What is your incentive to shift income over time

Assignment Help Taxation

Reference no: EM133412622

Briggs and Stratton case

This case deals with tax planning around the time of a cut in the corporate tax rate. The background and questions for this case are in the video "Briggs and Stratton case", which is one of the videos for this week. A summary of the questions posed in the case is below. Come to the live session prepared to discuss your thoughts.

For part 1, you are the CFO in spring of 1987 and you know that lower corporate tax rates will be effective on July 1.

1. What is your incentive to shift income over time?

2. What are the benefits for your company from shifting income?

3. How would you shift income?

4. What are the costs of income-shifting methods?

For part 2, you are the CFO in spring of 1989. Your company has an NOL in 1989 that can be carried back three years, but you expect your company will return to profitability in 1990.

1. What is your incentive to shift income over time?

2. What are the benefits for your company from shifting income?

3. How would you shift income?

4. What are the costs of income-shifting methods?

The following information may be useful in evaluating the Briggs and Stratton Case: Briggs and Stratton Corporation June 30 fiscal year-end (in $ thousands) 1986 1987 1988 1989 1990 Pretax income 61,930 45,564 43,161 (34,012) 53,665 Income tax 27,850 18,950 12,950 (13,980) 18,290 Net income 34,080 26,614 30,211 (20,032) 35,375 Income tax expense: Current: Federal 21,829 12,392 10,375 (15,286) 13,462 State 2,339 913 1,365 0 1,853 Foreign 0 0 0 1,328 1,572 Deferred 3,682 5,645 1,210 (22) 1,403 Total 27,850 18,950 12,950 (13,980) 18,290 Tax rate 46% 46% 34% 34% 34% Federal TI 47,454 26,939 30,515 (33,230) 39,594

Reference no: EM133412622

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