New Rulemaking Approaches to Improve Federal Tax Administration Through Use of Precisional Substitutes that Avoid Valuation Uncertainties
Richard J. Kovach
University of Akron - School of Law
Houston Business and Tax Law Journal, Vol. 6, 2005
University of Akron School of Law Legal Studies Research Paper Series No. 06-09
Property transfers create a variety of valuation problems that complicate tax planning and compliance efforts. For decades, valuation issues have been addressed under a vague "willing buyer and seller standard" that has caused a great deal of audit activity, litigation, and uncertainty.
The American Jobs Creation Act of 2004 very modestly moved away from this vague valuation standard in the context of charitable contribution deductions for vehicles and intellectual properties. This new legislation effectively creates precisional substitutions for true economic value using hindsight based on subsequent uses, dispositions, or income realizations involving the designated donated properties.
This approach is part of a long tradition of precisional substitutions that have worked well to add workability and certainty for a variety of tax analyses involving determinations as disparate as depreciation allowances, applicable interest rates, split-interest gifts, and business expense deductions. Precisional substitutions create artificial systems that take the place of actual economic determinations too complicated and contentious for efficient tax administration.
Using many examples and setting forth several technical ideas, this article argues that the precisional substitution concept should be extended to a whole range of valuation issues that now inordinately complicate tax administration and planning throughout the Internal Revenue Code.
Number of Pages in PDF File: 33
Keywords: tax, IRS
JEL Classification: K1
Date posted: May 23, 2006