Simultaneous Equations : The Statute Strikes Back

The tax code limits some deductions to a fixed percentage of the taxpayer’s taxable income, such as for business interest deductions, net operating losses (NOL), foreign derived intangible income (FDII), global intangible low-taxed income (GILTI), charitable contributions, and so on. When multiple income-based limitations apply to a taxpayer at the same time, without specified ordering rules, the IRS has historically solved simultaneous equations to give proper effect to all the limitations.Some commentators have stated that the simultaneous application of multiple income-based tax limitations would result in a “circular” or “infinite” number of steps, with presumably no definite solution. A comparable comment was made around the fifth century B.C. by Zeno of Elea, who claimed that “that which is in locomotion must arrive at the half-way stage before it arrives at the goal,” such that it was impossible to complete the infinite number of steps of crossing increasingly smaller distances. Similar to how Diogenes supposedly disproved Zeno’s paradox by getting up and walking across the room, some practical simultaneous equation solutions are provided in the article.The article is a sequel to "Simultaneous Equations for Simpler Tax Analysis" published a year earlier in Tax Notes