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11
TAXES AND
BUSINESS
DECISIONS
Richard P. Mandel
It is not possible to fully describe the federal taxation system in the space of
one book chapter. It may not even be realistic to attempt to describe federal
taxation in a full volume. After all, a purchaser of the Internal Revenue Code
(the Code) can expect to carry home at least two volumes consisting of more
than 6,000 pages, ranging from Section 1 through Section 9,722, if one includes
the estate and gift tax and administrative provisions. And this does not even
begin to address the myriad Regulations, Revenue Rulings, Revenue Proce-
dures, Technical Advice Memoranda, private letter rulings, court decisions,
and other sources of federal tax law that have proliferated over the better part
of the twentieth century.
Fortunately, most people who enroll in a federal tax course during their
progression toward an MBA have no intention of becoming professional tax
advisers. An effective tax course, therefore, rather than attempting to impart
encyclopedic knowledge of the Code, instead presents taxation as another
strategic management tool, available to the manager or entrepreneur in his or
her quest to reach business goals in a more efficient and cost-effective manner.
After completing such a course, the businessperson should always be conscious
that failure to consider tax consequences when structuring a transaction may
result in needless tax expense.
It is thus the purpose of this chapter to illustrate the necessity of taking
taxation into account when structuring most business transactions, and of con-
sulting tax professionals early in the process, not just when it is time to file the
return. This purpose will be attempted by describing various problems and op-
portunities encountered by a fictitious business owner as he progresses from