Douglas A. Kahn

Accelerated Depreciation - Tax Expenditure or Proper Allowance for Measuring Net Income?

Since the 1950s, it has become fashionable to attack various provisions of the Internal Revenue Code by calling them subsidies rather than proper means of measuring taxable income. These subsidies through Code provisions have come to be referred to as tax expenditures, a term coined by Professor Stanley Surrey. This Article studies the extent to which accelerated depreciation accurately reflects net income. It does so by reference to the traditional yardsticks against which we must scrutinize all cost recovery methods: the goal of measuring an individuals ability to pay the costs of government and the constraints accepted as essential to our tax system, including the doctrine of realization and the cash method of accounting. The thesis of this Article is that some amount of accelerated depreciation (although not necessarily the full amount allowable under all of the provisions of the Code) is a proper deduction in determining net income and provides a more accurate statement of net income than straight line or decelerated depreciation methods.

Mandatory Buy-Out Agreements for Stock of Closely Held Corporations

A buy-out of a shareholders stock is a sale of his stock holdings in a specific corporation pursuant to a pre-existing contract. The focus of this Article is on mandatory agreements taking effect upon the death of a shareholder. The purpose of this Article is to delineate some of the most important tax and corporate law considerations and to examine various methods of financing buy-outs. It will place particular emphasis on the merits and disadvantages of funding by means of life insurance.

Accelerated Depreciation Revisited - A Reply to Professor Blum

Professor Blums comment addresses the proper or neutral tax treatment to be accorded three of the items discussed in my recent article on accelerated depreciation(Kahn, Accelerated Depreciation: A Proper Allowance for Measuring Net Income?) - namely, annuities, prepaid expenses, and exhaustible assets. Blum disputes my analysis in all three cases. While Blums article is eminently readable, I do not believe that it refutes my earlier work to any extent. In this reply to Professor Blum, I will deal separately with each of the three items he examines.

Federal Taxation of the Assignment of Life Insurance

The most litigated estate tax issue concerning life insurance is whether the proceeds should be included in the insureds gross estate. This question is usually governed by section 2042 of the Internal Revenue Code of 1954, the estate tax provision directed specifically at life insurance. This Article deals with the treatment of various types of transactions concerning life insurance. One interesting and currently controversial problem is what amount should be included in the insureds gross estate if he gives away a policy within three years of his death but the assignee, not the insured, pays the post-assignment premiums that become due. This Article will explore that issue, along with others arising from the assignment of life insurance, and suggest some solutions.

A Definition of Liabilities in Internal Revenue Code Sections 357 and 358(D)

A transfer of property to a controlled corporation in exchange for the corporations stock typically will not cause the transferor to recognize gain or loss on the exchange because of the nonrecognition provision of IRC Section 351. The transferors basis in the stock received will equal the basis of the transferred property reduced by any liabilities that the corporation assumed or accepted in the transaction. IRC Section 358(d). If such liabilities exceed the basis that the transferor had in the transferred property, the excess will constitute gain to the transferor under IRC Section 357(c). The focus of this article is on the question of just what type of obligations constitute a liability for purposes of Section 357 and 358. Resting on a transactional analysis and on the history of the manner in which the Crane or Tufts doctrine was applied to obligations, the authors conclude that an obligation which would be deductible by the transferor when paid is not a liability as that term is used in those two Code sections. Citing this article and adopting its reasoning, a majority of the Tax Court reversed its prior position and excluded such obligations from those provisions. Focht v. Commissioner, 68 T.C. 223 (1977). Subsequently, Congress adopted the approach of this article when it added Sections 357(c)(3) and 358(d)(2) to the Code. The approach of this article was later extended by Congress to cancellation of indebtedness issues when Section 108(e)(2) was added to the Code in 1980.

Joint Tenancies and Tenancies by the Entirety in Michigan—Federal Gift Tax Considerations

THE establishment of joint tenancy1 ownership of property, or the termination of such a tenancy, may have federal gift tax consequences to the co-owners of the property. Consequently, the gift tax is a factor to be weighed before embarking on either of these ventures. The gift tax consequences are determined by the nature of the property rights enjoyed by the joint tenants under the controlling state property law, and accordingly it is desirable, where Michigan property law is applicable, to consider the Michigan law and the significance of that law to the operation of the gift tax. However, before discussing Michigan property law, it may be helpful to review briefly the general principles controlling the applicability of federal gift taxes to joint tenancy interests.2