Contents

THE UNITED STATES TAX SYSTEM: AN OVERVIEWattached to it (fixtures), are permanently affixed in place. Land, and thingsattached to it, is not movable.Another major characteristic of real property is that it has a real, tangible,physical manifestation. It can be seen and touched.(b) Personal PropertyPersonal property can be defined by exclusion. It is all property that is not realproperty. Personal property includes a realm of items. Personal property is itselfdivided into two major categories: tangible and intangible personal property.(c) Tangible Personal PropertyTangible personal property is physical property that is capable of being seen andtouched. It has substance. Unlike real property, which is immovable land, personalproperty is movable.Some examples of tangible personal property are automobiles, furniture,jewelry, and animals.(d) Intangible Personal PropertyIntangible personal property is personal property that is incapable of being seen ortouched; it is not perceptible by human senses. It is neither physical land norother physical property. Intangible personal property is usually evidenced by aform of documentation.Intangible personal property can take many forms. The most common typeof intangible personal property is a security, such as a stock or bond, which isevidenced by a stock certificate or bond instrument. It can be a right under acontract. By virtue of the law governing relationships between parties to a contract,one party may have the right to some performance by another party. Thatright is not manifested in any physical form. The right arises, nonetheless, andexists in law. It has value to the party seeking performance, and the right to performance(or the economic value of the performance) can be enforced through alegal action. The right to performance in a contract, therefore, is intangible personalproperty.Goodwill in a business is another example of intangible personal property.The reputation and customer loyalty that people associate with the name of abusiness is a valuable, and protectable, business asset. Customer goodwill is not,however, manifested in anything physical. It is the imperceptible and intangiblegood feelings and loyalties people have and associate with a business concern.§2.13 INVENTORYInventory, for income tax purposes, is generally considered to be the stock in tradeof a person, usually a business entity. It is the sum total of items, raw materials, orfinished goods held by the person for production of income in the trade or business.Inventory is most often held by a corporation rather than an individual.Inventory represents a part of the cost of the goods sold in a business and,therefore, is a component of expense to be deducted from gross income to more 38