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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Development Investment Credit" which restores to our tax laws an investment credit substantially similar to the credit repealed by the Tax Reform Act of 1969.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
Object Description
Title |
Revenue Act of 1971: Tax reductions, incentives and other changes |
Author |
Sirowitz, Herbert Coffino, Sol |
Subject |
United States. Revenue Act of 1971 |
Citation |
Tempo, Vol. 18, no. 1 (1971/72, winter), p. 30-34, 43-47 |
Date-Issued | 1971/72 |
Source | Originally published by: Touche Ross, & Co. |
Rights | Copyright and permission to republish held by: Deloitte |
Type | Text |
Format | PDF page image with corrected OCR scanned at 400 dpi |
Collection | Deloitte Digital Collection |
Digital Publisher | University of Mississippi Library. Accounting Collection |
Date-Digitally Created | 2010 |
Language | eng |
Identifier | Tempo_1971_Winter-p30-34,43-47 |