Tax Court upholds 1978 regulations on calculating the bad debt deduction.In Central Pennsylvania Savings Association, 104 TC 384 (1995), the Tax Court reversed itself and ruled that a taxpayer must recalculate re·cal·cu·late tr.v. re·cal·cu·lat·ed, re·cal·cu·lat·ing, re·cal·cu·lates To calculate again, especially in order to eliminate errors or to incorporate additional factors or data. the percentage of taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. bad debt deduction when a bad debt deduction is carried back. Regs. Sec. 1.593-6A(b)(5)(vi) and (vii), issued in 1978, required savings and loans to include net operating losses Net operating losses Losses that a firm can take advantage of to reduce taxes. (NOLs) in taxable income before calculating a bad debt deduction. Before this, however, savings and loans were not required to recalculate their bad debt deduction to reflect NOL NOL - Never Offline carrybacks. Beginning in 1990, the Tax Court ruled in a number of cases that the regulations were invalid (Pacific First Federal Savings Bank Noun 1. federal savings bank - a federally chartered savings bank FSB savings bank - a thrift institution in the northeastern United States; since deregulation in the 1980s they offer services competitive with many commercial banks , 94 TC 101 (1990); Bell Federal Savings & Loan Ass'n, TC Memo 1991-368; Peoples Federal Savings & Loan Assn of Sidney, TC Memo 1990-129). Several circuit courts, however, subsequently reversed the Tax Court and upheld the regulations (Pacific First Federal Savings Bank, 961 F2d 800 (9th Cir. 1991); Bell Federal Savings & Loan Assn, 40 F3d 224 (7th Cir. 1994); Peoples Federal Savings & Loan Ass'n of Sidney, 948 F2d 289 (6th Cir. 1991)). In reaching its Central Penn-sylvania decision, the Tax Court still maintained that the 1978 regulation was not entitled to great deference, since the previous regulation had been in effect for 20 years. Additionally, the court continued to question whether the IRS's position (i.e., that Congress intended for the bad debt deduction to be further decreased) was reasonable. However, in light of the appellate court A court having jurisdiction to review decisions of a trial-level or other lower court. An unsuccessful party in a lawsuit must file an appeal with an appellate court in order to have the decision reviewed. decisions, the Tax Court found that its interpretation of Congress's implied intent was not sufficient to overturn the Service's position that the new regulation was reasonable "because it reflects a choice between permissible statutory interpretations." As such, the Tax Court reversed its previous position that the regulation was invalid, and allowed its retroactive application. From Marc D. Levy, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , and Mary B. Doyle, CPA, Washington, D. C. |
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