Dec 16




By Gregory Bryant, Esq. and CPA and Gary Wells, Esq. and CPA

As we have argued in our previous articles, as the world has globalized and commerce crosses borders more frequently, the current US corporate income tax code is not only obsolete it is suicidal.  The time for change is overdue.  But what change will we find under President-Elect Trump?

As we ponder the future we are reminded of a saying coined by Yogi Berra, a famous baseball player who had a talent for spinning interesting and thought provoking expressions, “You’ve got to be very careful if you don’t know where you are going, because you might not get there.” Yogi Berra probably never thought much about changes in tax policy and laws when he spoke these words.

Yogi’s words ring prophetically true as we bring in the Trump administration.  President-Elect Trump has expressed a willingness to move corporations in new direction by lowering tax rates and eliminating burdensome regulations, which are a type of cost (or tax) that weighs down businesses and hinders competition between jurisdictions.  No doubt, corner suites across the country have welcomed this news and begun to consider how it will help move their businesses forward. The OECD, not necessarily a supporter of nationalistic politicians like Mr. Trump, has predicted GDP growth under Mr. Trump’s proposals will likely double the rate of economic growth.  In our opinion, that is a conservative estimate.

From his campaign plan, Mr. Trump has provided some insights into his tax changes, as follows:

  • Reduce the corporate income tax rate from 35% to 15% and eliminate corporate alternative minimum tax system (absent the elimination, the corporate tax rate would put all companies into alternative minimum tax that currently has 20% rate);
  • Eliminate most corporate tax preferences, like investment tax credit, but retain Research & Development tax credit;
  • Allow election by U.S. manufacturing companies to deduct capital expenditures in return for losing the corporate interest deduction; and
  • Provide a 10% tax rate on repatriated earnings, currently being held off-shore.

These changes will no doubt will remove investment barriers and drive capital and jobs into the United States.  We are excited to see these changes enacted, and although 15% is significantly lower than the current rate, we would argue it could go lower, but that is a topic from our last article.

While none of these changes will affect the 2016 year-end financial statements because Accounting for Income Taxes, ASC 740, limits the timing for recognizing a tax benefit by a corporation based only upon enacted laws and no retroactive assumption may be utilized until such enactment specifically authorizes such benefit.  For this reason, the impact of the lower expected rates and other tax benefits will occur no earlier than 2017 and beyond for tax and financial statement purposes.

Nonetheless, corporations should begin to consider how some proposals, like lower tax rates, repatriation holidays, and territorial tax systems might affect their business strategy in the near term.  Changes to tax policy can produce far reaching impacts on almost all of the financial, legal, and tax business strategies, including:


  • Cash flow
  • Dividend policies (across borders)
  • Investment strategies (plant and employee locations/relocations)
  • Intellectual property situs


  • Choice of public stock listing
  • Country of incorporation (headquarters)
  • Structure (branch, holding company, flow-thru, hybrid, etc.)


  • APB 23 Permanently Invested Income
  • Foreign tax credit planning
  • Deferred tax balance sheet (valuation allowances)
  • Uncertain tax positions

A quick review of the above issues may lead to a realization that structures created when the goal was to delay or otherwise limit current U.S. taxation of income may no longer fit a corporation’s medium or long-term needs.  In fact, the goals of pre-2017 structure may impede or harm the newly modified corporate goals for a number of reasons.

Alternatively, structure changes that cause more income to be currently taxed in the U.S. may be subject to additional scrutiny under the recent OECD Base Erosion Profit Shifting directives.  While the U.S. may welcome such structural changes that favor the expansion of its own tax base, the rest of the world may seek to maintain the status quo and prevent inversions and other profit shifting structures.  The OECD directives create a framework for non-U.S. tax authorities to argue new structures should be ignored and the profits remain subject to the non-U.S.’s taxing jurisdiction.  Needless to say, this creates a speed bump that may slow down a corporation from reaching its destination.

No doubt the question of how, i.e., the method and manner to achieve a better world-wide answer, might be difficult currently to forecast for corporations operating across the globe at this moment.  But, the potential benefit of different proposed benefits can be explored and adequately quantified in the meantime.  A gold rush-type mentality may arise to migrate assets to the U.S. that formerly resided outside it upon the new administration enacting its vision. Consequently, a corporation’s preparation, reaction, and introduction of its own plans require longer lead times to ensure proper investigation and coordination when the destination comes into full sight.

Clearly, the following insights as to how changes to tax policy and in particular how the lower rates will impact corporations:

  • Former marginal investments will no doubt receive approval because of return on investment goals met via lower tax policies
  • Other competing economies will revisit their own tax policies
  • Inflationary pressures on cost of capital and goods and services will build
  • IRS will revisit why its corporate federal income tax filings should number in the thousands of pages when the effective rate is substantially lower than before.
  • The disloyalty surtax or penalty threatened by Mr. Trump for U.S. companies moving jobs outside the U.S. may chill some movements of jobs, especially those businesses that have substantial federal government customers
  • The cost-benefit of IRS large case audits may be turned upside-down and no longer justify the expenditure of time and resources. Audits may become focused on single or small group of pre-defined issues. IRS may reallocate its resources away from corporations and more to individuals.

In any event, thoughtful discussions should begin to take place about the potential brave new world that provides flexibility to corporations when other countries respond by either slashing their own tax rates proactively or legislating by fiat by limiting new structures that strip tax out of their jurisdictions tax revenue. Since many corporations will be going in the same direction, now is a great time to figure out the destination and ensure the fate pondered by Yogi Berra does not become yours—“because you might not get there.”