Revenue Act of 1971: Tax reductions, incentives and other changes;;

              REVENUE ACT of 1971 . . .
Tax Reductions,
Incentives
and Other Changes
by Herbert Sirowitz and Sol Coffino
INTRODUCTION:
The new Act is a vital piece of tax legislation. It is
aimed principally at reducing the taxpayers' burden and
providing incentives for business, but it also embraces
various technical changes which could materially af­fect
certain taxpayers. Some of the highlights of the new
Act are concisely set forth in this article. Caveat: The
law itself contains numerous special provisions plus
detailed exceptions and conditions.
The President, on December 10,1971, signed into law
the Revenue Act of 1971. The major provisions of the
Act—those which will have the most impact on the
economy—include the restoration of the investment
credit, a codification of liberalized depreciation rules
recently adopted by the Treasury Department, an ac­celeration
of individual income tax reductions, the re­peal
of the federal excise tax on automobiles and
light-duty trucks, and the enactment of tax incentives
to encourage exports.
The new Act, which is intended to stimulate economic
recovery, also contains many other provisions in the
nature of structural changes in the tax laws. While these
changes may not have a significant effect on the econ­omy
as a whole, they could have an important bearing
on the tax liability of affected persons.
1. INVESTMENT CREDIT
The Revenue Act of 1971 provides for a 7 percent "Job
Development Investment Credit" which restores to our
tax laws an investment credit substantially similar to
the credit repealed by the Tax Reform Act of 1969. The
credit, which is intended to stimulate the economy by
reducing the cost of capital investment, is generally
available for property ordered after March 31, 1971,
or property delivered after August 15, 1971 (regardless
of when ordered).
Qualified Investment
The 7 percent investment credit is generally available
with respect to the cost of depreciable tangible personal
property. The portion of the investment in eligible prop­erty
which qualifies for the credit is determined by the
useful life of the property. The useful-life brackets which
had been in effect under prior law have been shortened
by one year. Thus, the full cost of property with a useful
life of 7 years or more qualifies for the credit. Property
with a useful life of 5 to 7 years will qualify to the extent
of two-thirds of its cost, and property with a useful life
of 3 to 5 years will qualify to the extent of one-third of
its cost. No credit is available for shorter-lived property.
Importantly, a taxpayer must use the same useful life
for an asset in determining both the allowable invest­ment
credit and in computing depreciation or amorti­zation.
This rule can have a negative effect; while a
longer life may produce a larger investment credit, cur­rent
depreciation deductions will be lower. Special rules
are provided for cases where the taxpayer uses a
method of depreciation which does not directly relate to
the useful life of the property (e.g., units-of-production).
30