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THE TAXMAN'S DAY IN COURT
With Congress and the Bush Administration locked in election-year paralysis, a new tax bill isn't likely. Still, Washington may make some important tax decisions yet--thanks to the nine policymakers sitting on the U.S. Supreme Court.
Tax brouhahas dominate the business-related cases in the new term set to begin on Oct. 5. The justices are scheduled to settle questions on everything from deductions for home-office expenses to whether Supreme Court tax rulings apply retroactively (table). On nontax matters, the court has been asked to determine how far First Amendment protections extend for commercial--as opposed to political--speech and to rule on an age-discrimination suit.
The term opens with arguments in a case eagerly awaited by editors, independent contractors, and others who use home offices but also work elsewhere. McLean (Va.) anesthesiologist Nader E. Soliman claimed about $4,000 in deductions in 1983 for expenses to maintain a home office where he scheduled hospital appointments, prepared treatments, and kept patient records. But the Internal Revenue Service says that under the law, a taxpayer may deduct expenses incurred only at the "principal place of business"--which it contends is the hospital where Soliman spends 80% of his working hours.
INTANGIBLES. While individual taxpayers are rooting for Soliman, brokerages, banks, and insurance concerns are backing the Newark Morning Ledger Co. in another tax dispute. The newspaper publisher tried to take deductions for the $68 million it shelled out for subscriber lists in 1987 when it merged with another publisher. The IRS contended that the lists were not intangible assets with short-lived values, but hard-to-value goodwill, which can't be amortized. For years, the IRS had allowed companies to argue on a case-by-case basis whether such intangible assets as brokerage accounts could be depreciated. But with $10.5 billion of such write-offs in dispute by 1989, it outlawed the deductions. The Supreme Court might not have the last word on this, since proposals allowing all goodwill to be written off over 14 or 16 years are pending in Congress. Meanwhile, buyers and sellers of these assets don't know what the market price should be.
Federal retiree Henry Harper is relying solely on the wisdom of the court in his beef with the State of Virginia. He believes the state should heed earlier Supreme Court rulings on taxation of pension income.
So far, the justices have agreed to hear only 66 cases. As they take on more, multinational companies are hoping one will be a tax case now making international waves. It involves Barclays Bank PLC's challenge to California's unitary tax. The British bank complains that California's formula for taxing foreign companies' California-based units improperly includes global income.
Barclays also contends that California's tax interferes with foreign commerce--an area that the Constitution reserves for the federal government. Britain, Japan, and Germany agree, and U.S. multinationals fear retaliation if the levy is upheld. "It's a powder keg," says Mark Evans, a lawyer representing the National Association of Manufacturers and the U.S. Chamber of Commerce.
Outside the tax area, the court will take up an important free-speech case. Discovery Network, which offers educational programs, and Harmon Publishing Co., which publishes real estate listings, have challenged Cincinnati's ban on distributing advertising circulars at sidewalk news racks. The lower courts nixed the ban, saying the First Amendment protects such commercial speech. If the high court disagrees, "it will open the floodgates to individual states issuing arbitrary decisions on what ads they like and don't like," warns David A. Bell, chairman of Bozell Worldwide Inc., a New York ad agency.
City officials argue that advertisers have no right to sidewalks. "We're talking about municipal regulation of public space, not a prohibition on speech," says Richard Ruda, chief counsel of the State & Local Legal Center.
In another case, the court has been asked to rule on what constitutes "willful" age discrimination. Lower courts agreed that Walter F. Biggins was fired at age 62, just months before his pension vesting, because of his age. But Hazen Paper Co. says it was because he wouldn't agree to keep his inventions from rivals.
These cases might not have the splash of last year's tobacco liability and property-rights arguments. But they give the justices the chance to address critical pocketbook issues--and perhaps even mitigate the capital's reputation as Gridlock Central.THE COURT'S BUSINESS DOCKET
INTERNAL REVENUE SERVICE VS. NADER E. SOLIMAN Can a taxpayer get a home-office
deduction if the office isn't a principal place of business but is
"essential" to work?
NEWARK MORNING LEDGER CO. VS. U.S. Can buyers of intangible assets, such as
subscriber lists, write off their value? The case affects companies ranging
from newspapers to brokerages
HENRY HARPER VS. VIRGINIA TAXATION DEPT. Are judicial tax decisions retroactive?
CINCINNATI VS. DISCOVERY NETWORK Can cities bar sidewalk news racks offering
advertising circulars without violating the First Amendment?
HAZEN PAPER CO. VS. WALTER F. BIGGINS What constitutes "willful" age
discrimination? Under the Age Discrimination Employment Act of 1967, willful
violations carry double damages
Catherine Yang in Washington