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The Dow is down. No, not the Dow Jones average. So far in 2017, that particular Dow is doing fine. Dow Chemicals, however, is definitely feeling down. More specifically, the management and number crunchers associated with the corporation are feeling down over a recent Supreme Court decision, a decision that cost the company a billion dollars in tax deductions.
Dow Chemicals attempted to get the Supreme Court to hear an appeal based on a lower court’s decision to through out $1 billion in tax liabilities. The original ruling stated the deductions had “no legitimate business purpose”. As a result, $1 billion is added to the company’s profit margins and will be taxed accordingly. Interest and penalties — including possible civil penalties — are going to be tacked onto Dow’s tax bill.
Under U.S. law, if the Supreme Court refuses to hear a case, the lower court’s ruling stands. Dow Chemicals really has nowhere to go in the situation. The company has to pay the tax debt it sough to avoid. The company’s stock is likely to feel the effects of the newly added debt.
The news reports of the Supreme Court’s decision is likely to send a chill throughout the corporate world. Clearly, the courts are taking a dim view about dubious deductions. The IRS certainly is willing to go to court over money it deems owed to it. State tax authorities are sure to follow the IRS’ lead considering the judgment against Dow Chemicals.
The goal of any business is to make a profit. Among the most reliable ways to increase profits is to cut down on costs. Taking every available tax deduction assists with this process. Becoming a bit too creative with deductions, however, is not a path towards saving money. In addition to paying the tax debt, a company is going to get stuck with millions in legal bills.