Making the connection between tax and strategic business decision-making.

• Author: Nellen, Annette

TAX IS USUALLY TAUGHT AS A DISCRETE PART OF an accounting student's curriculum, even though tax practitioners are aware that every financial transaction has tax implications. Therefore, accounting students and job applicants are often unable to apply tax considerations to other areas of accounting decision-making. The academic community needs to better prepare future tax professionals to think in those terms. This column suggests that cross-discipline approaches, including exercises such as the assignment described here, can be used to expand students' ability to apply knowledge learned in one area of accounting to other areas.

[ILLUSTRATION OMITTED]

One area that receives a lot of press is the various tax incentives that are offered to both individuals and corporations. These incentives can affect (and are in fact intended to affect) business decisions, usually in an effort to stimulate a targeted area of the economy. A decision-maker is not able to optimize business outcomes unless he or she considers all facets of the alternatives, and the decision-maker must be aware that they exist and their potential benefit to the decision at hand. Therefore, any activity or exercise that enables a decision-maker to consider more alternatives is beneficial not only to the decision-maker, but also to the organization as a whole.

Background on Tax incentives

While the primary function of the tax law is to collect tax dollars to support government functions, special provisions and incentives are often implemented in an attempt to influence individual and corporate behavior and positively affect the economy as a whole. These incentives have been designed to benefit taxpayers. through tax credits, exclusions, and deductions, and indirectly through incentives to businesses to encourage growth. However, standard economic assumptions about individual behavior tend to be inaccurate in that people do not act rationally, are not perfectly self-interested, and hold inconsistent preferences. It is also unclear whether the targeted taxpayers are aware of many of the incentive provisions contained in recent tax legislation and, thus, whether those taxpayers took advantage of those provisions.

Myriad influences affect whether current benefits are extended or allowed to expire and whether new incentives should be added in an ailing economy. In today's climate, because lower tax receipts from incentives compound the federal deficit, there are more questions whether...