setting, strengthen your tax and accounting research capabilities, and develop your critical thinking skills.

The Impact of Federal and State Income Tax Liabilities on Timber Investments in the West

Abstract Federal and state income taxes are calculated for hypothetical forest landowners in two income brackets across 13 states in the West to illustrate the effects of differential state tax treatment. The income tax liability is calculated in a year in which the timber owners harvest $200,000 worth of timber. State income taxes range from highs of $19,693 for middle-income and $34,993 for high-income landowners in Oregon to no income tax in Alaska, Nevada, Washington and Wyoming. After-tax land expectation values for a forest landowner in Oregon are also calculated to illustrate the importance of tax planning on returns to a timber investment. The need for adequate tax accounting is supported by the results.

The Impact of Federal and State Income Tax Liabilities on Timber Investments in the Midwest and Northeast

Abstract Federal and state income taxes are calculated for hypothetical forest landowners in two income brackets across 23 states in the Midwest and Northeast to illustrate the effects of differential state tax treatment. The income tax liability is calculated in a year in which the timber owners harvest $200,000 worth of timber. State income taxes ranged from highs of $13,427 for middle-income landowners and $18,527 for high-income landowners in Maine to no tax burden in New Hampshire and South Dakota. Calculated state and federal income taxes are based on 2004 tax regulations and rates. After-tax land expectation values calculated for a forest landowner in the Northern Lower Peninsula of Michigan illustrate the importance of tax planning on returns to a timber investment. The results support the need for adequate tax accounting.

A Guide To Tax Policy Analysis: The Central Tendency of Federal Income Tax Liabilities In Distributional Analysis

The analysis of tax data is a time intensive and complicated process. Much time and effort are spent collecting income and tax data, compiling data sets and running statistical analyses. However, it appears that relatively little time and effort are spent actually understanding the data and how best to present results to the public of analyses of using tax data. This is evident in the overuse of averages and the simplistic classification of taxpayers into income ranges and quintiles by tax distribution tables that are often highly publicized. This study shows that the link between income and tax liability is much more tenuous that that often presumed and that a variety of other factors can greatly affect tax liability. Specifically, this report finds that, among other things: - Over 22 percent of all 1995 tax returns claimed zero tax liability - For calendar year 2000, the JCT estimates that 48.7 million out of 140.2 million taxpayers overall will have zero or negative federal income tax liability. - In four out of the five income groups examined, a majority of taxpayers had tax liabilities that were either 25 percent greater than the average or 25 percent less than the average tax liability for each income group. - In comparing federal income tax liabilities, distribution tables often misclassify and group millions of taxpayers into quintiles in which they have little tax liability in common. - Approximately 2.2 million taxpayers in the third quintile pay more in federal income taxes than 5.4 million taxpayers classified in the fourth quintile. - Over 3 million taxpayers in the fourth quintile pay more in federal income taxes than 4.1 million taxpayers classified in the fifth quintile.

Taxing Divisive Mergers

Under the Internal Revenue Code (Code), a that is statutory, or conducted pursuant to the corporation laws of a state, is tax-free. Practically since its inception, this provision has invited abuse. Taxpayers have sought refuge behind liberal state laws, while the Internal Revenue Service (Service) and the courts have strained to preserve the integrity of the statutory concept. The latest such episode surrounds the invention of something called a This oxymoron describes a transaction in which more than one party may survive or be created while still meeting the definition of a merger under state law. If it qualifies under the Code, it permits a mere sale to receive the favored status of a tax-free reorganization. On January 19, 2000, the Service responded to the abusive potential of the divisive by declaring that such transactions do not qualify as mergers for tax purposes. While its position was not surprising, the analysis was unsettling. Based on its review of traditional state law requirements, the Service for the first time announced that the target must transfer substantially all of its properties and dissolve pursuant to the plan of merger. Thus, contrary to the move to disconnect federal income tax liability from state law classification, the Service explicitly embraced a state law focused interpretation. This Article argues that the Service should abandon its reliance on traditional state corporate law requirements in determining whether a qualifies for tax-free treatment. Instead, the Service can interpret the statutory language in a way that is both faithful to the text and legislative history and less dependent on the vagaries of state corporate law by giving merger its own meaning for federal income tax purposes.

Positive Law as an Ethic: Illustrations of the Ascent of Positive Law to Ethical Status in the Commercial Sector

This article begins with four situations, the first three of which are common to many businesspeople and persons in the United States today and the fourth, unfortunately, is growing: Setting the minimum level at which workers are paid; going bankrupt to avoid paying for credit card purchases, claiming a questionable deduction in calculating one's federal income tax liability, and violating the law in every state by a major U.S. corporation.

A Statistical Analysis of Federal Income Tax Rate Stability Over Time and Implications for Valuing Lifetime Earnings

Abstract No abstract available.

ESOPS: Financial performance and federal tax incentives

Previous research has suggested a relationship between the establishment of employee stock ownership plans (ESOPs) and post-adoption improvements in financial performance — presumably as a result of the alignment of employee and stockholder interests. I examine the role of tax incentives on the financial performance of ESOP firms. The results indicate that ESOPs formed prior to the availability of tax incentives provided by the Tax Reform Act of 1986 have experienced significantly greater improvement in financial performance than ESOPs established after passage of the Act. The results are consistent with my hypothesis and suggest that even though ESOPs can be utilized to reduce a firm's federal income tax liability, ESOPs may be more useful to management to reduce agency costs throughout the firm.

The Effects Of Changes In Federal Income And Social Security Taxes On Farmers

AbstractThis paper examines the impact of the Tax Reform Act of 1986 and the Social Security Amendments of 1983 on effective tax rates and average tax payments for farmers. The 1987 and 1988 Internal Revenue Service Individual Public Use Tax Files were used to estimate 1987 and 1990 tax rates and burdens. Results suggest that despite recent reductions in marginal income tax rates, the Federal income tax continues to be progressive. However, the regressive nature of the social security and self-employment tax greatly reduces the progressivity of the combined Federal income and payroll tax burden. For most farmers, combined social security and self-employment tax payments exceed Federal income tax liability.

The Impact of Federal and State Income Taxes on Timber Income in the West Following the 1986 Tax Reform Act

Abstract Nineteen eighty-eight federal and state income tax liabilities for a hypothetical nonindustrial private forest landowner case were calculated for 13 western states. The state portion of the total income tax liability for the passive case (without timber sale revenue) ranged from 15% in Arizona, California, and Colorado to 25% in Hawaii for the medium income level. It ranged from 12% in Arizona and Colorado to 20% in Hawaii for the high income level. The state portion for the active case (with timber sale revenue) ranged from 12% in Arizona and Colorado to 21% in Hawaii, and from 10% in Arizona to 19% in Hawaii for the medium and high income levels, respectively. Federal income tax deductions, capital gain exclusions, and tax rates are the most important state provisions affecting state income tax liability. The installment sale method of reporting timber sale revenue was used as one alternative tax planning strategy. Timber sale revenue was spread over a 2-year period to reduce the amount of taxable income subject to higher marginal rates. In the Oregon hypothetical case, the landowners who elected to use the installment sale method would save $1,240 and $616 at the medium and high income levels, respectively. West. J. Appl. For. 6(1):15-20.

The Impact of Federal and State Income Taxes on Timber Income in the South Following the 1986 Tax Reform Act

Abstract The 1988 federal and state income tax liabilities for hypothetical forest landowners in two federal income tax brackets, each with and without timber sale revenue, were calculated for the 14 southern states. At the medium income level, the state portion of total income tax liability(without timber sale revenue) ranges from 9% in Louisiana to 20% in North Carolina. With timber sale revenue, it ranges from 7% in Louisiana to 17% in North Carolina. At the high income level, the state portion of total income taxes (without timber sale revenue) ranged from 7% in Louisianato 16% in North Carolina, and with timber sale revenue, from 6% in Louisiana to 15% in North Carolina. Capital gains exclusions, deductions for federal income taxes, tax rates and schedules, standard deductions, and personal exemptions are the most important provisions for reducing state incometax liability. The installment sale method of reporting income was used as one alternative tax planning strategy for spreading timber sale revenue over a 2-year period. The purpose was to smooth cash flows and reduce the amount of income subject to higher marginal tax rates. Georgia taxpayerselecting the installment sale method of reporting in a hypothetical case saved $1,203 and $585 in total income taxes for the medium and high income levels, respectively. South. J. Appl. For. 13(4):196-203.

Overview of the Medicare Catastrophic Coverage Act of 1988 and its impact on health-care delivery

The Medicare Catastrophic Coverage Act of 1988 is described, and its impact on health-care delivery is discussed. The act will expand Medicare coverage of inpatient hospital care and will also provide payment for outpatient prescription drugs and home i.v. therapy. For the prescription drug benefit, deductible and coinsurance payments will be phased in, and Medicare will establish payment limits. A per diem fee schedule will be established to pay for the supplies and services used in home i.v. therapy. Providers of home therapy must have qualifications specified by the act. Pharmacists will have an important role in ensuring that patients understand and comply with their drug therapy once they leave the hospital. As members of the home health-care team, pharmacists will be involved in identifying candidates for home care, instructing patients in the use of sophisticated medical equipment, and monitoring the safety and efficacy of therapy. Medicare beneficiaries will help finance the new coverage by paying a flat premium; in addition, all individuals eligible for Medicare will pay supplemental premiums based on their federal income tax liability. Congress, however, will come under pressure to lower or freeze these premiums. Hospitals and pharmacists should cooperate in urging Congress to provide adequate funding for services specified by the catastrophic coverage act.

Repeal of the Investment Tax Credit and Financial Statement Analysis

The Tax Reform Act of 1986 proposes numerous changes in the federal income tax law. One of the most significant of these is repeal of the Investment Tax Credit (ITC). The ITC represents an attempt by Congress to stimulate the economy by granting special tax advantages to business entities that invest in capital assets. Intermittently available since 1962, the ITC allows both individual and corporate taxpayers to reduce their federal income tax liabilities by up to 10 per cent of the cost of qualified property.' One would expect, on an a priori basis, that the elimination of the ITC would have a greater impact, the more capital-intensive an industry and the more fully it utilizes the credit to offset federal income tax liabilities. This note examines the effect of repeal of the ITC on the financial ratios of 42 industrial groups in the United States. We measured the importance of the ITC to a given firm and industry by the impact of a loss of the ITC on earnings per share. Earnings per share (EPS) was selected as the analysis variable because of its recognized importance to financial analysts and the entire financial community in the appraisal of corporate financial performance. Should the ITC be eliminated, after-tax net income and earnings per share for many firms will decline significantly, with no corresponding reduction in pretax earnings. This phenomenon would likely be followed by a corresponding decline in the affected firms' share prices. The net income and EPS figures reported by many other firms will be little affected.

Federal tax reform and the financing of state and local governments

AbstractAlthough the Reagan Administration tax reform proposals would reduce federal income tax liabilities for most taxpayers, federal tax reform would also create strong pressures on state and local governments to cut taxes and public services. These pressures would arise primarily because itemizers would no longer be able to deduct state and local taxes in determining their federal income tax liabilities. In New York City and Boston, it is likely that the Administration's tax reform would induce cuts in spending that range from 2.5 to 7.5 percent. While the elimination of state and local tax deductibility may promote allocative efficiency in the provision of local public goods, the cost would be a decline in the degree of redistribution through the state and local public sector, and a reduction in local public services for the poor.

Estate Planning for Nonindustrial Forest Owners

forest property is held and provisions for funding estate settlement. This paper presents research results on the interaction of business form, funding technique, and forest management on federal income and estate tax liabilities of private nonindustrial forest owners. Business forms analyzed are sole proprietorship, partnership, Subchapter S corporation, and trust. Funding techniques examined are immediate liquidation of some timber assets, loans, and life insurance proceeds. Harl (1965) examined intergenerational farm asset transfers within a corporate business form. Harrison (1966) and Allwood (1969) applied mathematical programming to develop least-cost intergenerational transfer models. Buss (1971) investigated tax impacts of alternative business forms but did not fully integrate income and death taxes, nor include techniques for funding estate settlements. Boehlje and Harl (1978) and Reinders, Boehlje, and Harl (1980) developed models for determining the size of the federal estate tax marital deduction. Boehlje and Eisgruber (1972) noted that farm estate transfer problems are compounded by simultaneous planning for capital growth. Roush (1978) and Walker, et al. (1979) incorporated this dynamic concept of estate management in analyzing farm business structures. Forestry research efforts have focused on funding by immediately liquidating timber or borrowing from the government (Sutherland 1978; Tedder and Sutherland 1979; Prindle 1981; Sutherland and Tedder 1981).

Round-Up Of 1984 Tax Cases

Abstract Some years go by without Canada's courts hearing any tax cases of interest to the oil and gas sector. However, 1984 offered ample reading for the industry. This month, Tax Topics reviews four cases which could impact in some way on various aspects of doing business in the oil and gas industry. The score: Revenue Canada 2 – taxpayers 2. Read on. Investment Tax Credits The investment tax credit system was first introduced in 1975 as a means of stimulating capital expenditures in Canada. Under the system, taxpayers can earn a credit equal to a percentage of the actual cost of qualifying expenditures. The credit can be applied to reduce the taxpayer's federal income tax liability. The rate of credit varies from 7% to 35% of the cost of eligible assets. The determination of the amount and availability of the credit depend upon the asset's location, the type of asset, the activity in which it is employed, and the tax status of the taxpayer. Section 13(7.1) of the Income Tax Act requires, generally speaking, that a taxpayer reduce the capital cost of a fixed asset by the amount of government assistance received by the taxpayer with respect to the asset. In two recent decisions by the Federal Court, Trial Division, the court concluded that the income tax legislation did not require the taxpayers to reduce their capital cost of fixed assets for capital cost allowance purposes by the amount of investment tax credits claimed by the taxpayers during their 1975 to 1977 taxation years. Although these particular cases did not deal specifically with the oil and gas industry, the issue addressed by these cases should be of interest to any oil and gas investment which involved fixed asset acquisitions in the years 1975/77. In the 1984 cases of AEL Microtel Limited vs The Queen and British Columbia Forest Products Limited vs The Queen, the court held that Section 13(7.1) did not apply from 1975 to 1977 to investment tax credits available under the Income Tax Act. The court noted that the intention of subsequent amendments to Section 13(7.1) in 1978 was to enact, in explicit language, that investment tax credits claimed by a taxpayer are to be deducted from the capital cost to the taxpayer. Since no such explicit provision was in the prior legislation, the court concluded that there was no intention that investment tax credits should reduce the capital cost. "The amendment demonstrates a different intention clearly expressed, but applicable only to the 1978 and subsequent taxation years." Revenue Canada has appealed the decision. In the interim. Revenue Canada has stated that their position remains unchanged. In light of the decision, aggressive taxpayers may consider the possibility of adding the amounts of any investment tax credits claimed in the period 1975 to 1977 to the opening balance of the current year's undepreciated capital cost of fixed assets, if the amounts were previously excluded.

Inflation and the Individual Income Tax

It has been noted that, because of the progressive nature of the federal income tax, substantial amounts of revenue accrue to the federal government as a result of the purely nominal increases in income which occur during inflationary periods. Amid the discussions about indexation and its desirability, it has been estimated that inflation alone would have increased average tax rates by 40 percent between 1967 and 19751 and also that revenues are likely to increase 1.6 percent for each one percent increase in prices [15]. We find these estimates and other examinations of the impact of inflation on federal individual income tax liabilities to be limited in several important respects. The purpose of this paper is, therefore, to discuss these shortcomings and to present alternative estimates of the aggregate impact of inflation on income tax revenues and on the tax burdens of different types of taxpayers. First, it is important to note that the need to estimate inflation elasticities arises out of the fact that real and inflation-induced growth have different effects on the distribution of income, and therefore on tax liabilities. Consequently, estimates of the elasticity of federal income tax with respect to total or real growth in total income are distinct from the elasticities with respect of inflation-induced growth. A serious problem confronting all elasticity estimations, and one that has all but precluded direct estimation through time series analysis, is that the actual performance of the system has been greatly influenced by structural changes affecting the levels and types of deductions, exemptions, and the rate structure. To isolate the effects of price changes on federal income tax liabilities and