Tax Paper

Submitted By mitchparksdidthis
Words: 1320
Pages: 6
Open Document
TO: TorT CFO
FROM: Penelope Diane Flugher
DATE: November 16, 2013
SUBJECT: Tax Issues We have taken a look at the questions you had and we have done some research and have come up with the following answers:
1. $800 million Deferred Tax Liability (DTL)
DTL: Account due to temporary differences between accounting and tax carry-values and reflects future tax obligations. Depreciation is often accelerated for tax reasons and lowers income amounts and tax payments. Eventually, this will reverse and companies will pay. DTLs can act like equity when growth is continual and the depreciation method never reverses (especially the case for asset intensive companies (Kroger) or for stock purchases with large future capital gains (Berkshire Hathaway)). http://www.fool.com/investing/general/2007/01/12/understanding-deferred-tax-liabilities.aspx
a. Will we be able to pay them?
Paying the $800 million DTL should not be a concern as long as we keep growing and investing in PPE, R&D and M&A
If we keep investing and using the accelerated depreciation method, depreciation will keep accelerating and will not reverse anytime soon
Companies only pay DTL when the acceleration schedule reverses
DTL account is not a cash account, and is only a matter of accounting differences between “book” and “tax”
Therefore, it’s not immediately payable
b. Why is it getting bigger? How does it stop?
The DTL is increasing because we are continuing to grow (10% per year) and investing to support our growth (PPE, R&D, M&A etc.)
When we stop growing and investing/buying new depreciable equipment the accelerated depreciation schedule will begin to decrease and become payable
Therefore, our DTL will stop growing and will not overwhelm us
2. Stable ETR
ETR: Tax specifically collected by the government; (p. 139 Explicit Tax= Pretax return on benchmark (bond) – Pretax return on Tax-exempt bond; Explicit Tax Rate= Explicit Tax/Benchmark (bond))
Yes, the ETR should have increased because of the audit’s $125 million tax deficiency but it was offset by the $125 million Deferred Tax Asset (DTA) account
Therefore, the ETR is unaffected by the audit amount since the net result is zero
3. ETR @ 41.5% vs. FIT @ 35% and SIT @ 10%
The ETR is at 41.5% because of the differences between book and tax accounting regarding the fast write-offs of equipment (DTL account) and FIT/SIT rules vary by jurisdiction
Taxable income varies based on timing of income, tax deductions and what is deemed taxable
The tax rates are progressive and in this case, the company has a larger book income compared to taxable income
Differences in the timing of income or deduction, tax exemptions and disallowance/limitations on certain tax deductions must be disclosed on the Schedule M-3, Form 1120
Since the income need to be taxed at federal and state level, the ETR(MTR) is 35% + 10%*(1-35%) = 41.5%. Therefore, the ETR is 41.5% even though FIT is 35% and SIT is 10%.
4. $1162 cash taxes paid vs. $1245 tax expense
Represents the difference between book and tax accounting and the deferred taxes
Company has more taxes due at a future date while the book income looks better now
There is $83 difference between cash taxes paid and tax expense. The $83 is $200 difference in the BOY and EOY deferred tax liability (800-600) subject to 41.5 % ETR.
5. Impending Tax Issues Regarding 11/18 Meeting
Background Information:
Are manufacturer deductions available?
Section 199 Domestic Production Activities Deduction
Research and experimentation credit for technological improvements
How is seasonality affecting decisions in November since the highest profits are from late October? Could this be misleading? Are projections extrapolated too much?
Should so much growth be considered immediately after the most profitable season? Is this indicative of the yearly outlook?
What is the accounting year end? Earnings management considerations…could the future be manipulated to meet predetermined
Show More

Related Documents: Tax Paper

Tax Paper

ABSTRACT Tax incentives are provided by governments across the globe to businesses across all sectors and industries in order to assist them in conducting scientific research and experimental development (SR&ED). These incentives lower a company's fundamental expenditure by altering the post-tax costs of R&D investments. This dissertation aims at examining and contrasting the advantages and disadvantages of SR&ED tax incentives, and then making a recommendation as to whether the Canadian government's…

Words 688 - Pages 3

Tax Position Paper

Tax Position Paper Week 1 Neal Hennessy Tax Position Paper When filing taxes a business takes a position which defines their tax liability. Sometimes, a business may not be certain that they are taking the correct position. In these cases it is important to examine why the position is being taken and what laws, regulations, and so forth support the position being taken. This examination includes a review of the sources of tax laws relevant to the position, substantial authority, and how the…

Words 785 - Pages 4

Fast Food Tax Research Paper

A tax on sugary foods and drinks could decrease obesity rates. America is fat and we are going g to keep getting fatter if something doesn't get done to make food healthier or make the food thats not healthy for you more expensive. Thats why a tax needs to be put on high calorie foods. Americans are influenced by the government everyday especially in the foods that are sold to them. The government controls many things like food prices. They control what gets taxed and what doesn't get taxed. The…

Words 564 - Pages 3

Fifteen year amortization Tax Research Paper

trade or business or substantial portion thereof is recognized as an intangible asset. “The Tax Court accordingly determined that Section 197’s fifteen year amortization rule applied to covenant-not-to-compete which auto dealership entered in connection with its post 8-10-93 stock redemption agreement” Frontier Chevrolet Co v. Com., (2003, CA9) 91 AFTR 2d 2003-2338 (329 F.3d 1131). According to the Tax Court the term acquisition is defined as “gaining possession or control over something”. The Court…

Words 552 - Pages 3

Why Was The Stamp Act Wa Horrible For The Colonists

The stamp act wa horrible for the colonist for the colonist because the colonist didn't have a say in the stamp act,the tax was used to pay off the money they used in the French and Indian War.The colonist tried to get rid of the tax collectors but this would result in the colonist destroying their town,and the colonist didn't buy and thing for the colonist so this made the colonist make their own clothing or have them wear the clothing for months.The British bought things from colonist,then the…

Words 558 - Pages 3

Application For Student Finance

NOTES TO HELP YOU COMPLETE YOUR APPLICATION FOR STUDENT FINANCE 2014/15 YOU CAN ALSO APPLY ONLINE AT WWW.GOV.UK/STUDENTFINANCE SFE/PN1N/1415/A This notes booklet will help you answer the questions on the application form. It will also advise you of the evidence you will need to supply to allow us to fully assess your entitlement to student finance. Any original identity evidence you send with your application form will be returned to you as soon as possible. Who should complete…

Words 9451 - Pages 38

Ethical: Academic Journal and Term Paper

You must submit your paper to blackboard via safe assign and to live text. The term paper is a requirement for this course. Write a 5 – 7 page (body of the paper) APA term paper from the list of ethics topics below. Ethics Topics (Please select one) 1. Politicians often say that President Bush’s tax cuts were for the rich. In 2005, the top 10% of the tax payers paid 70% of the total income tax paid. The top 1% of the taxpayers paid almost 40% of all income tax, a proportion that has…

Words 627 - Pages 3

1099 Msc Case Study

be sent to the federal tax agency. The Pennsylvania Act 85 of 2012 now requires that companies send a copy of the 1099-MISC to the Pennsylvania Department of Revenue as well. The Reason for the Change The IRS wants copies of the 1099-MISC so it can compare the information provided by companies to the reported income provided by individuals on their income tax returns. The Pennsylvania Department of Revenue also wants records of payments for comparison with the income tax returns of its residents…

Words 469 - Pages 2

Acct 483 Paper 1

RESEARCH PAPER ACCOUNTING 483 - FEDERAL TAX Section 01 1st Research Paper Spring 2014 Due Friday, March 14, 2014 Speedy Karr is the used car sales manager of Fast Talking Ed's Car Sales, a local new and used car dealership in Moscow, Idaho. Speedy Karr’s income is about $90,000 a year from his salary and bonus (his bonus is a percentage of the net income of the dealership). In addition to his income from Fast Talking Ed's, Speedy also has income from rentals of about $35,000 a year. Speedy's wife…

Words 1320 - Pages 6

Stamp Act 1765

period during the American Revolution where the members of the congress gathered together. This document was a petition to declare their rights against tax on paper. This group combined their thoughts and complaints on a list by writing it to send it to the King. The intent of the Congress members were to show King George III that they had enough of the tax imposed upon their letters. The Stamp Act Congress was held in New York in October 1765. Twenty-seven representatives from nine settlements were…

Words 584 - Pages 3