Local Lawsuit Essay Example | Topics and Well Written Essays - 750 words

Local Lawsuit - Essay Example Company’s prosperity has significantly been contributed by acquisitions between the company and smaller manufacturing companies in the same field. The company has also embarked on cutting all its operational cost by shifting its production off the United States. For instance, in 2004 the company announced a plan to move 350 jobs from Tennessee to Mexico. In 1998, Black & Decker Corporation was involved in a lawsuit with the Internal Revenue Service regarding allegations by the company to be refunded 57 million dollars from its earlier tax payments. The company had purchased 10,000 shares for 561 million dollars and later sold them at the price of 1 million, making a loss of 560 million dollars. The company therefore wanted a refund equivalent to the loss incurred. In addition, the company argued that the money should be refunded since the tax shelter it had implemented was valid. Tax shelter in this case is lawful technique of minimizing taxable income of a company depending o n local and universal tax laws. On the other hand, the Internal Revenue Service argued that the company strategy of tax shelter was abusive. Black & Decker Corporation had created a Black & Decker Healthcare Management Inc. and then transferred to it 561 million dollars in exchange for stock shares of 10,000. ... Although the company had a contingent liability and tax protection, it was difficult to estimate the exact cost on health insurance. This was because of uncertainty on how many employees would be ill at a go. However, there a number of risk management strategies Black & Decker Corporation management could have implemented to avoid the lawsuit. The first one is that the company can opt to reinsure since by doing so the company would have transferred the risk to other entities. This will enable it to handle risks beyond its capability. The second one is using technological facilities that can work in place of a number of employees. Therefore, the company will not have so many employees to insure as well as reducing its operational cost. Finally, the company should execute a cost reduction program that does not involve tax shelter. This will help the company avoid legal conflicts with the federal taxing body as well as the occurrence of lawsuits. In case a business is involved in transa ctions that has no economical value, but help reduce or avoid tax on returns, such practice is regarded to be unethical. In this case, Black & Decker Corporation main aim is to avoid the risk of paying health claims to its current and retired employees. Instead, the company transferred that risk to Black & Decker Healthcare Management Inc. one of its subsidiaries. Black & Decker Corporation also wanted to evade taxation on 303 million dollars gain it had made by selling some of its businesses by faking a loss (Browning, 2004). This therefore shows that Black & Decker Corporation was motivated by the tax benefits, and the loss was just a strategy to evade taxation. Use of such discriminative strategy where a business puts its