User:Adamyala/finaldraft

A fixed liability is a type of debt. Bonds, mortgages and loans that are payable over a term exceeding one year would be fixed liabilities. Multiple business cycles can occur within one year, so fixed liabilities are measured by calendar year instead of by business cycle for ease of classification. Establishing the legitimacy of a fixed liability is relevant to determining the solvency and leverage ratios of a firm.

Controversy

A majority of the controversy regarding fixed liabilities relates to the classification of the liability on financial statements and then how that classification will affect the tax obligations of an entity.

Financial statements

The criteria for establishing the difference between a current asset versus a fixed asset and a current liability versus a fixed liability are, with respect to importance, realization and liquidation within one year of purchase. The debate over fixed liabilities is in regards to the realization of them over fixed assets. The maturities of fixed assets and fixed liabilities range through the year and no standard is set for how the range of asset maturities average out against liability maturities. The time ranges were the same and the maturities were equal, no debate would occur.^[1]

Tax Accounting

Under current tax law, a fixed liability in an asset acquisition is treated as a cost of buying the property and is not mentioned in the buyer’s tax cost basis. When part of a business is sold and the buyer records a fixed liability on their books, the seller records income equal to the liability assumed. At realization, each party has an option to record the liability or asset as fixed, or contingent. Present law does not address the specifics of how liability or asset status is determined when the amount is uncertain. An alternative option of classification is by acquisition.^[2] Other issues related to whether or not tax deductions for worker’s compensation should be allowed when not based on a fixed liability. Most recent ruling establishes the deduction criteria by the firm’s payroll status. ^[3]

Legal History

Tax discrepancies are the center of discussion of a majority of court cases.

United States vs. Hughes Properties, Inc.

US vs. Hughes concerns the deductibility of fixed liabilities for federal income tax purposes by a casino operator using the accrual method of accounting. Deducted amounts applied to the future jackpots won by gamblers from what are categorized as "progressive" slot machines.^[4]

United States vs. Anderson vs. Yale & Towne Manufacturing Co.

The non-civil parties in both cases brought forth the action in the Court of Claims to recover payments of corporate income taxes alleged to have been illegally recorded. Since the suit was about recovering a tax incorrectly recorded, burden of proof was on the non-civil parties. But the evidence presented failed to show that the books were kept properly.^[5]

Ettor vs. City of Tacoma. Howard vs. Same.

The focus of the case was whether or not to deprive the plaintiffs of any remedy for the fixed liability of the city of Tacoma to make compensation for original street grading done by a railroad company under authority of the city. The right of the plaintiff was decided when their property was damaged for public purposes, so far the right for compensation has not been defeated by current appeals.^[6]

United States vs. General Dynamics Corp.

The issue in this case is whether an accrual-basis taxpayer providing medical benefits to its employees may deduct at the end of the taxable year an estimate of its medical care obtained. This estimate includes the employees or their families during the final quarter of the year.^[7]

Other Uses

A fixed liability is also used as a benchmark for betting on horse races. Referred to most commonly as "horse lay betting", or "laying" for short, a fixed liability is the amount an individual sets for the purpose of money management. The amount to which the fixed liability determines is a personal preference among gamblers and can be calculated multiple ways. The most common is by summing the bet prices of the 1st, 2nd, and 3rd last betting horses. ^[8]

References

^ "A SUGGESTION FOR THE MEASUREMENT OF SOLVENCY". Accounting Review. October 1942. p. 348. {{cite news}}: |first= missing |last= (help); Missing pipe in: |first= (help)
^ Youngwood, Alfred D. (Spring 1991). "The Tax Treatment of Contingent Liabilities in Taxable Asset Acquisitions". The Tax Lawyer. Washington D.C. p. 765.
^ Lenrow, Gerald I. (March 1983). "Kaiser Steel: Rounding Out a Self-Insurance Tax Trilogy". The Times. London. p. 88.
^ United States vs. Hughes Properties, Inc., 476 U.S. (Supreme Court of United States. 1986).
^ UNITED STATES v. ANDERSON ET AL. UNITED STATES v. YALE & TOWNE MANUFACTURING COMPANY., 269 U.S. (Supreme Court of United States. 1925).
^ ETTOR v. CITY OF TACOMA. HOWARD v. SAME., 228 U.S. (Supreme Court of United States. 1913).
^ UNITED STATES v. GENERAL DYNAMICS CORP. ET AL., 481 U.S. (Supreme Court of United States. 1987).
^ "Horse lay betting on Betfair" (website). Retrieved December 12 2011. {{cite web}}: Check date values in: |accessdate= (help); Cite has empty unknown parameter: |coauthors= (help)