The Story of General Utilities and its Repeal: Much Ado About Nothing?
Herwig J. Schlunk
Vanderbilt University - Law School
BUSINESS TAX STORIES, Foundation Press, 2005
General Utilities long provided shareholders with the ability to extract appreciated assets from taxable corporate solution at the cost of one level of tax instead of the usual two. In 1986, with the repeal of General Utilities, this ability was lost. Currently, if an appreciated asset finds itself inside taxable corporate solution, both the corporation and its shareholders will ultimately be taxed on such appreciation. Thus, General Utilities Repeal is sometimes viewed as the bulwark that preserves the integrity of the current double tax regime. But this it is most emphatically not. Professor Schlunk argues that modern financial know-how enables taxpayers to keep most asset appreciation entirely out of taxable corporate solution, and hence out of the reach of General Utilities Repeal. Indeed, the only assets that must appreciate (if at all) in taxable corporate solution are assets such as goodwill that are inherently incapable of being owned by taxpayers other than taxable corporations and hence are also out of the reach of General Utilities Repeal. Thus, perhaps not quite yet but then in the not too distant future, General Utilities Repeal will be a law that applies to nothing at all.
This paper will be published as a chapter in a book entitled BUSINESS TAX STORIES, to be published by Foundation Press later this year (2005).
Date posted: April 8, 2005
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