on Taxability of S Corp Capital Gains
forward to reading the tax articles in The CPA Journal
but am often disappointed by what seems like poor editing.
The article “Taxability of S Corporation Capital Gains
to Part-Year Residents” (State & Local Taxation,
January 2004, page 42) was particularly hard to understand.
At the beginning the author paraphrases TSB-A-03(1) and
refers to MTE Inc. He then refers to MEA, parenthetically,
with no explanation of the relation between the two companies,
and does not refer to MTE again. The rest of the article
deals with MEA, but MTE is the company that is owned by
the part-year resident.
rereading the article I still don’t know what the
rule is. When the article states that the gain must be prorated
between the periods of residence and nonresidence, does
the author mean that if the shareholder was a resident for
one month, then 1/12 of the gain is allocated to the resident
period and 11/12 to the nonresident period? If so, then
what amount is taxable in either period if the investment
allocation is zero? The complexity of the calculation begged
for an example. The article should also have illustrated
the result for the allocation for ordinary business income,
a much more common situation, where the S corporation shareholder
is a part-year resident.
G. Pritikin, CPA
New York, N.Y.
reading the remarks by former SEC Chairman Arthur Levitt
(In Focus, February 2004, page 22), I was struck by a couple
of points. Levitt mentioned speaking at the Las Vegas AICPA
Council meeting before thousands of accountants. I was present
for his talk and there were, at most, 500 accountants. I
suggest Mr. Levitt consider that honesty, integrity, and
accuracy should begin at home.
also continued assigning blame (as has Lynn Turner) for
the problems of the past few years to multiple groups. As
always, he neglects to mention that the group he was head
of, which was responsible for being a public watchdog, did
not uncover these significant accounting irregularities.
The SEC appeared to be asleep at the wheel and did not even
review Enron, admittedly a risky, top-five public company,
for at least five years prior to its collapse.
is fair to constantly evaluate how we all can do a better
job, but it is, unfortunately, typical of the Levitt team
to blame everyone but themselves.
Baton Rouge, La.
on Accounting for Stock Options
delighted that The CPA Journal published my article
“The High-Tech Community Must Surrender on Accounting
for Options” (February 2004). This is an area of numerous
and rapidly unfolding events, including the adoption of
the “fair value” method by the International
Accounting Standards Board (IASB) in February.
note some events that occurred after I wrote the article:
Microsoft (and a number of other major companies, including
General Electric, Procter & Gamble, and General Motors)
adopted the FASB 123 fair value method in calendar year
2003. Also, I should note that the dollar amounts referred
to in the first paragraph of the article were, I believe,
calendar year 2002 figures.
Jenkens & Gilchrist