Fairness of Taxes Called Into Question

BY FRANK L. KING

Contrary to the letter, “ An Opinion on Dividends’ Taxation ” ( JofA , Aug.03, page 13), an “honest study of the facts” does in fact prove double taxation of dividends. The real question is whether it is fair to tax corporate earnings and profits multiple times —once at the corporate level and again at the individual level upon distribution. The arguments presented in the letter do not alter reality.

In the universe of taxation, there are many subsets—for example, federal corporate income tax, state corporate income tax, federal individual income tax and state individual income tax. Likewise, corporate taxable income is a subset of corporate earnings and profits. By short definition, dividends generally are cash distributions of previously taxed earnings and profits. Therefore, to tax dividends at any level is to tax previously taxed income.

Regarding stockholders, to assert “they simply own a piece of paper that entitles them to a share of net assets on dissolution and to dividends if corporate management declares any” is simply to ignore the whole truth. Stockholders own a current, undivided interest in the net assets of the corporation. They also have, but are not limited to, the rights to vote for and replace the board of directors (management), to approve the auditors and to vote on other issues reserved solely to their discretion.

Frank L. King, CPA
Lakewood, Colorado

SPONSORED REPORT

Revenue recognition: A complex effort

Implementing the new standard requires careful judgment. Learn how to make significant accounting judgments and document them and collaborate with peers for consistent application.

VIDEO

How to Excel pivot a general ledger

The general ledger is a vast historical data archive of your company's financial activities, including revenue, expenses, adjustments, and account balances. J. Carlton Collins, CPA, shows how to prepare data for, and mine data with, PivotTables.

QUIZ

News quiz: Taking an economic snapshot and looking to the future

Recent news included IRS actions that affect individuals and partnerships and a possibly influential move by a Big Four accounting firm.Take this short quiz to see how much you know about the news.