TY  - JOUR
AU  - Scholes,Myron S.
AU  - Wolfson,Mark A.
TI  - Converting Corporations to Partnerships through Leverage:  Theoretical and Practical Impediments
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3092
PY  - 1989
Y2  - September 1989
UR  - http://www.nber.org/papers/w3092
L1  - http://www.nber.org/papers/w3092.pdf
N1  - Author contact info:
Myron S. Scholes
34 Stern Lane
Atherton, CA  94027
Tel: 650/234-0521
Fax: 650/234-0525
E-Mail: mscholes@pgamlp.com

Mark A. Wolfson
Graduate School of Business
Stanford University
Stanford, CA  94305-5015
Tel: 650/234-0505
Fax: 650/234-0525
E-Mail: wolfson_mark@gsb.stanford.edu
AB  - We explore the degree to which debt financing can reduce the corporate-level tax on income in the U.S.. Although we show that debt is capable of shielding the competitive rate of return on projects from the corporate-level tax, debt financing cannot shield the positive net present value portion of project returns. Since nontax factors preclude corporate activities from being 100% debt-financed, a portion of the competitive return to corporate activity is also subject to double taxation. We also consider alternative mechanisms that serve to convert the corporate tax to a personal tax (or a partnership tax). These include other claims that give rise to tax deductible payments to the corporation such as obligations to employees, lessors and suppliers. As we show, all of these alternatives are limited in their ability to eliminate the corporate-level tax.
ER  -