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Why would a taxpayer be willing to pay a lawyer to provide a written opinion to a third party of the tax treatment to be accorded a particular set.
What is the meaning of the term adaptability of tax plans? Give some examples to illustrate the concept.
Calculate the firm’s marginal explicit tax rate using the Manzon (1994) market-value approach. Discuss and explain your result.
What does it mean if a tax plan is reversible? Give some examples to illustrate this concept.
Why might the firm prefer to repackage its capital structure (the mix of financial instruments it issues to finance operations).
How difficult is it in reality to compute the corporation’s marginal tax rate? Why? What are the factors that are really important?
What nontax costs exist to limit your ability to take advantage of this arbitrage possibility? Are there any ways to reduce these nontax costs?
You have been retained by a large Internet-based firm to advise the compensation committee on how best to compensate the chief executive officer (CEO).
The CFO of ABC Corporation wants to defer as much income as possible and asks you to prepare a detailed list of actions to shift income.
How is the marginal tax rate affected by the presence of rules that reduce current tax deductions by a fraction of incremental income?
How does strategy-dependence affect the computation of the marginal tax rate? How does it affect decision-making strategies?
Explain and discuss your results. Why is the first firm’s marginal tax rate not 0%? Why is the second firm’s marginal tax rate not 40%?
What is the firm’s marginal explicit tax rate if the top statutory tax rate is expected to increase to 40% within the next 2 years?
The firm has net operating loss carry-forwards (NOLs) known to be worth $50 million more to the buyers than to the seller.
One suggestion the tax planner made is to form a joint venture with another biotech company.
Might the tax benefits of such restructurings be sacrificed by corporations because of these problems?
What role do hidden-action problems play in limited partnerships and other joint ventures? How might the cost of these problems be reduced?
Calculate the expected tax payable for the following four projects. Note that for each project the expected taxable income is $50,000.
How might bond covenants influence a firm’s tax-planning activity? Provide an example for firms that use LIFO for inventory costing.
Managers are often concerned about the impact on reported profits of any actions recommended by the tax-planning department. Explain why.
If managers are compensated, in part, on the basis of a bonus based on accounting earnings, they are likely to object to any tax plans.
What are the tax benefits of deferring income recognition in advance of a decline in statutory tax rates? What, if any, are the nontax costs?
How might tax savings be sacrificed to achieve organizational design efficiencies or to mitigate political costs?
Suppose the tax rate is 0% for taxable income less than $0 (again no tax refunds for losses and no NOL carryback or carry-forwards).
Assume the firm’s after-tax cost of capital is 6% per annum. What is the benefit of deferring $1 of income for 1 year, for 2 years, and for 5 years.