General Motors Corporation, in its 1997 Proxy Statement to shareholders, stated the following: “To the extent it is practicable and consistent with the Corporation’s executive compensation philosophy, the Committee intends to comply with Section 162 (m) of the Internal Revenue Code (and any regulations promulgated there under) in order to preserve the deductibility of performance-based compensation in excess of $1 million per taxable year to each of the Named Executive Officers. . . . If compliance with the Section 162(m) rules conflicts with the compensation philosophy or is deemed not to be in the best interests of shareholders, the Committee will abide by the compensation philosophy, regardless of the tax impact of such actions.” Why might noncompliance with Section 162(m) be in the best interests of shareholders (because by receiving a tax deduction for compensation, the firm saves taxes, which increases cash flows)?
Answer to relevant QuestionsFollowing are extracts from Cisco Systems 2000 and 2002 Annual Reports. In your own words, describe the effects of ESOs on Cisco’s taxes from 2000 to 2002. When is it efficient for the employer to reimburse the employee for business meals and entertainment expenditures? How does the 2% limitation on miscellaneous itemized deductions affect the decision? What nontax factors ...Under current law, employer-paid health insurance premiums are deductible by the employer and not taxable to the employee. Suppose instead only the first $1,000 of such premiums were nontaxable. If an employee was in the 15% ...Suppose Congress is expected to increase the corporate tax rate from 35% to 45% next year. RealNet. Com is scheduled to pay its CEO a salary of $1 million in the current period. The CEO’s tax rate is 40%. The CEO is also ...What are the nontax costs associated with providing pension benefits for employees?
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