General Utility doctrine & Operation Co. v Helvering

Was it necessary to cancel the general utility tax rules? This article scrutinizes this tax law implications on the nowaday purchasing and selling of assets of the company among corporations to create partnerships (Edwards et al, 2013). This article tries to single out the ideas behind the reasons to restore some of the tax laws.

This tax law aimed to provide a sort of regulation of income taxation that has an influence on the partners earning from the company assets sales that took place during partnerships formation (Sharma, 2015). This rule was important for the shareholders as it let them to receive profits without being taxed.

Also, the rule aimed at regulating financial transactions of corporations and the mode at which the assets changed hands. Transactions done during complete buyout of the company were under this tax rules. In this case, the earnings from the sales of the assets were distributed to the owners of the enterprise with consideration of this tax law to evade tax (Sharma, 2015). This allowed corporations to sell off its assets to another company without experiencing tax burden.

Held

Yes. The rule was under pressure from different scholars who led to the formulation of tax reforms that resulted in the termination of this law (Sharma, 2015). Taxation of earnings from sales of assets and encouraging formation of partnerships raised concerns that brought about these reforms.

Termination of the tax law led to changes in the managerial decisions and formation of partnerships. Managers were faced with hard decision making since the new system ensured that there was a tax imposed on purchase and sale of company assets (Edwards et al. 2013). This made it hard for the company to own shares of other corporations, which made partnership hard to form.

Furthermore, the formation of associations depended on how efficient and competent the company manager can be. Management of financial transaction between businesses ensured that owners could receive their gains and company is achieving growth.

Discussion

The issue of company buyouts is also critical and requires rational managerial decisions. Financial transactions done during total company sales of assets have a positive implication on the managerial efficiency (Edwards et al. 2013). Partnerships may require selling or buying of one company assets so as to form one company. This process requires efficient and rational managers to receive full benefits of the buyouts. It is clear that company with poor management become easy targets for other companies in buying their assets.

Currently, partnerships seem to be based on the equity finance of the companies. Buying and selling of company stocks have become very easy hence increasing the rate of formation of partnerships (Edwards et al. 2013). It is now easy to do away with unwanted business shares through selling them off in the stock markets. A managerial decision on sales of stocks affects the size of the company either positively or negatively.

The role of the general utility rule was to encourage for the positive gains from the total sales of company shares. This was achieved through ensuring that sales of share where somehow tax-free to make the transactions more efficient and effective.

In conclusion, we see the need for restoration of some of the general utility rules to make the current economies more efficient and effective. The present financial market transactions require the general utility doctrine.

Bibliography

Edwards, Martin. “ADDENDUM TO 73: 1 TURNING POINTS IN THE HISTORY OF THE

FEDERAL INCOME TAX: WHO’S AFRAID OF THE BIG BAD TAX-FREE LIQUIDATING DISTRIBUTION? IDEOLOGICAL DEBATES ON TAXATION AND THE REPEAL OF GENERAL UTILITIES.” Law & Contemp. Prob. 76 (2013): 367-433.

Edwards, Martin. “Who’s Afraid of the Big Bad Tax-Free Liquidating Distribution? Ideological

Debates in Taxation and the Repeal of General Utilities.” (2013).

Sharma, R. D., and Nisha Singh. “TAX POLICY IDEAS TO CONTROL INFLATION.” In

Global Conference on Business & Finance Proceedings, vol. 10, no. 2, p. 36. Institute for Business & Finance Research, 2015.