Various Cases & In-Class Discussions Flashcards
What did U.S. Senator Richard Durbin suggest might happen to Walgreens if it completed its proposed inversion?
Walgreens would lose some or all of its revenues from gov’t sources such as Medicare.
What tax planning strategy did the Rolling Stones use to reduce their tax liabilities?
Shift ownership of their music catalog to the Netherlands
In T-Mobile’s acquisition of Sprint, how much did investment bankers in the transaction estimate Sprint’s NOLs were worth approximately?
$4.4 billion
What definition under tax law was key to the tax benefits sought by individuals in the Jade Trading case?
Contingent liability vs. obligation
What type of transaction did Stamps.com complete to protect its net operating loss carryforwards?
NOL poison pill
When CIT purchased OneWest in 2015, how much did CIT report the use of OneWest’s profits to accelerated use of CIT’s NOLs would increase the net present value of CIT’s NOLs?
$300M - $400M
What created tax benefits for P&G in its acquisition of Clairol from Bristol Myers?
338(h)(10) election and the resulting step-up in tax basis of Clairol’s assets
How much in PV $$ at the time of the deal were the tax benefits for P&G in the Clairol transaction?
About $1 billion
How much, as a percentage of deal value, were the tax benefits for P&G in the Clairol transaction?
About 20% of the deal’s value
How much were the tax benefits worth in the 2016 acquisition of Bai Brands by Dr. Pepper / Snapple?
$400M
Why were there substantial tax benefits in the Bai Brands acquisition, but not in many acquisitions that occurred in 2016? What was different about the Bai Brands acquisition?
Bai Brands was an LLC, a pass through entity (single taxation)
Approximately how much as a percentage of the equity value paid for Airtran were the tax benefits that Southwest expected to realize as a result of its acquisition of Airtran?
About 10%
How did taxpayers in Cook County Illinois respond to a large tax increase on soda and other sugary drinks?
They drove across county lines to buy soda in counties without the tax
In what valuation situations should you consider double taxation? Give 2 examples.
- Sale of a privately held company (income shifted out of business to an owner)
- Sale of a subsidiary involved in intercompany transaction in which income is shifted from one subsidiary to another
- Income shifted across state or international boundaries by inter-related companies
What was the flaw in WSJ’s analysis of price paid per cable subscriber by Cox Cable when it bought Gannet’s Cable TV business?
Failed to account for tax benefits of 338(h)(10) election in the transaction, where there were incremental tax savings in the deal, which were about $350M
Based on a large scale academic study, what strategy have some elderly people pursued to reduce tax liabilities?
Time death to minimize estate taxes
What feature of the way in which founder of RXBars set up his business created the reported tax benefits in sale of that business to Kellogg?
It was an LLC, which allowed it to be sold in a step-up structure which created tax benefits and value
What event allowed KB Home to recognize $100M+ in tax benefits in its financial statements in 2010?
Carryback of NOLs to get a tax refund
What created tax benefits in the Lockheed Martin / Sikorsky AIrcraft transaction?
338(h)(10) election
How much in dollars were the tax benefits in the Lockheed Martin / Sikorsky Aircraft transaction?
$1.9 billion approximately
What basic tax strategy could the founder/owner of Tumblr potentially have executed when he sold Tumblr to Yahoo?
Timethe sale of his company when tax rates were lower by accelerating the date of sale
What strategy did the band U2 undertake to reduce the taxes on the earnings on their recorded music (not their concert tours)?
Moved ownership of their music catalog to the Netherlands
What is the basic conclusion regarding taxpayer behavior in the Gregory v. Helvering case quoted the first week of class?
Taxpayer is free to legally reduce his/her tax liability as much as possible
What was an asserted unintended consequence of President Clinton’s 1997 tax change that exempted $500k of gain on sale of a personal residence from taxation?
Taxpayers invested too much in residential real estate, borrowed too much on residential real estate and that contributed to the recent financial crisis
What did Intel’s tax director tell a Senate panel that Intel would do if it could reincorporate today?
Reincorporate outside the U.S.
How did Usain Bolt respond to the U.K.’s tax policies regarding athletes’ sources of income?
He refuses to run races there because the U.K. taxes his worldwide income based on his participating in track meets in the U.K.
How do expecting parents reduce income tax liabilities?
Accelerate the birth of children prior to Dec 31 to get a tax deduction / credit
How do Chinese property owners reduce tax liabilities?
Divorce to reduce property taxes
Unintended consequences of Clinton’s 1997 tax change
Speculation on personal residence real estate, excess leverage on personal residences (homes)
What did R.H. Donnelley have that made is relatively more valuable than some other firms?
High tax basis in its assets
About how much were the cash tax savings (undiscounted) that BofA stood to realize from using Countrywide FInancial’s tax losses in the first 5 years after the acquisition closed?
$500 million approximately
What was the source of tax savings in Kinder Morgan’s restructuring and why did Kinder Morgan achieve such tax savings?
Step up in basis of Kinder Morgan’s assets because KM was a partnership (pass-through entity)
Senator Carl Levin criticized tax benefits for Facebook’s ESOs - what did he miss?
GAAP accounting for stock options is based on option value at date of grant, while tax deduction on options is based on value of options at date of exercise
How did Worldcom attempt to reduce its state income taxes?
Paid fee for “management expertise” to upstream entity in DE, thereby shifting income from high tax states to low/zero tax state
Why were there tax benefits in the KKR IPO? Why were similar tax benefits generally not obtained in Facebook’s IPO?
Step up in basis. No such benefit for Facebook because it was/is a C-corp
After the IRS issued the “Wells Fargo” ruling in 2008, how much more did Wells Fargo offer for Wachovia than Citigroup had previously offered?
$13 billion
What type of transaction did Citigroup complete to protect its $43B of deferred tax assets?
NOL poison pill
What created tax benefits for Express Scripts in the NextRx transaction?
Step up in tax basis from a 338(h)(10)
How much, in dollars, were the tax benefits for Express Scripts in the NextRx transaction?
$800M to $1.2B
How did the aluminum smelting business discussed in week #3 avoid double taxation of its profits? Provide 2 examples.
Excess rental fees paid by the corporation on real estate personally owned by corporation’s owner, consulting fees paid to owner or corporation
Why were there tax benefits in the Blackstone IPO? Why were similar tax benefits generally not obtained in Google’s IPO?
Because Blackstone was a conduit, it could be sold in a manner that stepped up the tax basis of the target’s assets. Google was/is a C-corp so the tax benefits of a step-up were not viable
As discussed in class, what strategy have companies doing business in India used to reduce their tax burdens?
Shift income to Mauritius
How did UPS reduce income taxes on its package insurance business?
Spun off the package insurance business to Bermuda, then shifted income to Bermuda
President George W. Bush signed a change in tax policy that benefited owners of professional sports franchises. What was that change?
Made certain professional sports franchise intangibles tax deductible
What adverse effect were some companies concerned about if and when President Obama and Congress reduce U.S. corporate tax rates?
Companies with deferred tax assets (DTAs) would have lower GAAP earnings if corporate tax rates are reduced
What events in the 1980s led to the U.S. corporate alternative minimum tax?
A number of firms reported large GAAP earnings yet paid relatively little income tax
What was an unintended consequence of the 1993 tax deductible limit on executive compensation of $1M?
Excessive use of employee stock options and a resulting incentive for executives to inflate accounting earnings to ultimately commit accounting fraud
What are 3 market and taxpayer actions that occurred in response to the re-election of President Obama and the expectation that tax rates will increase in 2013?
1) Increase in dividend payouts prior to 1/1/2013.
2) Sell off appreciated publicly traded equity positions prior to 1/1/2013
3) Sale of companies by owners prior to tax rates increase on 1/1/2013
What was Enron’s stated business purpose with its MIPS transaction?
Improve balance sheet and income statement with lower cost of capital
What did Joint Committee on taxation conclude about the benefits Enron sought in its MIPS transaction?
Improving balance sheet was a reasonable business purpose. Obtaining debt for tax purposes and equity for financial accounting achieved an ‘ideal objective’.
How much did the JCT report were the transaction costs of Enron’s 1993 $200M MIPS offering?
A bit over $14M
Provide 5 real-world examples of basic tax strategies that involve income shifting.
- Aluminum Smelter – shift income to owner
- Worldcom/MCI – shift income to Delaware via royalty (lower tax jurisdiction in DE)
- WalMart – shift income to Delaware REIT via rent payments
- Google – shift income out of the U.S. via payments on intangibles
- Mauritius – shift income out of China to Mauritius
- Texas Software company – shift income high tax states to Texas
- UPS – shift income to Bermuda via reinsurance arrangements post spin-off
- Adult Bookstore – shift income to owner of business
What circumstances does election make sense in sale of a subsidiary of a C-corp? (Name 4)
1) Stock basis < asset basis
2) Stock basis = asset basis
3) Stock basis > asset basis by a relatively small amount
4) Divesting parent has significant NOLs
What type of event causes the fact pattern that makes a 338(h)(10) election sub-optimal when target is a subsidiary of a C-corp?
Target was previously acquired in a carryover basis transaction where the subsidiary’s stock basis exceeds the subsidiary’s asset basis
How did Seagram account for DuPont transactions on GAAP statements?
As a sale (not a dividend).
Why did Seagram record a deferred tax liability on its GAAP financial statements as a result of the DuPont transaction?
Due to the book/tax difference in the remaining 8.2M shares of DuPont that Seagram retained
What line items of Seagram’s GAAP financial statements contained amounts that did not coincide with and were in fact not close to their corresponding economic values?
1) Deferred Tax Liability
2) Marketable Securities/Investments
List 5 changes due to 2017 Tax Cut and Jobs Act
1) Corporate tax rate now 21% (was 35%)
2) Move to territorial tax system
3) Repeal corporate alternative minimum tax
4) Immediate expensing of qualified assets
5) Limits on corporate interest deductions
When does 338(h)(10) election make sense if target is a subsidiary of a C corp?
1) Divesting parent owns at least 80% of subsidiary/target
2) Acquirer buys at least 80% of Target within 12 months
3) Make election within 8.5 months of deal closing
When Google bought YouTube for $1.2B, how much tax deductible goodwill was created in the transaction?
$0 (no tax deductible goodwill created in deal)
