JATA - Winter 1982

Volume 3, No. 2

Capital Recovery Options under the Economic Recovery Tax Act of 1981: An Analysis of Comparative Benefits

William F. Jordan


By means of the Accelerated Cost Recovery System, The Economic Recovery Tax Act of 1981 [P.L. 97-34] narrowed the number of alternative methods available for "depreciation." It introduced several new options as well. Two of these options, the first-year expense deduction under Section 179 with an attendant loss of the investment tax credit, and the election to use the straight-line method for 15-year realty with recapture occurring under Section 1250, rather than under Section 1245, are examined here. Election of the second option is found also to depend on the same two variables 9except for individuals, where the marginal tax rate is irrelevant as long as it is positive), and an additional one, the year in which disposition of the property occurs. The first year expense option is generally preferred for individuals and corporations having high costs of capital and high marginal tax rates. With respect to the straight-line election for 15-year realty, the straight-line method yields better economic results if the disposition year is relatively early and the ratio of the capital gain tax rate to the ordinary income rate is relatively small.

The Targeted Jobs Credit: An Evaluation of Its Impact on the Employment Decision Process

Cherie Jeanne O'Neil


Human Judgment Research techniques were used to determine if the targeted jobs credit acted as an incentive to employers to increase their hiring of certain targeted groups. The Research design centered upon the construction of an employment decision model in which the targeted jobs credit was introduced as an additional variable in the employment decision process. Employers in the five metropolitan areas of Colorado were asked to make 30 hypothetical employment decisions using a six-point rating scale which ranged from definitely do not hire (-3) to definitely would hire (+3). The employment decisions were based upon seven general employment attributes and two targeted jobs credit attributes. The completed questionnaires were analyzed using descriptive statistics and the Wilcoxon Matched Pairs Ranked Signs Test. The study showed that the targeted jobs credit did not have any significant impact on the employment decision process and that it was a windfall benefit which rewarded the employer for hiring an applicant who would have been hired anyway. Forty-four percent of the decisions resulted in windfall gains. In another 39 percent of the decisions the credit had no impact on the decision process, in ten percent of the decisions it had an adverse impact and in only seven percent of the decisions did it result in an employment decision in which an employer hired an otherwise unacceptable applicant.

Noncorporate Lessors of Equipment Are Still Subject To Administrative and Judicial Scrutiny

Ted. D. Englebrecht and Robert J. Rolfe


One method employed by businesses to increase the availability of depreciation deductions and investment tax credits is through the use of leveraged leases. In these transactions, tax benefits are transferred from taxpayers who do not have sufficient tax liabilities to those who do. Because these benefits are very mobile, the Internal Revenue Service historically has examined the substance rather than the form of leasing transactions to determine whether they were actually conditional sales transactions. Congress recently enacted safe-harbor rules defining when a lease exists between two or more parties in order to reduce the uncertainty which went with these types of transactions, and to encourage leveraged leasing transactions. However, these rules only apply to transactions where the lessor is a corporation. As a consequence, individuals, partnerships, Subchapter S corporations, and personal holding companies can no avail themselves of these safe-harbor rules but instead must follow a long line of judicial and administrative guidelines. This article reviews and analyzes these judicial decisions and administrative rulings to identify factors that noncorporate lessors can utilize to avoid having lease transactions reclassified as a sale. These factors are summarized in a table and the tax consequences of qualifying or not qualifying under the government's administrative procedures that act as guidelines for letter rulings is delineated.

Historical Cost and General Price Level Tax Rates in Seven Industries

Raymond I. Bruttomesso and J. Edward Ketz


Recently the Financial Accounting Standards Board issued a pronouncement, Statement of Financial Accounting Standards No. 33 on accounting for the effects of changes in general and specific prices. While the effects of inflation are shown in the 1979 annual reports, Congress, prior to the Economic Recovery Tax Act of 1981, did not provide for adjustments for inflation in the computation of one's tax liability. This reluctance to amend the Tax Code to incorporate the effects of changing prices leads to distorted tax rates. This study examines 112 firms from seven industries for an extended period of time by using an estimating technique which attempts to make certain adjustments to financial accounting data reported in the COMPUSTAT tapes. The authors compare three tax rates for each of the firms for a period of 19 years. The first tax rate comparison presented shows the difference between the general price level (including monetary gains and losses) and historical cost tax rates. The second tax rate comparison highlights only the effect of depreciation on the differential between the two types of tax rates. The third tax rate comparison shows the effect of monetary gains and losses. The research results indicate that large biases in the historical cost tax rates exist in periods of time showing high inflation rates. Even in times of low inflation rates biases can and do exist. In addition, the impact of the tax rate differential seems to vary from industry to industry depending upon the composition of the balance sheets.

Letter from the President

To ATA Members and Visitors,

The American Taxation Association (ATA) is home to a broad group of members with interests in tax research, policy, practice, and education. We are in a time of transition that includes the ongoing pandemic; both AAA’s and ATA’s Diversity, Equity, and Inclusion initiatives; and the CPA Evolution. I thank our members Kirsten Cook, Diana Falsetta, and Annette Nellen for their service in these endeavors. I also thank Tim Rupert for his service as AAA Director focusing on Segments.

Our last mid-year meeting was virtual and could not have happened without our excellent ATA leadership. Thank you to Jeri Seidman, Mollie Adams, Bridget Stromberg, and their respective committees for their flexibility and tenacity in organizing their portions of the conference...

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Anna Catherine Fowler

In Memoriam,
Anna Catherine Fowler received her BS in accounting from the University of Alabama, after which she practiced for several years as a CPA. After moving to Texas with her husband Jim, she earned her MBA and PhD from the University of Texas at Austin.

She joined the faculty of the business school of the University of Texas in 1977 as the first female tenure track professor hired by the accounting department. She remained at UT until she retired in 2004 as the John Arch White Emeritus Professor in Business.

During Anna’s distinguished academic career, her research and teaching interests focused on estate and gift taxation. She was an active member of the AICPA’s Tax Division and the American Taxation Association, for which she served as 1993-94 president.

In 2002, Anna received the American Taxation Association’s highest honor, the Ray M. Sommerfeld Outstanding Tax Educator Award. She also received the Texas Society of CPA’s Outstanding Educator Award.

Anna and Jim made the most of their retirement years, delighting in travel all over the world. They finally settled in a retirement community in Chapel Hill, North Carolina. Even after Jim’s death in 2019, Anna continued to travel with friends, root for her beloved Alabama football team, and live her life to the fullest. She passed away peacefully on October 19, 2021.

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