by CHARLES N. WHITEHEAD Partner, San Francisco Office
Presented before the 11th Annual Tax Conference of the Utah Society of Public Accountants, Salt Lake City—December 1963
IAM SURE that all of you have had experience with the new investment
credit. Undoubtedly, you encountered it in the preparation or review of returns for 1962, but at that time Regulations were not available and uncertainties developed as the attempt was made to apply the statutes to specific situations. Proposed Regulations have now been issued, and this paper will be an attempt to explain in as simple terms as possible the significant portions of the law as interpreted
by the Regulations.
AMOUNT OF CREDIT
The investment credit was a part of the Administration's program to encourage business by permitting tax relief for taxpayers purchasing
new and used equipment. Relief took the form of a credit against tax, not a deduction or an adjustment of rate. As you know, the credit is 7 per cent of the qualified property (a lesser percentage for utilities).
The law contains a limitation on the amount of credit available in any given year; the credit cannot exceed $25,000 plus 25 per cent of the tax in excess of $25,000. If the taxpayer has an investment credit greater than the amount allowable under this limitation, the excess will be carried back for three years (but not before 1962) and forward five more years. If the credit is not utilized within this eight-year period, then the unused balance will become a deduction in the ninth year. The limitations are applicable in connection with married couples; if a joint return is filed, the $25,000 plus 25 per cent is allowed on the joint return. But if separate returns are filed, then the allowable
amount is limited to $12,500 for each separate return plus 25 per cent of the tax in excess of $12,500. In the case of affiliated groups, the $25,000 must be apportioned between the members of the group on an equitable basis. The proposed Regulations provide for an election
to be made by the affiliated group as to the corporation to which the limitation is to be applicable;1 that is, the affiliated group, whether
1 Proposed Reg. 1.46-1 (f)