In teaching the different features of various business organization forms, we advise students that one of the detriments of the corporate form is the problem of double taxation. By law, the corporation is subject to taxes on its pre-dividend profit and, the corporations' shareholders are subject to taxation on the dividends distributed to them in after tax dollars. Has modern corporate practice relegated this legal concept to the dustbin of theory?
The New York Times reported in 2008 that 2 out of 3 American Corporations paid no income tax between 1998 and 2005. Zero Tax! Now it has been reported that despite soaring profits, General Electric Corp paid no taxes in 2009. Do we have an obligation to advise students that it is possible to legally manipulate the corporate form to avoid income taxes altogether?