Options As Disguised Financings: The Demise of an Urban Tax Legend.
Virginia Tax Review 2008, Spring, 27, 4
Virginia Tax Review
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It appears to be an article of faith among leading tax practitioners and academics that the tax accounting rules governing options are obsolete. The rules are viewed as a relic of a bygone era in tax law, hearkening back to the days when concepts of present value accounting were little understood. Much of the tax law has evolved since those days, by adopting rules requiring, inter alia, issuers of debt instruments and their holders to report interest expense and income on an economic accrual basis. The historical tax rules governing options, however, remain strangely ensconced, in seeming defiance of the modern-day trend. Alas, by what logic do these rules maintain their foothold in the modern-day tax realm? This article reconsiders the mechanics and underlying economics of options transactions with due regard for developments in modern finance theory. This article argues that, notwithstanding the consensus view that there is an implicit financing component to option premiums, the existing rules for options exhibit a remarkably firm grasp of fundamental principles of taxation--including time value of money concepts. Ultimately, this article concludes that current law, insofar as it does not require economic accrual of interest on option premiums, accurately reflects the underlying economics of options and should be retained not merely because the rules are longstanding and deeply entrenched, but because they are fundamentally right.
- 2,99 €
- Category: Industries & Professions
- Published: 22 March 2008
- Publisher: Virginia Tax Review
- Print Length: 80 Pages
- Language: English