Clear reflection of income: using financial product principles in other areas of tax law

Article Abstract:

Tax treatment of common transactions, particularly cost recovery by deductions or capitalized items, should be based on income tax measurements devised for financial products. Financial product taxation techniques could be applied to payments made to cancel contracts or leases, speculative payments, environmental remediation or demolition costs, equity-financed asset construction, investment property taxes, and income-stripping arrangements. The use of a mark-to-market system, matching of transactions, and expected value taxation of contingent arrangements are adaptable financial product tax principles.

Innovations, Capital investments, Financial instruments, Expense deductions, Amortization

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The role of mark-to-market accounting in a realization-based tax system

Article Abstract:

Mark-to-market accounting should comprehensively replace realization-based tax accounting for more activities than fall under IRC section 475 and particularly for hedged activities. The realization system tends to cause distortions in the taxation of hedged activities which are more amenable to the mark-to-market system's taxation of net wealth accretion. The Taxpayer Relief Act of 1997's extension of the mark-to-market system does not adequately encompass amenable activities and items of income.

Tax Law, Public Finance Activities, Methods, Tax accounting, Hedging (Finance), Inventories

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The realization doctrine after Cottage Savings

Article Abstract:

The realization doctrine for income taxation should be abandoned for businesses and modified for individuals. The decision of Cottage Savings Assn v Commissioner shows that the doctrine holds by legal form instead of economic substance. Changes need to be made to rules for wash sales, debt instrument modifications, notional principal contracts, mark to market uses, capital loss limits, straddles, exceptions for hedging and lower of cost or market.

Laws, regulations and rules, Income tax

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