JATA - Fall 1984

Volume 6, No. 1

The Perceived Effects of Tax Policy on Corporate Investment Intentions

Thomas M. Porcano


Historically, Congress and various administrations have utilized tax policies designed, in part, to influence investment as an attempt to stimulate the economy. Many of these tax measures can be classified as "supply-side" measures. However, the efficacy of such policies is questionable. This article presents the results of a mail questionnaire survey of Fortune 1000 firms. The survey attempts to assess the impact and importance of various tax provisions on the firms' decisions to acquire fixed assets. The results indicate that the respondents perceive these provisions to have a very small overall effect on stimulating their firms' investments in fixed assets.

The Redistrubution of the Income Tax Burden Under A true Flat Tax Structure

Charles R. Enis and Darryl L. Craig


Dissastisfaction with the present income tax system has fostered interest in changing to one based upon comprehensive income and a unitary rate. Many versions of such a tax have been proposed. This article focuses on a true flat tax, eliminating all exclusions, deductions, and credits. This system should achieve the maximum simplicity and impose the lowest unitary rate while raising roughly the same revenues as the current system. This study provides a panoramic picture of the redistributional impact of a true flat tax on all returns and families. The analysis consists of the construction of tables and three-dimensional computer representations contrasting the distribution of the tax burden under the current and flat structures. The results indicate that a true flat tax will transfer substantial taxes from the rich to the poor. Such findings are offered as a benchmark against which alternative tax reform proposals can be compared.

Subchapter S in Transition

Robert W. Jamison and Steven C. Dilley


This paper analyzes the rules governing cash distributions of S Corporations after the Subchapter S Revision Act of 1982 (SSRA). Special emphasis is given to S Corporations which had elected under Subchapter S between 1958 through 1982 and S Corporations which have accumulated earnings and profits. These corporations may not be faced with multiple sets of operating rules for distributing the various layers of capital. New law governs the distributions from the Accumulated Adjustments Account and from Accumulated Earnings and Profits, whereas old law governs distributions of Previously Taxed Income. Certain elections are permitted under both laws. The authors point out the gaps and inconsistencies in the SSRA and alert the readers to new pitfalls and planning opportunities. Legislative and regulatory solutions are suggested.

Retirement Planning Under Section 403(b)(7)-Advantages and Limitations

Edward J. Schnee and Charles W. Caldwell


The 1981 Economic Recovery Tax Act (ERTA) permits employees to make contributions to an IRA even if they are already enrolled in a retirement plan. However, eligible taxpayers should find a tax-deferral plan made available in the Revenue Act of 1978 more attractive. The Section 403(b)(7) plans are more attractive than IRAs because they permit larger contributions, provide broader investment opportunities, permit easier withdrawal of funds, and eliminate possible tax penalties. This paper initially presents the advantages of the Section 403(b)(7) plans and then discusses the eligibility requirements, the contribution limitations, and the taxation of benefits received from such plans. The contribution limitation alternatives are illustrated with examples and flowcharts.

Taxation Requirements for the CPA Examination and the Content of Undergraduate Accounting Curricula

Israel Blumenfrucht


The Board of Examiners of the AICPA recently adopted a memorandum indicating that every CPA examination shall contain two questions in the Accounting Practice section of the exam covering the area of Federal income taxation. The memorandum also lists the tax topics that may be tested on the exam. This paper presents the results of a survey conducted to determine whether the undergraduate accounting curricula of colleges and universities include courses covering the tax topics listed in the memorandum. In addition, the minimum number of tax credits or courses (if any) that each Board of Public Accountancy requires its CPA candidates to complete in order to qualify for the CPA examination is presented. The results suggest that most Boards of Public Accountancy do not require CPA candidates to complete any taxation courses and the undergraduate accounting curricula of most of the colleges and universities surveyed do not require, nor make available, tax courses covering many of the tax topics that may be tested on the CPA examination.

Tax Textbook Readability: An Application of the Cloze Method

William A. Raabe, Kathleen C. Stevens and William P. Stevens


Difficulties that are encountered by students in the first course in taxation may be traced to their difficulties in comprehending the course's assigned text material. Using an analysis that is accepted widely in the reading and journalism literature, the "cloze" procedure, the authors assess the comprehensibility of selected federal taxation textbooks, and they discuss several implications of their analysis for accounting students and educators, and for textbook authors and editors. None of the selected textbooks were found to be readable by the experimental subjects, and two of the texts were found to be less readable than both the Internal Revenue Code and the Treasury Regulations. This problem places undue burden upon taxation students. Textbook authors and editors must address this readability problem, as it has serious implications for all of tax education and practice.

Comment on "Premature Withdrawals From Individual Retirement Accounts: A Breakeven Analysis

Richard R. Simonds


O'Neil, Saftner, and Dillaway (OSD)[1983] have calculated the breakeven year for an IRA assuming a stream of contributions. An example is presented which illustrates that incorrect decisions may result if breakeven times based on the OSD procedure are followed. An alternative procedure is developed here and a useful table of IRA breakeven years is contructed.

Reply to "Comment on Premature Withdrawals from Individual Retirement Accounts: A A Breakeven Analysis"

Cherie J. O'Neil, Donald V. Saftner and M. Pete Dillaway


Rather than incorrectly calculating the breakeven year for IRA contributions, the O'Neil-Saftner-Dillaway (OSD) model may be used to calculate the breakeven period for any combination of annual contributions to either a sheltered or a nonsheltered account. Single contribution breakeven-year tables are presented which complement the original breakeven-year tables. When considered with the original tables, the upper and lower parameters for breakeven year analysis of multiple year contributions is found.