The Implications of the Economic Concept of the Income for Corporation-Shareholder Income Tax Systems


Recent discussions of tax reform have included suggestions for the abolition of the corporate income tax and the attribution of corporate income to the shareholders. Restricting acceptance of these suggestions is the holding of Eisner v. Macomber, which not only adopted a tax theology based upon the separate status of corporations and shareholders but also required the realization of income prior to recognition. The authors demonstrate the implications of an economic concept of income by showing the relationship of a firm's economic income to the economic income of the firm's individual owners. One implication of their analysis is that a tax at the corporate level is unnecessary, because the economic income of share- holders includes the income-period wealth effect changes associated with firm ownership. The authors suggest that Macomber and subsequent cases may most favor an integration of the corporation-shareholder tax system that abolishes the corporate-level tax and computes the shareholder's income on an economic income basis. On the other hand, it is concluded that Supreme Court authority still cuts strongly against integration systems that simply include a pro rata share of corporate earnings in shareholder income, and that these latter forms of integration are at odds with an economic income analysis as well.



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Case Western Reserve Law Review

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27 Case Western Reserve Law Review 895 (1977)

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