A Fact-Oriented Approach In Macro-Case Analysis: A Section 385 Illustration

Prior research has not adequately addressed the coding issue in macro-case analysis research. This study provides a fact-oriented approach (in contrast to the traditional opinion-oriented approach) to deal with this issue. We argue that while a traditional opinion-oriented approach can reveal the influential factors considered by judges in the precedents, a fact-oriented approach provides a decision model with predictability which does not exist in an opinion-oriented approach. The differences between these two approaches are demonstrated by applying them to the Code Section 385 dilemma (i.e., the debt-equity classification). Results show that decision models developed by these two approaches are very different but with similar classification accuracy. Consequently, management and practitioners can use a fact-oriented approach as a supplemental method to the traditional opinion-oriented approach to predict the judicial outcome

An Empirical Assist In Determining Reasonable Compensation In Closely Held Corporations

Reasonable compensation is an often litigated issue in the Tax Court.  This frequency of discord arises from the tax code’s lack of definitive criteria for determining “reasonableness.”  Moreover, classification of payments to shareholder-employees of closely held corporations can have a significant impact on their cash flows and tax burdens.  According to §162 of the Internal Revenue Code, reasonable compensation can be deducted from taxable income of a corporation, but amounts paid to shareholders in excess of the reasonable amount should be classified as dividend payments.  Dividend payments are not deductible from taxable income.  The courts use a variety of factors in determining whether the compensation paid qualifies as reasonable.  The main objective of this study is to determine which factors have the greatest influence on Tax Court decisions concerning the reasonable amount of compensation.  Using  logistic regression, the following factors are found to be significant in predicting the court’s decision: comparison of salaries paid to net and gross income, the comparison of salaries with distributions to shareholders, the prevailing rates of compensation for comparable positions in comparable companies, and the employer’s salary policy as to all employees

An Empirical Investigation of the Minority Interest and Marketability Discounts In Valuation of Closely Held Stock for Estate and Gift Tax Purposes

The discounts for lack of marketability and minority interest are crucial in reducing the value of transferred interests of closely held companies for estate and gift tax purposes. Because the current highest marginal estate and gift tax rate is 49%, there is a strong inducement for CPAs, Attorneys, Investment Bankers, Financial Planners, and others who value these transfers to accurately gauge the judicially allowed discounts for lack of marketability and minority interests in the valuation of closely held stock. This study examines the relationship between Tax Court determined values for lack of marketability and minority discounts to closely held stock from the compromise percentages. Compromise percentage is defined as the mean of the percentage presented by the adversarial parties, the taxpayer, and the IRS, in a judicial action. Additionally, this relationship is examined across industry classifications. The period investigated covers January 1, 1973 through December 31, 2002. Both regular and memorandum decisions by the Tax Court are analyzed over this thirty-year span. Chi-square analysis is used to determine that the Tax Court determined values are not significantly different than the compromise percentages. Furthermore, this finding does not vary across industries. Regression and chi-squared results are augmented with descriptive statistics

An Empirical Investigation Of The Minority Interest And Marketability Discounts In Valuation Of Closely Held Stock For Estate And Gift Tax Purposes

The discounts for lack of marketability and minority interest are crucial in reducing the value of transferred interests of closely held companies for estate and gift tax purposes.  Because the current highest marginal estate and gift tax rate is 49%, there is a strong inducement for CPAs, Attorneys, Investment Bankers, Financial Planners, and others who value these transfers to accurately gauge the judicially allowed discounts for lack of marketability and minority interests in the valuation of closely held stock.  This study examines the relationship between Tax Court determined values for lack of marketability and minority discounts to closely held stock from the compromise percentages.  Compromise percentage is defined as the mean of the percentage presented by the adversarial parties, the taxpayer, and the IRS, in a judicial action.  Additionally, this relationship is examined across industry classifications.  The period investigated covers January 1, 1973 through December 31, 2002.  Both regular and memorandum decisions by the Tax Court are analyzed over this thirty-year span.  Chi-square analysis is used to determine that the Tax Court determined values are not significantly different than the compromise percentages.  Furthermore, this finding does not vary across industries.  Regression and chi-squared results are augmented with descriptive statistics

Payroll Tax Incidence: An Empirical Investigation of Shifting the Payroll Tax Burden

The payroll tax earmarked for the financing of social security benefits has been the leading growth tax on small businesses over the past few decades. Small businesses pay more in payroll tax than in any other form of tax. Indeed, these taxes are levied on small businesses irrespective of their profits. The statutory incidence of one-half of the payroll tax being paid by the employer and one-half by the employee may be very different from the actual incidence of the tax due to employer shifting mechanisms. While there has been considerable conjecture about the shifting of the payroll tax burden, there has been very little research that has explicitly studied the shifting mechanisms undertaken by small businesses. In this study, responses were elicited from a sample of 182 small business owners in the Hampton Roads area of Virginia to ascertain whether the payroll tax is shifted by passing ii on to the consumer by way of increased prices, passing it on to the employee by way of reduced wages, or absorbed by the business reducing profits. This inquiry found that, in general, small businesses are not likely to shift the employer \u27s share of the tax burden to employees. Specifically, the most popular alternative in dealing with payroll tax increases was lo increase prices for their product/service

Payroll Tax Incidence on Small Businesses: An Empirical Investigation of Shifting the Payroll Tax Burden

The payroll tax earmarked for  the financing  of social security  benefits has been the leading growth  tax on small businesses over the past few decades. Small businesses pay more  in payroll  tax than in any other form of tax. Indeed, these taxes are levied on small businesses irrespective of their profits. The statutory incidence of one-half of the payroll tax being paid by the employer and one-half by the employee may be very different from the actual incidence of the tax due to employer shifting mechanisms.While there has been considerable conjecture about the shifting of the payroll tax burden, there has been very little research that has explicitly studied the shifting mechanisms undertaken by small businesses. In this study, responses were elicited from a sample of 182 small business owners in the Hampton Roads area of Virginia to ascertain whether the payroll tax is shifted by passing ii on to the consumer by way of increased prices, passing it on to the employee by way of reduced wages, or absorbed by the business reducing profits. This inquiry found that,  in general, small businesses are not likely to shift the employer 's share of the tax burden to employees. Specifically, the most popular alternative in dealing with payroll tax increases was lo increase prices for their product/service

An Empirical Assist To Determine Whether An Activity Is Engaged In For A Profit

Taxpayers engage in activities for both tax and nontax reasons. Some of these undertakings are geared to earn a profit. Other activities provide personal pleasure and recreation. Regardless of the activity type, expenses are incurred and can be substantial. Depending on the type of engagement, profit may or may not be achieved. Naturally, many of these pursuits are undertaken for a number of consecutive years. Because of the tax benefits these activities possess, this issue remains highly litigated and closely scrutinized by the Internal Revenue Service. This study investigates the guidance delineated by the Service and creates a model of the significant variables that affect the judiciary’s decision-making. Backwards stepwise logistic regression is used to create the model. Chi-square is also used to determine statistical significance between the decision rendered and judge’s gender. Also, political affiliation of the judge is examined. The one variable (manner in which the taxpayer carries on an activity) model created correctly classifies 96.3% of the decisions made in the U.S. Tax Court. Additionally, a statistically significant difference is found between male and female judges. However, no difference is found based on the political affiliation of the judge

An Assessment Of Patterns Of Coauthorship For Academic Accountants Within Premier Journals Edited Outside The U.S.: Evidence From 1995 - 2009

Research inaccounting indicates that accounting faculty publish less in their elitejournals than marketing, management, and finance faculty publish in theirrespective elite journals (Swanson, 2004). This paper investigates co-authorshipratios for twelve premier non-U.S. edited accounting and finance journals overthe fifteen year period from 1995 to 2009. Our results suggest that for the years considered, the aggregate co-authorshipratio for non-U.S. premier accounting journals has increased significantly.Also our findings indicate that the financial accounting specialization has thehighest level of co-authorship. Additionally, the co-authorship ratio for Top25 non-U.S. universities is not significantly different than that of lowerranked non-U.S. academic institutions. We also observe that co-authorship among non-U.S. researchers is lowerthan that of U.S. researchers. The findings of this study indicate that trendsof increasing co-authorship among non-U.S. premier accounting journals areconsistent with those of U.S. premier accounting journals

An Empirical Assist In Resolving The Classification Dilemma Of Workers As Either Employees Or Independent Contractors

The classification of workers as "employees" or "independent contractors" is important because the employer's legal responsibilities vary depending upon the nature of the working relationship. For federal tax purposes, the term "employee" is not clearly defined.  However, the model developed in this study is able to correctly classify 96.6 percent of the judicial decisions (1980-2005) involving the status of a worker as either an employee or independent contractor.  Also, the model demonstrates stability over time and between judicial venues

An Empirical Assist In Resolving The Classification Dilemma Of Workers As Either Employees Or Independent Contractors

The classification of workers as "employees" or "independent contractors" is important because the employer's legal responsibilities vary depending upon the nature of the working relationship. For federal tax purposes, the term "employee" is not clearly defined.  However, the model developed in this study is able to correctly classify 96.6 percent of the judicial decisions (1980-2005) involving the status of a worker as either an employee or independent contractor.  Also, the model demonstrates stability over time and between judicial venues