1. 1 US Business Tax Innovation ２０１０．０６．０８ Rev.11 Jun Saito Conclusion Subsumption of inconsistencies; US has succeeded in subsumption of two kinds of tax policy for industrial development, inconsistent to each other in a sense. Check the Box: In addition, with check the box rule, business start-uppers are free to select the tax levy scheme, corporate taxation or partnership taxation.

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3. 33 Two types of Business Income Taxation Corporate （法人） Partnership （合夥） TaxabilityTaxable entityNon-taxable entity (The partners are taxable.) Double taxation?Yes, on corporate income & dividends No, single pass-through taxation on the partners’ incomes Company longevityGoing concernLimited longevity Income tax levyAnnuallyIn principle, once at final dissolution liquidation Recognition of taxable income Kind of pro forma basisNon-recognition rule (except dissolution liquidation) Book-tax difference?YesNo Freedom of accountingNo, it must use accrual accounting Yes, free to select its own accounting method Tax sheltering available?NoYes Japanese know very little about the partnership taxation.

4. 44 Compendium; Partnership taxation The premise; Limited longevity, which must accompany liquidation at final dissolution. As a result, annual tax levy is not necessary. Non-recognition rule; IRC 721, 731 Gain or loss is not recognized by either a partnership or its partners on a contribution of property to the partnership in exchange for a partnership interest. As a result for instance, service contribution is not recognized as taxable income. Freedom of accounting; IRC 703(b) A partnership generally is free to select its own accounting method, which may be different from that of its partners. As a result for instance, full expensing of investment, which is allowing investors to fully deduct the cost of an investment from taxable income, reduces the tax paid on the normal return to capital investment to zero, completely removing taxes from the investment decision. (Economic Report of the President 2007. Chapter 3 77page.)

5. 55 Co-existence of Two kinds of Taxation Principle Corporate Taxation ; Simple, Fair, Pro-growth to utilize state regulations. id est ; regulatory state aspect of US. Partnership Taxation; Simple, Flexible, Equity as between the partners to avoid excessive state regulations and facilitate spontaneous forming of intermediary groups. id est ; self-sustained ecosystem aspect of US.

6. 66 BUSINESS TAXATION and GLOBAL COMPETITIVENESS Paper of U.S. Treasury Conference, July 23 2007, page3 line6 The individual income tax is also important to the taxation of businesses. The noncorporate business sector is subject to the individual income tax on the business income distributed to owners of flow-through entities – partnerships, S corporations, and sole proprietorships, many of which are small and an important source of innovation and risk-taking to our economy.

7. 77 It took several years to computationally calculate the IBD, Integrated Business Data, because …the business receipts data include double counting, since intercompany sales and purchases are included. Source; IRS-SOI Paper 2005, “An Analysis of Business Organizational Structure and Activity from Tax Data” Tom Petska, Michael Parisi, Kelly Luttrell, Lucy Davitian, and Matt Scoffic, page14, line4

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9. 99 Tax-Book difference @ corporates Source: IRS-SOI Paper “Prelude to Schedule M-3: Schedule M-1 Corporate Book-Tax Difference Date, 1990-2003” Profit @ Book Taxable Income

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14. 14 Passive Activity Loss Rule, 1986-enacted The key issue with passive activity loss rules is material participation. If the taxpayer does not materially participate in the activity that is producing the passive losses, then those passive losses can only be declared against passive income. If there is no passive income, then no passive loss can be deducted. So, passive Investors should, in any way they can, find good investment targets which have good chance to gain passive incomes.

15. 15 In the same 1986, U.S. catholic bishops have recommended to arrange the institution for partnerships. 公正としての正義 Justice as fairness Equity としての正義 Justice as equity 応報的正義 Retributive Justice 修復的正義 Restorative Justice （ ”Economic Justice” includes both justices. ） 『万人に経済正義を Economic Justice for All 』 原著は 1986 年刊 和訳は 1988 年刊 Chapter IV A New American Experiment: Partnership for the Public Good 296 Completing the unfinished business of the American experiment will call for new forms of cooperation and partnership among those whose daily work is the source of the prosperity and justice of the nation. The United States prides itself on both its competitive sense of initiative and its spirit of teamwork. Today a greater spirit of partnership and teamwork is needed; competition alone will not do the job. It has too many negative consequences for family life, the economically vulnerable, and the environment. Only a renewed commitment by all to the common good can deal creatively with the realities of international interdependence and economic dislocations in the domestic economy. The virtues of good citizenship require a lively sense of participation in the commonwealth and of having obligations as well as rights within it. The nation's economic health depends on strengthening these virtues among all its people, and on the development of institutional arrangements supportive of these virtues. 297 The nation's founders took daring steps to create structures of participation, mutual accountability, and widely distributed power to ensure the political rights and freedoms of all. We believe that similar steps are needed today to expand economic participation, broaden the sharing of economic power, and make economic decisions more accountable to the common good. As noted above, the principle of subsidiarity states that the pursuit of economic justice must occur on all levels of society. It makes demands on communities as small as the family, as large as the global society and on all levels in between. There are a number of ways to enhance the cooperative participation of these many groups in the task of creating this future. Since there is no single innovation that will solve all problems, we recommend careful experimentation with several possibilities that hold considerable hope for increasing partnership and strengthening mutual responsibility for economic justice.

16. 16 In 1993, a professioanl for partnership theory has turned up as US president. Page 268

17. 17 第三の道； http://tonyblairfaithfoundation.org/

18. 18 In 1996, needless to say… Check the box rule And also, the discussion; “What is per se corporation” has started in 1996.

19. 19 Main events in the innovation history of US partnership taxation. year eventcontents 1935Economic substance doctrine “Tax sheltering” generally means a conduct to get a big deduction with utilizing partnership taxation. The Supreme Court, Gregory v. Helvering, has made a common law; tax sheltering which has “economic substance” is legalized. 1954IRC Subchapter K“Simplicity, Flexibility, and Equity as between the partners” is the principle. 1976At risk lawWhen accommodation, namely borrowed capital, becomes expense, the tax authority will recognize it as deductible if it is backed bond with recourse asset. 1977The first LLC Act in US. (Wyoming) Recourse-asset-backed companies, which obtain a kind of limited liability, can enjoy merits pertained to partnership taxation such as tax sheltering. 1986Passive Activity Loss rule In PAL rules, incomes are categorized into three types; portfolio Income, passive activity income, and active activity income. If there is no passive income, then no passive loss can be deducted. ditto“Economic Justice for all” published Catholic bishops have recommended careful experimentation with several possibilities that hold considerable hope for increasing partnership and strengthening mutual responsibility for economic justice. 1993Clinton administration Clinton, a partnership pro, has accelerated to arrange the institution. IRS-SOI stats put that the number of LLC increased to 0.8M from zero during his term. 1996Check the box rule For tax purpose, any business entity can be eligible for either partnership tax or corporate tax. Also, a discussion; “what is per se corporation” has started. 2010Obama administration codified economic substance doctrine Economic substance could be satisfied only if: the transaction changes in a meaningful way (apart from federal income tax consequences) the taxpayer’s economic position, and; the taxpayer has a substantial non-federal tax purpose for entering into such transaction. The aim is to facilitate people’s economic activity with using partnership scheme and provide the revenue for the Health Care and Education Affordability Reconciliation Act of 2010.

20. 20 In 2010, Obama has codified “Economic Substance Doctrine”. On March 30, 2010, President Obama signed into law the Health Care and Education Reconciliation Act of 2010 (the “Act”). In an effort to offset some of the anticipated costs of the President’s healthcare reform measures, the Act also contains amendments to the Internal Revenue Code (the “Code”). Included among these amendments is a provision that codifies the common law “economic substance doctrine.” Evaluating the potential impact of this new provision is critical because it has the potential to deny expected tax benefits and impose a strict liability penalty on transactions that fail to meet its requirements. The new provision is effective for transactions entered into on or after March 31, 2010. Economic Substance Doctrine Codified – Two-Prong Test The Act adds new Section 7701(o) to the Code, which provides that in the case of any transaction to which the economic substance doctrine is relevant, the transaction is treated as having economic substance only if (i) it changes in a meaningful way (apart from federal income tax effects) the taxpayer’s economic position, and (ii) the taxpayer has a substantial purpose (apart from federal income tax effects) for entering into the transaction. Sounds good!

21. 21 Conclusion US Business Tax Innovation Subsumption of inconsistencies; US has succeeded in subsumption of two kinds of tax policy for industrial development, inconsistent to each other in a sense. Check the Box: In addition, with check the box rule, business start-uppers are free to select the tax levy scheme, corporate taxation or partnership taxation.

22. 22 How stupid it is,in a marriage-banned country, training for married life! A discussion item Jun Saito

23. 23 Science in top place, Tax in last place; JAPAN (Source)

24. 24 Dream Works LLC, established in 1994. If it were in Japan, the tax authority would recognize $500M profit and levy 20% tax ($100M) on Spielberg et al. immediately. So, the Dream would not work!