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The Doctrine of Cash Equivalence states that the U.S. Federal income tax law treats certain non-cash payment transactions like cash payment transactions for federal income tax purposes. Taxation in the United States is a complex system which may involve payment to at least four different levels of government and many methods of taxation Taxation in the United States is a complex system which may involve payment to at least four different levels of government and many methods of taxation Article I, Section 8, Clause 1 of the United States Constitution, is known as the Taxing and Spending Clause. The history of taxation in the United States began when it was composed of colonies ruled by the British Empire, French Empire, and Spanish Empire The The United States Tax Court is a federal Trial court of record established by Congress under Article I of the U Tax forms in the United States are used by taxpayers and tax-exempt organizations to report financial information to the Internal Revenue Service (IRS The Internal Revenue Code (or IRC; more formally the Internal Revenue Code of 1986 as amended) is the main body of domestic statutory Tax law This is a table of the total Federal tax revenue by state collected by the U The The Federal Insurance Contributions Act (FICA tax ( is a United States payroll (or employment Tax imposed by the federal government on both employees Alternative Minimum Tax ( AMT) is part of the Federal Income tax system of the United States. The estate tax in the United States is a Tax imposed on the transfer of the "taxable estate " of a deceased person whether such property is transferred Excise tax, sometimes called an excise duty, is a type of Tax. A gift tax is a Tax imposed on the gratuitous transfer of ownership of property Corporate tax in the United States is imposed both by the federal government and by most state governments In the United States individuals and corporations pay Income tax on the net total of all their capital gains just as they do on other sorts of income Taxation in the United States is a complex system which may involve payment to at least four different levels of government and many methods of taxation State income tax is an Income tax in the United States that is levied by each individual state. State tax levels indicate both the tax burden and the services a state can afford to provide residents Sales taxes in the United States are a Tax added onto the price of goods or services that are purchased in the United States. A use tax is a type of Excise tax levied in the United States. Property tax, or millage tax, is an Ad valorem tax that an owner pays on the value of the property being taxed Tax reform is the process of changing the way Taxes are collected or managed by the Government. The Competitive Tax Plan is an approach to Taxation, suggested in the United States, that would impose a 10&ndash15% Value added tax (VAT and reduce personal The Efficient Taxation of Income is an approach to Taxation that would apply different Tax rates for property-type income and earned income from work The Real Property Use Tax (RPUT is a tax system with assessment based on the size level of development and time-in-use of real property and designed for general revenue acquisition The Taxpayer Choice Act (/ is a bill in the United States Congress which if enacted would amend the Internal Revenue Code to eliminate the The USA Tax Act ( short for "Unlimited Savings Allowance" was a bill in the United States Congress for changing tax laws to replace the Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. The FairTax is a proposed change to the federal tax laws of the United States that would replace all federal income taxes with a single national retail A flat tax (short for flat rate tax is a Tax system with a constant tax rate The A America Freedom to Fascism (also America From Freedom to Fascism or (per the title card America Freedom to Fascism Volume One The Law That Never Was The Fraud of the 16th Amendment and Personal Income Tax is a 1985 book by William J Cheek v United States, 498 US 192 ( 1991) was a case in which the United States Supreme Court held that a tax protester's belief Richard Michael Simkanin is a tax protester serving a prison sentence after having been convicted on twenty-nine counts of United States federal tax crimes Robert Barnwell Clarkson is a tax protester in South Carolina. Vivien Kellems, (born in Des Moines, Iowa, June 7 1896 died 1975 was a Connecticut industrialist who fought the U Wayne C Bentson is a businessman and tax protester from Payson Arizona. Wesley Trent Snipes (born July 31, 1962) is an American Actor, Film producer, and Martial artist. Personal income taxes See also Income tax in Australia Only the federal government imposes income taxes on individuals and this is the most significant source of Taxation in the British Virgin Islands is relatively simple by comparative standards photocopies of all of the tax laws of the British Virgin Islands would together amount to about 200 The level of Taxation in Canada is average among Organisation for Economic Co-operation and Development (OECD countries Taxes provide the most important revenue source for the Government of the People's Republic of China. See Government of Colombia for a wider perspective of Colombian government See Government of France for a wider perspective of French government Taxes in Germany —being a Federal Republic —are levied by the federation ( Bund) the States ( Länder) as well as the HK Inland Revenue Ordinance Cap112 is one of Hong Kong's Ordinances Taxes in India are levied by the Central Government and the State Governments This article ls with Taxation in Indonesia or pajak. Definitions "Pajak" in Indonesian for Tax and taxes whereas " Perpajakan The system of Taxation in Ireland is broadly similar to the system of Taxation in the United Kingdom. The Netherlands has a rich history dealing with taxation predating the Romanic period. Taxation in New Zealand is collected at a national level by the Inland Revenue Department (IRD on behalf of the Government of New Zealand. The Income tax in Peru is collected by the Superintendencia Nacional de Administración Tributaria, best known as SUNAT. The Russian Tax Code is the primary tax law for the Russian Federation. Individual income tax in Singapore forms part of two main sources of Income tax, the other being Corporate taxes on companies In Tanzania the Income Tax Act 2004 came into effect in July 2004 Taxation in the United Kingdom may involve payments to a minimum of two different levels of government The central government ( Her Majesty's Revenue and Customs) Taxation in the United States is a complex system which may involve payment to at least four different levels of government and many methods of taxation Value added tax ( VAT) or goods and services tax ( GST) is a consumption Tax levied on value added. Comparison of Tax Rates around the world is a difficult and somewhat subjective enterprise This table lists countries by total 2005 Tax revenues (federal state and local as a percentage of GDP (Gross Domestic Product The 1 The doctrine is used most often for deciding when cash method (as opposed to accrual method) taxpayers are to include certain non-cash income items. Another doctrine often used when trying to determine the timing of the inclusion of income is the constructive receipt doctrine. For federal Income tax purposes the doctrine of constructive receipt is used to determine when a cash-basis taxpayer has received Gross income. 2
Most individuals begin as cash method taxpayers because their first form of bookkeeping is a checkbook. 3 In contrast, some businesses start as accrual method taxpayers because businesses use different rules for recording income and expenditures. 4 The Internal Revenue Code (IRC) §446(a) states, however, that “[t]axable income shall be computed under the method of accounting on the basis which the taxpayer regularly computes his income in keeping his books. ”
One of the major advantages to the cash method of accounting is the ability to defer taxation because the recognition of income applicable to amounts in accounts receivable can be deferred to a later year. 5 The Doctrine of Cash Equivalence is important because many people are cash method taxpayers and would be subject to this rule.
Elements of the Cash Equivalence Doctrine
Cash method taxpayers include income items (cash and cash equivalents) in the year the items are received. 6 Certain payment transactions involve cash equivalents, such as receipts of checks and credit card payments. The cash equivalence doctrine arose out of a need to determine whether certain items that were either actually or constructively received must be accured as income. A dispute over timing of income recognition for tax purposes may arise when the thing received is really not much more than a promise of payment, such as a promissory note or a bond. If mere promises to pay were considered cash equivalents, then there would be little difference between the cash and accrual methods for tax purposes. 7
The United States Court of Appeals for the Fifth Circuit established the standard for applying the cash equivalence doctrine to promises of payment. The United States Court of Appeals for the Fifth Circuit is a federal court with Appellate jurisdiction over the district courts in the following 8 The court first noted that the principle that “[a] promissory note, negotiable in form, is not necessarily the equivalent of cash” remains true. 9 But that principle also has a true inverse—that a non-negotiable instrument can be a cash equivalent if the following factors are met. A negotiable instrument is a specialized type of " Contract " for the payment of money that is unconditional and capable of transfer by negotiation 10 A promise to pay will be considered a cash equivalent for cash method taxpayers if
(1) the promise to pay is unconditional;
(2) the promise is made by a solvent person;
(3) the promise is assignable;
(4) the promise is not subject to set-offs; and
(5) the promise is marketable 11
Since taxpayers generally prefer to defer recognition of income to subsequent tax years (due to the time value of money), a finding of cash equivalence will typically be to the disadvantage of the individual taxpayer. The time value of money is based on the premise that an Investor prefers to receive a payment of a fixed amount of money today rather than an equal amount in the future
The Mechanics of the Cash Equivalence Doctrine
In order to use the doctrine of cash equivalence, a taxpayer must either have (1) have actually received an item, or (2) constructively received an item. If either of these situations exist, a taxpayer must determine whether the item received is cash equivalence, using the six factors described in Cowden v. Commissioner. If the item is deemed cash equivalent, then the taxpayer has income. If it is not cash equivalent, the taxpayer does not have income.
References
1. Samuel A. Donaldson, Federal Income Taxation of Individuals: Cases, Problems and Materials, 364 (2nd Ed. 2007).
2. Id. at 353.
3. Id. at 351.
4. Id.
5. Id. at 352
6. Id. at 353. See also Treas. Reg. § 1. 446-1(c)(i).
7. Id. at 364.
8. See Cowden v. Commissioner, 289 F. Cowden v Commissioner, 289 F2d 20 (5th Cir 1961 outlined the factors used to determine whether something received is a cash equivalent in other words whether something received is 2d 20 (5th Cir. 1961).
9. Id. at 24.
10. Id.
11. Id.
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