Taxes and Business Strategy: A Planning Approach

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Date: Dec. 1992
From: National Tax Journal(Vol. 45, Issue 4)
Publisher: University of Chicago Press
Document Type: Book review
Length: 3,309 words

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"Taxes and Business Strategy" is a joint product of Myron Scholes (best-known for the Black-Scholes options pricing formula) and Mark Wolfson. Both are at the Stanford Business School, and they have often collaborated in the past. Many of their past joint efforts are reflected in this book.

The book is intended as a teaching vehicle for a course whose general subject is Federal income taxation. There are a variety of disciplines and professions with an interest in that subject, and a variety of perspectives from which the subject is explored. For the accountant, the standard course is typically about "the rules"--what's includible, what's deductible, what's the rate of tax, and, perhaps most importantly of all, when. For the law student it is again about "the rules," with greater emphasis on the formulation of rules through judicial resolution of tax disputes, perhaps a bit more emphasis on policy, and, if the student is fortunate, on something of the sense and structure of the law. For the budding economist, tax is typically encountered in the study of public finance, a study not confined to income taxation (as it typically is for the accountant or the lawyer), whose general subject is the impact of taxation on economic conduct, and whose object is to minimize the welfare costs of something that is all-but-inevitably costly in terms of welfare.

This book, as the authors make clear in their introduction, is in none of these traditions. It is about planning, something not well-taught or even often taught to either the accountant or the lawyer while they are students, but something in which most truly accomplished practitioners (be they lawyer or accountant by training) eventually become well-versed. Some planning, to be sure, is nothing more than mechanical application of the bright-line rules that everyone is supposed to learn. You get a Federal deduction (if you're an itemizer) for state income taxes; Federal income taxes are reckoned annually: Pay your last state income tax installment before December 31st. Indeed, the better student who has taken several courses in taxation may acquire a "bag of tricks" for helping taxpayers convert ordinary income into long-term capital gain, characterize capital outlays as ordinary expenses, defer income and accelerate expenses (except when it's advantageous to do the latter), and perhaps freeze an estate or two.

There is, however, little coordinated training in planning, and there are several reasons for this "shortcoming" in existing professional education. For one thing, becoming a really effective planner requires a real mastery of those "rules," and arriving at the requisite mastery is a process with a long learning curve. For mere mortals this typically does not occur until after several years of full-time work, long after the completion of formal education. For all but a few extraordinarily gifted students, then, learning how to really plan, "by the book," so to speak, is just too formidable a task.

There is another, less obvious reason for the absence of academic instruction in planning. Sophisticated planning is more elusive than...

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Gale Document Number: GALE|A13410576