American Taxation Association

JATA abstracts - Summer 1982

JATA - Summer 1982

Volume 4, No. 1

Use of Logit Analysis To Determine Employment Status For Tax Purposes
Dave N. Stewart

Charitable Remainder Trusts - Valuation Methods Yield Inconsistent Results
Richard B. Byars and Charles A. Nickerson

An Empirical Inquiry into the Judicial Determination of Dividend Equivalence in Stock Redemptions
Ted Englebrecht and Robert J. Rolfe

New Preparer Rules: More or Less Penalty
Edward J. Schnee and William R. Edwards

Federal Tax Clinic Practice For Accounting Students
Debra M. White and James W. Giese


Use of Logit Analysis To Determine Employment Status For Tax Purposes

Dave N. Stewart

Abstract

Congress is currently considering legislation that will reduce the uncertainty surrounding the common-law definition of an employee for federal tax purposes. The distinction between employee and independent contractor status has become more critical with the increased significance of employment taxes. The purpose of this study is to identify those factors that, if enacted into legislation, could be uniformly and consistently applied by taxpayers and the IRS. To accomplish this purpose, a five-variable logit model was built, based upon judgments made by a diverse set of federal court judges. The results of this study suggest that these five variables, or a subset of these five variables, should be given consideration for codification into the Internal Revenue Code in lieu of those factors currently being considered by Congress. Top


Charitable Remainder Trusts - Valuation Methods Yield Inconsistent Results

Richard B. Byars and Charles A. Nickerson

Abstract

Although it is too early to measure the effect of the 1981 Economic Recovery Tax Act on charitable giving, it is apparent that charitable remainder trusts continue to enjoy popularity. However, actual results realized from making transfers to charitable remainder trusts may vary significantly from market-based expectations. The fundamental cause of such variances is the fact that official regulations governing valuation of remainder interests take into account neither market rates of interest nor the marginal tax rates of income beneficiaries. Accordingly, tax advisers have a need to know which form of trust is most advantageous to the donor. The authors approach the problem by establishing a set of four equations and examining the relationships among them. Using values derived from the equations, tables are presented to demonstrate the conditions under which annuity trusts or unitrusts are advantageous. Top


An Empirical Inquiry into the Judicial Determination of Dividend Equivalence in Stock Redemptions

Ted Englebrecht and Robert J. Rolfe

Abstract

The purpose of this study is to determine the impact of the United Sates Supreme Court's Davis decision on subsequent court cases involving dividend equivalence in stock redemptions. Two discriminant analyses were performed on all post- 1954 dividend equivalence cases litigated in Federal courts. Results of this study indicate that the 1970 Davis decision dramatically changed the judicial decision process. Two variables, valid business purpose and a plan to retire a shareholder's interest in the corporation, were found to be significant predictors of the decision before Davis with 75 percent of the pre-Davis cases correctly classified by these two variables. The decisions after Davis identified three totally different variables as significant: the percentage reduction in a shareholder's interest, the percentage of total voting stock owned by the shareholder after redemption, and the loss of special rights. These variables, which are more objective in nature, correctly classified 85.7 percent of the post-Davis decisions. This result suggests that taxpayer-shareholders should be able to correctly classify the factors that determine dividend equivalence and plan their stock redemptions so as to avoid passive dividend treatment. Top


New Preparer Rules: More or Less Penalty

Edward J. Schnee and William R. Edwards

Abstract

In 1976 Congress adopted Section 6694, which provides penalties for preparers who understate a liability due to negligent or intentional disregard of rules and regulations. Rulings issued in 1980 and 1981 expand the boundaries of these penalties by focusing on the nature, frequency and materiality of errors on the tax return. Accountants should be aware of the requirements imposed by IRS in the area of research of tax issues, office procedure and documentation, and disclosure of differences. This article reviews the statutory law and rulings, highlighting areas of uncertainty, and conflict with the Statements on Responsibilities in Tax Practice. Top


Federal Tax Clinic Practice For Accounting Students

Debra M. White and James W. Giese

Abstract

The graduate accounting program at North Texas State University (NTSU) is the first in the nation approved for a Federal Tax Clinic by the Internal Revenue Service (IRS). Accounting students enrolled in the NTSU Federal Tax Clinic have permission of the National Office of the IRS to represent taxpayers at audit and appeals levels. The program at North Texas State is indicative of the IRS' changing policy towards clinical tax practice. Previously confined to selected law schools, clinical programs in tax are now possible for accounting departments offering a graduate specialization in taxation. Since such offerings are on the upswing [Broden and Lubell, 1979], the procedures followed by North Texas State University in its Tax Clinic should be of immediate interest to faculty of other accounting departments. This article discusses the composition of the North Texas State University Federal Tax Clinic and delineates the operating procedures followed by its students subsequent to contact by taxpayers. Top

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