The Requirement that a Capital Expenditure Create or Enchance an Asset

Should expenditures that have an impact on a company’s production beyond one tax year be capitalized for tax purposes? How can these be distinguished from the “ordinary and necessary expenses” of a business? Is it reasonable to permit a current deduction for these expenditures? While a capitalized expenditure has often been seen as an expenditure that has produced an “asset”, there is no clear rule on what is an asset how to define it. The article examines these issues, with a discussion of the statutory provisions concerning capital expenditures and the problem of whether capitalization is a method of accounting. It focuses on three kinds of expenditure problems: 1) The capital nature of ground rent and insurance during the construction of a building 2) The capital nature of educational expenditures 3) The capital nature of costs of expanding a business. The article concludes by arguing that capitalized expenditures should be defined as costs that produce or enhance an asset. The types of expenditures that can be capitalized is dependent on whether the asset is a tangible property or something less tangible in tax terms, like a new job or a contract right

The Federal Income Tax Effects of the Missouri Version of the Uniform Divorce Act

The marital property provisions of the new Missouri divorce law render the tax treatment of property transfers and alimony payments unclear. As to property transfers, the problem is that the new law appears to give the wife an interest in property that previously would have been regarded as belonging to the husband. Since this is so, it is possible to argue that a “transfer” of appreciated property to the wife is part of a “division” of property between “co-owners,” and therefore not taxable. Although transfers of appreciated property in connection with a divorce are usually taxable, divisions of community property (and, probably, other jointly owned property) are not. As to alimony, the problem is that payments satisfying the formal requirements of section 71 of the Internal Revenue Code have sometimes been held not to qualify for taxation as alimony because they were intended as payments for the wife’s property. Because they give the wife an interest in property that would otherwise be solely her husband’s, the marital property provisons can be used to challenge the tax status of purported alimony payments, at least in cases where the husband receives the bulk of the marital property and the divorce decree or settlement agreement is ambiguous

Douglas v. Willcuts Today: The Income Tax Problems of Using Alimony Trusts

Using a trust to satisfy a husband\u27s\u27 obligation to support his wife after divorce can be an appealing option. However, a trust in connection with divorce generates taxation problems, such as whether the husband or the wife should be taxed for trust income. Three fundamental questions arise from this problem: (1) Should a wife who receives trust payments meeting the requirements of section 71 be taxed in full on those payments, or taxed only on payments characterized as distributions of trust income under the trust conduit rules? (2) Should the husband or the wife be taxed on the income of a trust created as part of a divorce settlement but not complying with the conditions of section 71? (3) Is the transfer of property to an alimony trust a taxable event, requiring the transferor to pay tax on accumulated gain? A series of Supreme Court decisions, beginning in 1935 with Douglas v. Willcuts, taxed whichever spouse the court felt had benefited from that income. This line of case law proved unsatisfactory and was overruled by Congress in 1942. Acceptance of a sensitive view taken by Congress in 1942, which recognized that creation of such a trust is merely a secure way of providing for alimony payments and taxes the wife if a transfer of interest gives her full ownership of the trust would put an end to the unfortunate doctrine of Douglas v. Willcuts. It would also bring resolution to problems caused by Congress\u27s careless draftsmanship when it overruled that case

The Federal Income Tax Effects of the Missouri Version of the Uniform Divorce Act

The marital property provisions of the new Missouri divorce law render the tax treatment of property transfers and alimony payments unclear. As to property transfers, the problem is that the new law appears to give the wife an interest in property that previously would have been regarded as belonging to the husband. Since this is so, it is possible to argue that a “transfer” of appreciated property to the wife is part of a “division” of property between “co-owners,” and therefore not taxable. Although transfers of appreciated property in connection with a divorce are usually taxable, divisions of community property (and, probably, other jointly owned property) are not. As to alimony, the problem is that payments satisfying the formal requirements of section 71 of the Internal Revenue Code have sometimes been held not to qualify for taxation as alimony because they were intended as payments for the wife’s property. Because they give the wife an interest in property that would otherwise be solely her husband’s, the marital property provisons can be used to challenge the tax status of purported alimony payments, at least in cases where the husband receives the bulk of the marital property and the divorce decree or settlement agreement is ambiguous

The Federal Income Tax Effects of the Missouri Version of the Uniform Divorce Act

The marital property provisions of the new Missouri divorce law render the tax treatment of property transfers and alimony payments unclear. As to property transfers, the problem is that the new law appears to give the wife an interest in property that previously would have been regarded as belonging to the husband. Since this is so, it is possible to argue that a “transfer” of appreciated property to the wife is part of a “division” of property between “co-owners,” and therefore not taxable. Although transfers of appreciated property in connection with a divorce are usually taxable, divisions of community property (and, probably, other jointly owned property) are not. As to alimony, the problem is that payments satisfying the formal requirements of section 71 of the Internal Revenue Code have sometimes been held not to qualify for taxation as alimony because they were intended as payments for the wife’s property. Because they give the wife an interest in property that would otherwise be solely her husband’s, the marital property provisions can be used to challenge the tax status of purported alimony payments, at least in cases where the husband receives the bulk of the marital property and the divorce decree or settlement agreement is ambiguous

The Case for an Income Tax

Recent studies by the US Treasury Department and the Meade Committee in Britain have one thing in common. They recommend a progressive tax on personal consumption as an alternative to the income tax and discuss of the practical problems of substituting consumption for income as the tax base. These studies suggest that replacing the income tax with an expenditure tax is now being considered a serious possibility. Advocates for the expenditure tax base their arguments on considerations of equity, administrative convenience and economic efficiency. The article examines the merits of these arguments, with a focus on four important non-economic issues in the debate between expenditure and income taxation: 1. whether an income tax imposes double taxation on savings, 2. how income compares with other bases for taxation in terms of fairness, 3. whether ability to pay is a meaningful test of fairness in a tax base, and 4. whether an expenditure tax will be less difficult than an income tax for the government to administer and more convenient for most taxpayers to pay. It argues that case for replacing the income tax with a spending tax rests on some dubious conclusions, and that the income tax, despite being conceptually less coherent than arguments for spending tax, has worked reasonably well in practice. The costs of replacing the income tax with a spending tax would also be enormous