American Taxation Association

JATA abstracts - Spring 1983

JATA - Spring 1983

Volume 4, No. 2

The Charitable Lead Trust: A Neglected Tax Planning Technique
James P. O'Brien and William Raabe, Jr.

Leasing as a Means of Shifting Tax Savings to Non-Taxable Organizations
James E. Parker and Thomas P. Howard

Delayed Depreciation as a Tax Shield
William Beranek and Edward B. Selby, Jr.

Premature Withdrawals From Individual Retirement Accounts: A Breakeven Analysis
Cherie J. O'Neil, Donald V. Saftner and Manson P. Dillaway

An Analysis of the Availability of Percentage Depletion for Lease Bonuses and Advance Royalties
Joe Lancaster and Ted D. Englebrecht

Demand for Tax Faculty Members -A Static or Changing Need? (Report of the 1981-82 ATA Committee on Educational Standards for Tax Faculty)
Ray M. Sommerfeld (Chairman), John B. Barrack, Allen Ford, Phillip J. Harmelink, Albert R. Mitchell, and Thomas Porcana


The Charitable Lead Trust: A Neglected Tax Planning Technique

James P. O'Brien and William Raabe, Jr.

Abstract

The charitable lead trust is a "split-interest" trust established to direct a series of payments to a qualifying charitable organization over a period of time and to transfer the remainder interest in the trust assets to non-charitable beneficiaries selected by the donor. This device has been received rather poor reviews from tax professionals during the last decade. The present analysis asserts that such poor reviews may be improper, i.e., that the value of the estate-freezing and transfer tax deduction opportunities presented by the charitable lead trust prompt a closer examination of the technique. Briefly, these opportunities include: (1) the ability to manipulate the applicable transfer tax liability upon creation of the trust; (2) the ability to maximize the wealth to be transferred to the selected non-charitable beneficiaries, even after introducing the charity as a "new" donee; and (3) the ability to overcome many of the negative implications from the potential grantor trust status of the device. Top


Leasing as a Means of Shifting Tax Savings to Non-Taxable Organizations

James E. Parker and Thomas P. Howard

Abstract

Prior to the enactment of The Tax Equity and Fiscal Responsibility Act of 1982, the financial press emphasized the advantages to business firms of "selling" unusable tax deductions and credits by means of leasing transactions. While not as widely recognized, the Economic Recovery Tax Act of 1981 and The Tax Equity and Fiscal Responsibility Act of 1982 still allow non-taxable organizations opportunities for transferring certain tax benefits to taxable business firms in exchange for lower lease rentals for two types of assets: mass-commuting vehicles and rehabilitated buildings. In this article, the tax potential of these lease opportunities for non-taxable organization is discussed and a decision model is developed for use in specific situations. Top


Delayed Depreciation as a Tax Shield

William Beranek and Edward B. Selby, Jr.

Abstract

Accelerated depreciation methods benefit firms that are in either constant or declining marginal tax brackets. When faced with rising income, and the possibility of rising marginal tax rates, low-bracket taxpayers may benefit from delaying depreciation charges through the adoption of a suggested reversed acceleration method of depreciation. A simulation shows that low-bracket taxpayers, who have prospects of rising income and discount rates of less than 17 percent in the corporate case and 27 percent for individuals, could benefit if such methods were available. In addition, while previous studies had shown that straight-line methods could be superior to accelerated methods under the pre-1981 tax laws, this paper shows that this possible superiority also continues following the revisions made to the tax laws in 1981 and 1982. Top


Premature Withdrawals From Individual Retirement Accounts: A Breakeven Analysis

Cherie J. O'Neil, Donald V. Saftner and Manson P. Dillaway

Abstract

The Economic Recovery Tax Act of 1981 (ERTA) greatly liberalized the rules governing retirement plans. This article incorporates the impact of these ERTA changes in a computer model and explores the effect of premature withdrawals from and Individual Retirement Account. The work of previous authors indicating that tax-sheltered retirement plans are superior to equivalent nonsheltered accounts when held to retirement is substantiated. In the case of early withdrawal, however, Individual Retirement Accounts also make attractive intermediate-term tax shelters for those taxpayers with initial before-tax incomes in excess of $20,000. The disadvantage of the premature withdrawal penalty may be more than offset by the compound growth taking place in the investment account. Accumulating savings in an Individual Retirement Account and withdrawing before retirement, if needed, may be a wiser investment strategy than had been previously thought. Top


An Analysis of the Availability of Percentage Depletion for Lease Bonuses and Advance Royalties

Joe Lancaster and Ted D. Englebrecht

Abstract

The percentage depletion deduction for the oil and gas industry has been one of the most controversial areas of the tax law for the past several years. In 1975, Congress generally repealed percentage depletion on oil and gas for taxable years ending after December 31, 1974. Congress, however, did retain percentage depletion for certain types of natural gas and for a limited amount of oil and gas production of independent producers and royalty owners. Several cases in the past two years have examined the question of whether percentage depletion is still available with respect to lease bonuses and advance royalties received by the lessors of oil and gas properties. The authors examine the tax treatment of lease bonuses and advance royalties before 1975, the background and pertinent provisions of the 1975 Act and Section 613A, and the conflicting positions taken by the IRS and the courts since 1975 with respect to lease bonuses and advance royalties. The present conflict between decisions rendered by the Tax Court, The Seventh Circuit Court of Appeals, and the Court of Claims has become most heated. The Supreme Court has granted certiorari to the government for the Seventh Circuit's decision in the Engle case and to the taxpayer for the Court of Claims' decision in the Farmar case. Top


Demand for Tax Faculty Members -A Static or Changing Need? (Report of the 1981-82 ATA Committee on Educational Standards for Tax Faculty)

Ray M. Sommerfeld (Chairman), John B. Barrack, Allen Ford, Phillip J. Harmelink, Albert R. Mitchell, and Thomas Porcana

Abstract

The purpose of this article is to report the results of a questionnaire survey which was designed to obtain information about the supply of and demand for tax faculty. Since the supply of tax faculty available may be affected by the American Assembly of Collegiate Schools of Business (AACSB) recent change in standards used to define terminally qualified faculty for purposes of teaching courses in taxation, the questionnaire was also used to measure the effect of the new standards on supply and demand for tax faculty. Top

 

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