Smeal College of Business Taxation and Management Decisions: ACCTG 550Pennsylvania State University Professor HuddartCourse OutlinePart 1. Fundamental Concepts1. Tuesday, October 26 Orientation and Tax System DesignSkim: Chapters 1 and 2Read : 1–8, 19–29Judicial Doctrines and Tax Law UncertaintyIllustration: Special interests and political porkRifle shot tax breaksThe Boeing FormationIllustration: Why are all tax systems complicated?Flat tax formsExcess Burden and Mr. Figg2. Thursday, October 28 Savings Vehicles and Personal Financial PlanningRead : Chapter 3Before- and After-tax ReturnsIllustration: TaxAlchemy: Short-term gains become long-term gainsWhere There’s a Tax Cut, Wall Street Finds a WayTax Plan Could Hurt Hedge PlayRoth IRAs: Old wine in new bottlesBush’s IRA Plan Means ‘New Math’ for SaversJam Today or Jam Tomorrow? Roth IRA Will Show ManyInvestors It Pays to WaitProblems: 3.1Upper Grapple Questions (see also article “Upper-BracketTaxpayers Must Grapple With Strategies on ShiftingSecurities”)cSteven Huddart, 1995–2004. All rights reserved. www.smeal.psu.edu/faculty/huddartACCTG 550 Course Outline3. Tuesday, November 2 Organizational Form, Leverage, and Production DecisionsSkim: Chapter 4John R. Graham, Lecture 4—Taxes and the marginalinvestorRead : 81–102Rates of Return and Organizational FormAssignment AIllustration: Tax-motivated design of hybrid securities‘Century Bonds’ Days may Be NumberedExercise: 4.1Problems: 4.4Net-of-tax returns on real and financial assets4. Thursday, November 4 Orientation to Tax Research at Pattee LibraryThis special session will be conducted by a Universitybusiness librarian. Please meet at the regular classtime in Paterno Library Room 302.5. Tuesday, November 9 Implicit TaxesSkim: Chapter 5Read : 134–139 and 142–145Implicit Taxes and ClientelesTaxable versus Tax-exempt BondsPlot of US municipal, corporate, and treasury bond yieldsover timeIllustration: Wiping out all taxesColleges Aided By End to Cap On BorrowingProblems:Portfolio Choice by the Rich and Poor5.2 and 5.3Case: A taxable corporation borrows at the muni rateLockheed Aeromod Center, Inc.Page 2Course Outline ACCTG 5506. Thursday, November 11 Dynamic Tax PlanningSkim: Chapter 7Read : 195–204Dynamic Tax Planning at Mutual FundsIllustration: Changing income timing and typeElite’s Earnings Are Exposed and Taxed...and It’s aScandal?Illustration: Effects of frequent tax law changesWhether or Not They Benefit, Companies Decry Instabil-ity in Tax Law as a Barrier to PlanningIllustration: Taxes and trading of financial assetsWhich Stock Funds Keep Tax Bills Low? The Ones ThatGet Heaps of New CashPayouts Pose Tax Trap for New Fund BuyersIllustration: Lock-in EffectLandmark Sale: The Kennedy Clan Decides to Cash In ItsLast Big BusinessTable 1 Illustration of highest in first outIllustration: Newboy problems—Daycare expensesExercise: 7.6Problem: 7.5Timing OptionsDue: Assignment A7. Tuesday, November 16 The Distinction Between Effective Tax Planning and TaxMinimization: Concepts and ApplicationsSkim: Chapter 6Read : 155–166Repackaging ownership rightsOil and Gas Tax SheltersNote 7.1 Alternative CompensationIllustration: Incentive contracting—Oil and gas exploration partner-shipsIllustration: Non-tax costs—Bankruptcy in CanadaRestructuring of O&Y Faces Stumbling BlockPage 3ACCTG 550 Course OutlineCreditor Group of O&Y to Accept Reduced ControlExercise: 6.3Problem: Corporate auction problemAssignment B Step-down preferred stockAssignment B Exchange Funds—Treasury Seeks to Eliminate ‘Exchange’Funds (Tom Herman Wall Street Journal 2/8/00)8. Thursday, November 18 The Importance of Marginal Tax Rates and Difficulties inCalculating ThemComment: This is a difficult but important chapter. In class, we willwork through an example related to the chapter.Skim: Chapter 7Graham and Lemmon, Spring 1998. “Measuring corpo-rate tax rates and tax incentives: A new approach,”Journal of Applied Corporate Finance 11, 54-65.Read : 184–193Marginal Tax RatesIllustration: Hybrid financial instrumentsIt Looks Like a Stock but Deducts Like a BondAssignment B Low income housing creditsPage 4Course Outline ACCTG 550Part 2: Applications of the Framework to Specific Decision Contexts9. Tuesday, November 23 Multinational Tax PlanningRead : Chapter 10International TaxationTax systems in developing and transition economiesIllustration: Repatriation of foreign earnings to the US and the FTCIllustration: Special economic development zones: Puerto RicoDrug Firms Get Tax Break Exceeding $70,000 for EachWorker in Puerto Rico Business Case P-5Illustration: Extraterritorial Compliance and EnforcementMerrill’s Role In Tax Deals Is DescribedFinancial Fracas: German Tax Collectors Rile Country’sBanks With Aggressive RaidProblems: Anita Corporation10.7SW14.1, SW14.3Assignment B Daimler/Chrysler multinational tax issuesAssignment B Unintended use of tax provisions: Colgate-Palmolive’sOffshore FinancingAssignment B Bermudian inversion transactions10. Tuesday, November 30 The Dividend Puzzle and Imputation SystemsRead : Systems of TaxationDividend PolicySkim: Lang and Shackelford: Capitalization of capital gainstaxes: evidence from stock price reactions to the 1997rate reduction Journal of Public Economics 76 (2000)69–85La Porta et al. Agency problems and dividend policiesaround the world (abstracts from 11/97 working pa-per)Case:Wesfarmers Limited: The Dividend Decision HBS case 9-293-098 10/15/93Page 5ACCTG 550 Course OutlineAssignment B Australian Dividend Stripping—Australia’s introductionof a dividend tax credit induces changes in capitalstructure11. Thursday, December 2 Compensation PlanningSkim: Chapters 8 and 9Read : 212–220Compensation PlanningPensions and ESOPsIllustration: Structuring tax-efficient compensationTax Breaks for Executives Who Earn Now, Pay LaterPutting Aside $1 Billion While Making a Company ThriveColumbia Tax Fight Could Set Pay PrecedentIllustration: Importance of non-tax factors—§162(m) $1 million salarycapFirms Forfeit Tax Break to Pay Top Brass $1 Million-PlusIllustration: Deferred compensationPromises, promisesDeferred Compensation at a Business SchoolIllustration: Planning before a tax rate change—University facultysalaries and TRA ’86Illustration: Tax incentives to exercise optionsDisney Officials Get $187 Million From Stock SaleIllustration: Tax and accounting treatments of stock options in Canada,UK, US, and