Opinion ID: 2587324
Heading Depth: 1
Heading Rank: 2

Heading: appellant's tax returns

Text: An obvious objective of tax planning, given the City's tax scheme, would be for a taxpayer to minimize the tax on its investment income by investing in (a) a small amount of corporate obligations issued by corporations with low BAP's and (b) a large amount of Federal obligations. The low IAP attributable to corporate obligations having a low BAP would thus apply to a taxpayer's entire investment portfolio, lowering its taxable investment income. Appellant's investment portfolio for tax year 1978 indeed reflects this planning: Issuer IAP Value Sheraton 4.8438% $ 33,383 Alabama Power 0% 34,547 United States Not Applicable 6,931,345 Bank Accounts Not Applicable 579,808 ______________ _________ 2.38039% 7,579,083 Appellant claimed in its 1978 return that its total income from these investments was $342,669, and that its allocated investment income was $8,157 ($342,669 × 2.38039%). The City audited appellant's tax returns for each tax year in issue on this appeal (1977, 1978 and 1979), and adjusted appellant's IAP by excluding its investment in Sheraton corporate obligations pursuant to Administrative Code § R46-4.0 (8), which provides in relevant part: If it shall appear to the director of finance that any business or investment allocation percentage determined as hereinabove provided does not properly reflect the activity, business, income or capital of a taxpayer within the city, the director of finance shall be authorized in his discretion    in the case of an investment allocation percentage to adjust it by excluding one or more assets in computing such percentage provided the income therefrom is also excluded in determining entire net income. As a result of the exclusion, appellant's income attributable to its Sheraton investment was not taxed at all. But because the exclusion reduced appellant's IAP to zero, the remaining investment income derived from Federal obligations and bank accounts was allocated based upon appellant's BAP of 60% rather than its IAP of 2.38%, in accordance with Administrative Code § R46-4.0 (3) (b) (3). The net result of these recalculations was that appellant was assessed additional taxes in excess of $68,000, plus interest, which thereafter became the subject of this appeal.