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tax, allocation

1. Do you think tax allocation can improve the prediction of future tax payments in the short run?

2. what are the economic consequences of SFAS No. 87?

3. What is the fundamental issue surrounding capitalization versus expensing?

4. which approach do you believe management would prefer?

5. Which approach do you believe auditors would prefer? Why?

Please answer all 5 questions.

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1. Do you think tax allocation can improve the prediction of future tax payments in the short run?
Yes, tax allocation can improve the prediction of future tax payments in the short run. Consider the following example:
The County Treasurer is required to bill, collect, invest, safequard and disburse revenue from property tax collections. These include three school districts, the local cities, the county, special service districts, and redevelopment agencies within the geographical borders of Utah County. Each entity is governed by law in their expending of these funds. Specific questions regarding the individual entities expenditures should be addressed to the respective taxing entity. We have provided the address and telephone number for each. When the tax payer knows where his money is going he feels motivated to pay his taxes honestly.

When the tax allocation is equitable a uniform, state-wide levy mandated by the Legislature to promote adequate funding for assessing and collection functions, on an equitable basis, to all counties of the state at a minimally acceptable level. Utah County contributes a portion of this revenue to a multi-county fund for distribution to counties which cannot generate the minimum level of funding. This allocation ensures that the future tax payments at least in the short run will be ensured. When the taxpayer sees his money being used to the benefit of the society he feels he should keep up his contribution.
This county wide levy funds of the local participation requirement for the federally funded County Water Project. The District represents the citizens of a 10-county area in administration, sale, and delivery of water for the County facilities, as well as the operation and maintenance of the irrigation facilities. Water developed by the county project is used for municipal, industrial, irrigation, hydroelectric power, fish, wildlife, and conservation and recreation purposes.

Tax allocation to essential services ensures that tax payments are predictable and are received in time. The levy funds the general operation of special districts created for the purpose of providing within the area of the service district any of the following services or any combination of them: water, sewerage, drainage, flood control, garbage, health care, transportation, recreation, fire protection, street lighting and consolidated 911 and emergency dispatch. The tax payer feels obliged to continue supporting the society.

2. what are the economic consequences of SFAS No. 87?

ECONOMIC CONSEQUENCES OF SFAS No. 87.
Under SFAS No. 87, Employers' Accounting for Pensions, companies disclose the market values of pension plan assets and the projected benefit obligations of the plans but do not recognize them on their balance sheets. Furthermore, they disclose changes in those values, but only a filtered amount flows to the income statement.
In deliberating SFAS No. 87, the Board recognized the logic of reflecting plan assets and projected benefit obligations on the balance sheet. The Board acknowledged that plan assets are assets of the corporation, and pension plan obligations are liabilities of the corporation. Specifically the Board was aware that the liabilities have not been settled, the assets may still be controlled, and substantial risks and rewards associated with both are clearly borne by the employer. In the past, often through settlements, firms were able to retrieve some of those assets or, through future reductions of contributions, reduce future cash outlays. The fact that future contributions to the plan are increased or decreased by the performance of the plan assets supports the view that the employer bears the risks and reaps the rewards associated with those assets.
It is important to note that IRC Sec. 401 (a) (2) stipulates that for a plan to be qualified, the trust instrument must make it impossible, any time prior to the satisfaction of all liabilities with respect to employees and their beneficiaries under the trust, for any part of the corpus or income to be used for, or diverted to, purposes other than for the exclusive benefit of employees or their beneficiaries. Of course, corporations have always reserved the right to terminate their plans, and in the past through settlements employers have retrieved some of those assets. This would provide compelling evidence that rebuts the argument that plan assets are not the assets of the corporation. ...

Solution Summary

This job examines tax allocation.

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