With the Tax Reform Act of 1986, corporate tax rates fell from 46% in 1986 to 40% in 1987 and to 34% for income earned subsequent to 1987. Because the tax code allowed a 3 year carry back for net operating losses during this period, would it be tax advantageous for those firms that were profitable during 1984– 1986 to generate net operating losses during 1987– 1989 by:
(1) Selling certain assets at a loss
(2) Postponing the recognition of income
(3) Accelerating certain tax deductible expenditures?
If the after tax discount rate is 7%, how tax advantageous is this strategy? What specific actions might a firm have undertaken to generate net operating losses in 1987– 1989?

  • CreatedAugust 06, 2015
  • Files Included
Post your question