Tax Arbitrage

You run a company that makes giant novelty forks. You have agreed to buy your biggest rival, a company specializing in enormous spoons. You've worked out the general outline of the deal with the CEO of the other company. Now you're just waiting for the lawyers and accountants to work out the details.

The number-crunchers realize that you can get a tax break on the deal. They've discovered a little known loophole. If you sign the document at high noon on the summer solstice while standing at the Four Corners monument, you’ll save $1 million in taxes.

This situation describes an instance of tax arbitrage. It's the act of exploiting tax loopholes. Finding little rules that can lower a company's tax bill, and then steering corporate action to take advantage of those rules.