April 23 mgmt127a

April 23 mgmt127a - MGMT 127A Alice Sullivan Corporation...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
April 23, 2008 MGMT 127A Alice Sullivan Corporation Case: Corporation gave away property (real estate), and wrote it off at the time they gave it away (1939-1940). In 1957 the property comes back, the party they had given it to, returned it. The property had to be used for religious or educational purposes and the recipient decided not to do so, so they gave it back. Perhaps it was an old folks community, and there were no need for these things. After they got the land back after 17 years, it was clearly more valuable. It’s more valuable in nominal and real dollars. Did anyone argue that the return of land was income? They could have made the argument that when someone loses an item and then finds it, they don’t have income, but they did not make that argument. Why? When they gave away that piece of land, they wrote it off. They already got that tax expense savings. Because it is returned now, you have to counteract that. When you give away property, and later get it back, it is considered income, and it is considered income in the year you get it back. Tax benefit rule The recovery of a previously deducted item constitutes income When we get the item back, do we amend the old return, or do we
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
simply say it is income in the year it comes back? We simply say it is income in the year it comes back. Were people arguing amount of income? Wrote of $8,707 in 1940. Say market value in 1957 is $30,000. Amount of income is not the issue. Everyone agreed that amount of income is measured by a recovery of deduction basis. The argument was about what tax rate should be applied. Why might rates change? You’re making more money, change of administration, change in filing status The taxpayer’s argument is that they took the deduction at 21%, but have to pay taxes at 52%. The government’s argument is that tax rates change, and you should be subject to those changes in rates. Effectively, you got interest free loan from government. If tax rate had been 21% today, then there
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/27/2009 for the course ECON 183 taught by Professor Boustan during the Summer '09 term at UCLA.

Page1 / 6

April 23 mgmt127a - MGMT 127A Alice Sullivan Corporation...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online