Submitted by: Submitted by sonykid15
Views: 121
Words: 483
Pages: 2
Category: Business and Industry
Date Submitted: 10/07/2013 06:23 PM
There are different tax strategies corporations use to alleviate their tax burdens. Three we learned in our accounting class are timing, changing the character of income, and income shifting. Timing is considered a traditional technique that defers the recognition of income and accelerates the recognition of deductions. Changing the character of income is determined by tax law and is ultimately characterized as either ordinary income or capital gain. The third tax strategy is income shifting. The purpose of income shifting is to lower the total tax paid by splitting income among two or more taxpayers in the same family or between different entities that are owned by the same individual. The other entities are considered tax havens that corporations use to shift some of their profits. This technique is also used by owner-employees of a corporation and split the income between themselves and the corporation by paying themselves salaries, which are deductible by corporations to take advantage of the progressive tax rates. In the article this is how several corporations were able to “shirk their tax burden”. An example of this “extreme tax avoidance strategy” is by eBay who received a $131 million tax refund in 2010 as a direct result. They managed to report pre-tax profits of $848 million to its shareholders and pay the CEO $12 million. This tax avoidance strategy was capable by having 31 subsidiaries in nine tax havens. Another example was Wells Fargo who “avoided paying almost $18 billion in federal income tax from 2008-2010”. They shared their reported profit of $49 billion with 58 subsidiaries. I find this one interesting because, if you recall, they received “Bailout” money from the government to prevent bankruptcy in which they owe $5 billion. The next two examples are corporations that actually received refund checks due to the income shifting strategy. Prudential Financial received a federal income tax refund in the amount of $722 million in 2010. They were...