The ABC Corporation is a large multinational company that has facilities (both manufacturing and distribution) located in many U.S. states and in overseas countries. The firm’s long serving chief financial officer (CFO) just retired and his replacement is reviewing the firm’s economic balance sheet. She discovers that the firm leases many of its distribution facilities and relies heavily on long term debt for financing. She vaguely recalls having heard about implicit taxes and tax clienteles and would like these concepts explained and then applied to her observations to determine if the firm is bearing implicit taxes and whether the firm is in the right clientele.
Answer to relevant QuestionsProvide an example of a tax rule designed to motivate a socially desirable activity that also motivates transactions that reduce a taxpayer’s tax liabilities but serve no social purpose. Why might Congress and the Treasury avoid drafting tax rules that are very specific? What costs would such rules impose on the Internal Revenue Service? What benefits might they bestow on certain taxpayers? Suppose a taxpayer invests $ 100,000 in a partnership. The taxpayer faces a personal tax rate of 70% and a tax rate on capital gains of 28%. In the first year, the partnership spends the entire $ 100,000 on research, which ...A taxpayer is forming a new corporation and has $ 500,000 to invest in her company. Following the advice of her tax consultant, the taxpayer designated $ 300,000 for the purchase of corporate stock and $ 200,000 as a loan to ...Why do a pension account and the savings portion of a life insurance product provide the same after tax rates of return if tax rates are constant over time? In comparing these two savings vehicles, is it appropriate to have ...
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