Tax Research Memo (Research Paper Sample)

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Tax research memo: Apple Inc.
Facts
Following a decision by Apple Inc to formulate a dividend plan for the period 2012, as well as a $10 billion share redemption plan, the immediate response from a major shareholder sparked a legal battle (Frhr et al, np). In this case, the shareholder requires that the redemption plan be adjusted to $20 billion, in addition to demanding a seat in the company’s Board of Directors. The result is a rejection from the Board members, which prompts the shareholder to instigate an alternative contest based on his demands. The aim is to have the board reshuffled with new members under the sole control of the shareholder. In fighting this lawsuit, Apple suffers huge costs, while advocating for a vote of confidence on the redemption program (Block, p. 8).
Issues
From above facts, three main issues arise:
1 The researcher wishes to determine whether or not the majority shareholder has rights and powers in the decision making process of a company. In this view, the power of Sam Winchester in over-turning the prevailing Board of Directors is questioned (Frhr et al, np).
2 Can Apple Inc. deduct the total amount of $115, 000 incurred for the proxy contest brought forward by Winchester, as ordinary and necessary business expenditure? Here, the significance is to look at the revenue standpoint of the related costs, and their impacts on business operations.
3 To what extent can the proposed dividend of $10 billion be cut in order to settle or make an allowance for the realized costs due to the proxy contest as initiated by Sam Winchester? This issue points to the valuation effects of the dividend plan after deductions of the expenditure generated from the proxy contest battle.
Conclusions to the Issues
The majority shareholder plays an active role in the decision making process of a company. For this reason, he or she can impact heavily on the key decision of the board. In the case of Winchester, the majority shareholding enables him to take part in the active process of the company by becoming a member of the Board of Directors for Apple (Frhr et al, np). With the large shareholding proportion, Sam may influence the overall decision making process, by even creating a new board of members.
The expenditure of any business organization becomes connected to the scope of business processes conducted. If any business transaction leading to incurrence of expenditure affects the operation of the business, then it becomes considered as being part of the overall company costs realized during a particular financial period (Block, p. 7). With this in mind, such legal costs incurred by a company in the event of ongoing operations require an allowance that accepts their recognition. Thus, the company may deduct such expenditure as long as it affected the operation of the business as a whole.
The available funds for the company rest on the proposed dividend of $10 billion, which becomes shared equally among the stockholders. As the affected team, stockholders are liable for any losses incurred during the conduction of business (Block, p. 8). In this view, the amount of dividend considered takes care of the realized expenditure due to a legal lawsuit.
Law
Under the Security Exchange Act enacted in 1934 by Congress, a key company requirement rest on ensuring the promotion of shareholder participation in the overall business operations, as well as ensuring democracy (Frhr et al, np). In this regard, corporate democracy takes into account the process of proxy contest, allowing an understanding between the plaintiff and defendant in terms of either side’s demand(s). Secondly, the Internal Revenue Code (IRC), under Section 162, stated that a deduction is allowed where expenditure has been incurred by the business in its conduction of related activities (Block, p. 7). The period under consideration takes note of the taxable revenue for the given financial period. In reference to Cf. Kornhauser v. United States, 276 U.S. 145, the ruling provides that an ordinary and necessary expense affects the stakeholders within a particular group, such as shareholders. Thus, it requires that judgment occurs with a critical evaluation of the busine...