You run a company that makes giant novelty forks. You have agreed to buy your biggest rival, a company specializing in enormous spoons. You've worked out the general outline of the deal with the CEO of the other company. Now you're just waiting for the lawyers and accountants to work out the details.
The number-crunchers realize that you can get a tax break on the deal. They've discovered a little known loophole. If you sign the document at high noon on the summer solstice while standing at the Four Corners monument, you’ll save $1 million in taxes.
This situation describes an instance of tax arbitrage. It's the act of exploiting tax loopholes. Finding little rules that can lower a company's tax bill, and then steering corporate action to take advantage of those rules.
Related or Semi-related Video
Finance: What is the IRS?19 Views
Finance allah shmoop What is the i r s Well
i rest might be the three most hated letters in
the alphabet Well after d m v a pms and
well maybe std The i r s is the internal
revenue service Their internal i e inside the government they're
in charge of collecting revenue A k a They take
money from your pocket in the form of taxes and
they deliver it to uncle sam and they you know
service you and it doesn't feel good So yeah these
are the guys from the us treasury department who checked
to make sure you filled out your income tax forms
correctly and submitted the proper amount And if you screwed
up in any way they will let you know about
it and a half in the form of angry letters
Phone calls knocks on your front door rocks through your
back window Whatever it takes to get you to pay
your fair share of taxes Like why should you get
away with not paying when the jones has paid all
they owed Or the irs can do even worse and
audit you with an audit he irs will request extensive
and very specific information and records from you Paycheck deductions
all kinds of things You claim that you did that
were deductible that may or may not have been forcing
you to spend hours upon hours at your public storage
unit digging through boxes you hoped and prayed you'd never
see again Well after the third solid week of having
your financial history poked and prodded like you've had to
turn your head and cough you uh might actually be
ready and willing to trade in those three letters of 00:01:35.13 --> [endTime] irs for rough one of those stds instead
Up Next
What is a tax deduction? Tax deductions decrease the amount of taxable income reported so that less tax is owed. For everyday civilians, these dedu...
How does depreciation affect taxes? Depreciation accounts for a company’s assets losing their value over time. Companies are able to factor this...
Double declining balance sheet depreciation is a structure of formula under which companies assess the depreciating value of an asset that loses va...