Tax Significance of Payments in Satisfaction of Liabilities Arising Under Section 16(b) of the Securities Exchange Act of 1934

This article examines the income tax significance to the insider of his payment in satisfaction of a liability arising under section 16(b). Such taxpayers have usually sought a deduction against ordinary income in the year of payment. When the issue was first raised, the deduction was denied. Section 16(b) liability was held to be in the nature of a penalty; allowance of the deduction, it was found, would weaken an effective method of enforcing the sharply defined policy expressed in sectin 16(b).... In 1961 the Internal Revenue Service modified its earlier position by ruling that section 16(b) is not a penal provision. The purpose of the section, the ruling stated, is merely to remove all profit from the insider\u27s transactions, thereby placing him in the position he would have occupied had he not traded. Allowance of the deduction was held consistent with this purpose. The ruling concluded: The income tax significance of the capital stock dealings giving rise to the payment determines whether it is deductible as an ordinary loss or as a capital loss. The Tax Court\u27s recent refusal to accept this limitation upon the deduction reognized by the ruling gives renewed interest to the topic

Credit vs. Exemption: A Comparative Study of Double Tax Relief in the United States and Japan

The overriding issue in international taxation is the problem of double taxation. Under the tax laws of most countries, income may be taxed on the basis of either residence or source. That is, a country may tax residents of the country on worldwide income and may tax nonresidents on income from sources within the country. Thus, if a resident of one country has income from a business activity or investment in another country, the person may be taxed on the income on a residence basis by its home country and on a source basis in the other country. Most countries observe an international consensus on two points: First, relief from double taxation is essential to a healthy flow of international investment and business activity, and second, a taxpayer\u27s country of residence should assume the burden of alleviating double taxation of the taxpayer\u27s cross-border income. Under this consensus, a country may generally tax nonresidents on income from sources within the country, without regard to the possibility of double taxation, but a country should relieve double taxation for its residents. This article explores how an exemption system might work in the United States by applying both U.S. law and Japanese law, as recently amended, to three hypothetical cases. Each of the cases involves a domestic corporation (Japanese or American) with one or more subsidiaries organized, managed, and doing business in other countries

Credit vs. Exemption: A Comparative Study of Double Tax Relief in the United States and Japan

The overriding issue in international taxation is the problem of double taxation. Under the tax laws of most countries, income may be taxed on the basis of either residence or source. That is, a country may tax residents of the country on worldwide income and may tax nonresidents on income from sources within the country. Thus, if a resident of one country has income from a business activity or investment in another country, the person may be taxed on the income on a residence basis by its home country and on a source basis in the other country. Most countries observe an international consensus on two points: First, relief from double taxation is essential to a healthy flow of international investment and business activity, and second, a taxpayer\u27s country of residence should assume the burden of alleviating double taxation of the taxpayer\u27s cross-border income. Under this consensus, a country may generally tax nonresidents on income from sources within the country, without regard to the possibility of double taxation, but a country should relieve double taxation for its residents. This article explores how an exemption system might work in the United States by applying both U.S. law and Japanese law, as recently amended, to three hypothetical cases. Each of the cases involves a domestic corporation (Japanese or American) with one or more subsidiaries organized, managed, and doing business in other countries

Common Sense Recommendations for the Application of Tax Law to Digital Assets

In response to the Joint Committee on Taxation’s July 2023 request for comments on application of various Internal Revenue Code sections on digital assets, we propose a consistent set of rules to apply current law to digital assets. We highlight that the underlying economics and characteristics of transactions should be the primary concern for the application of rules and the valuation of digital assets. We believe any digital asset rules should (1) treat classes of digital assets with unique characteristics differently based on their economics, (2) minimize incentives for users to engage in tax-motivated structuring of transactions, and (3) allow the Internal Revenue Service authority to react to and regulate new classes of digital assets as they are created. We do not believe that the unique features of digital assets are a challenge to applying current law or warrant special tax preferred treatment