Encyclopaedia Britannica v' Commr

1
Encyclopaedia Britannica v. Commr BOOK
PRODUCTION AND SALE HYPO ASSUMPTIONS
Selling Life of Book 10 years Gross
Receipts from Book Sales 1,000,000
Total Expense 100,000 paid in lump-sum in year
one
Total Taxable Profit Over 10 Years
900,000
2
Immediate Deduction Year
1 2 3
4 5 6
7 8 9 10
gross receipts 100K 100K 100K
100K 100K 100K 100K
100K 100K 100K expense 100K
- - -
- - -
- - - taxable
profit 0 100K 100K
100K 100K 100K 100K
100K 100K 100K Year 1 taxable
income
0 Years 2-10 taxable income (100K per year x 9)
900K Total taxable
income 900K

3

• Pro-Rata
  Amortization
• Year 1 2
  3 4 5 6
  7 8 9
  10
• gross
• receipts 100K 100K 100K
  100K 100K 100K 100K 100K
  100K 100K
• expense 10K 10K 10K
  10K 10K 10K 10K
  10K 10K 10K
• taxable
• profit 90K 90K 90K
  90K 90K 90K 90K
  90K 90K 90K
• Year 1-10 taxable income (90K x 10) 900,000

4

• Compare Immediate Expensing to
  Amortization
• Immediate Expensing
  Pro-Rata Amortization
• yr 1 yrs 2 10 yr
  1 yrs 2 - 10
• gross
• receipts 100,000 900,000
  100,000 900,000
• expenses 100,000 ___ -____
  10,000 90,000
• taxable
• profits 0
  900,000 90,000 810,000

aggregate taxable profit over 10 years
900,000
aggregate taxable profit over 10 years
900,000