Time Schedule:
Terrence J Shevlin
ACCTG 513
Seattle Campus
Importance of tax considerations in making business decisions. Covers regulatory and economic impacts of the U. S. tax system. Prerequisite: either B A 502, ACCTG 500, or permission of instructor.
Class description
This course focuses on the importance of tax considerations in making business decisions. Our objectives for the course are to develop and apply a theoretical tax planning framework: The key themes of the framework are:
All Parties: Effective tax planning requires the planner to consider the tax implications of a proposed transaction for all of the parties to the transaction.
All Taxes: Effective tax planning requires the planner, in making investment and financing decisions, to consider not only explicit taxes (tax dollars paid directly to taxing authorities) but also implicit taxes (taxes paid indirectly as lower before-tax rates of return on tax-favored investments).
All Costs: Effective tax planning requires the planner to recognize that taxes represent only one among many business costs. In the planning process all costs must be considered, including the costly restructuring of the business necessary to implement some tax plans.
The first third of the class is devoted to developing an understanding of these themes (building the framework). The remainder of the class involves applying these three themes to decision contexts, such as organizational form, compensation including employee stock options (ESOs) and pensions, multinational tax planning, mergers and acquisitions, and family tax planning. The ultimate goal is to provide you with a new approach to thinking about taxes (and all forms of government intervention) that will be valuable even as laws and governments change.
Who should take this class? MBA students considering managerial positions (or positions with consulting or investment firms) that need to be somewhat aware of the tax ramifications of business decisions (investing, financing, compensation, etc.) It is far better to consider the tax ramifications of a transaction before it is undertaken (so that it can be structured to be tax efficient) rather than after it is completed (and the dreadful tax outcomes become rather apparent). This course draws on microeconomic, finance, and accounting concepts to analyze transactions that are commonly encountered in the business world. We also simplify complex issues via simple algebra. If you have any interest in the following questions then this class might be for you. What are the tax ramifications to me of exercising my employee stock options (incentive or nonqualified)? When should I prefer current compensation over deferred compensation? When is the corporate form tax favored over the partnership form? Should I convert my IRA to a ROTH? What is a taxable merger? How did Boeing structure its merger with McDonald Douglas? What is a foreign tax credit? Why is it important to a multinational firm? If I invest in stock versus taxable corporate bonds versus municipal bonds when will I be able to retire? How are stock investments taxed? What is the corporate dividend received deduction? Why did Seagrams think it was important?
Student learning goals
General method of instruction
I strongly believe that students must be active participants in the learning process. Active learning involves students in doing things and thinking about things they are doing rather than passively receiving information and memorizing it. Thus, the classroom format is informal and questions are welcome at all times. The instruction will involve mini-lectures and classroom discussions and problem solving (individually and in groups). Participants must be prepared for class for two reasons. First, students will often be called upon to analyze and resolve problems involved in various personal and business transactions. Second, the reading material (see below) needs to be read in advance for students to fully understand the concepts discussed in class.
There are reading assignments from the main text, supplemented by financial press articles, and various handouts to be distributed during the quarter. The volume of reading is substantial and in some cases difficult, and such readings are mandatory for understanding the material presented in class. The concepts build upon one another sequentially so that remaining current with the readings and lecture is essential to learning and understanding the material.
Who is the Professor? I joined the University of Washington as a rookie Assistant Professor of Accounting in 1986. Except for a one-year stint at the University of Iowa I have been here ever since. I am from Australia and became interested in this tax stuff when I was pursuing my PhD at Stanford and took the first class offered by the authors of this textbook (Scholes and Wolfson – yes Scholes is the option pricing guy, the Nobel Prize winner, and most recent of the Long Term Capital Management Hedge Fund fiasco!). I have taught this class the past 5 years with students generally liking the material – although there is much to cover they felt they learned a lot. My research includes not only tax (of the type discussed in the text, some of my work is even mentioned in the text and I will be sure to cover that material!) but also financial accounting issues. Currently I am interested in employee stock options and incentives.
Recommended preparation
Do the reading and assignments - come to class prepared to talk!
Class assignments and grading
Problem solving - application of concepts from text and class.
GRADING: There will be a midterm and a final exam. Both exams are open notes. The midterm will be worth 30 percent of the final grade, the final exam 40 percent, hand-in homework assignments 10 percent, with the remaining 20 percent based on class participation (both quantity and quality will be considered).
