CHAPTER 1 Introduction to Transactional Tax Practice and Review of Basic Income Tax Concepts 1

Transcription

1 Summary of Contents Contents Preface Acknowledgments xi xix xxi CHAPTER 1 Introduction to Transactional Tax Practice and Review of Basic Income Tax Concepts 1 PART I CORPORATE FORMATION AND CHARACTERISTICS 111 CHAPTER 2 Choice of Entity 113 CHAPTER 3 Corporate Capital Structure 145 CHAPTER 4 Corporate Formation 203 PART II CORPORATE TRANSACTIONS WITH SHAREHOLDERS 267 CHAPTER 5 Operating Distributions 269 CHAPTER 6 Related Corporations and Other Bailout Techniques 309 CHAPTER 7 Complete Liquidations 345 ix

2 x Summary of Contents PART III TRANSFORMATIVE TRANSACTIONS 373 CHAPTER 8 Taxable Acquisitions 375 CHAPTER 9 Tax-Free Acquisitive Reorganizations 395 CHAPTER 10 Tax-Free Divisive Reorganizations 455 CHAPTER 11 Other Tax-Free Transactions 487 PART IV THE BORDERS OF SUBCHAPTER C 505 CHAPTER 12 Consolidated Returns 507 CHAPTER 13 S Corporations 525 CHAPTER 14 Survival of Tax Attributes 537 Table of Cases 551 Table of Authorities 559 Index 569

3 Contents Preface Acknowledgments xix xxi CHAPTER 1 Introduction to Transactional Tax Practice and Review of Basic Income Tax Concepts 1 COMMENTARY 1 A. Practicing Transactional Tax Law 2 1. Role of Transactional Tax Attorneys 2 2. Rules of Professional Ethics and Standards of Practice 2 3. Tax Practice and Tax Penalties 4 B. Basic Income Tax Concepts 6 1. Computation of Taxable Income 6 2. Computation of Gain and Loss 7 3. Character of Gain and Loss 7 4. Realization, Recognition, Deferral, Exclusion, and Disallowance of Gain and Loss 8 C. Employment Taxes 8 D. Tax on Net Investment Income 9 PRIMARY LEGAL AUTHORITY 10 David E. Watson, P.C. v. United States 10 Long Term Capital Holdings v. United States 24 AmerGen Energy Co., LLC v. United States 36 Canal Corporation & Subsidiaries v. Commissioner 47 Ringgold Telephone Company v. Commissioner 54 Endless Ocean, LLC v. Twomey, Latham, Shea, Kelley, Dubin & Quartararo 68 Definition of Limited Partner for Self-Employment Tax Purposes 69 Congressional Response to 62 Fed. Reg Regulations Governing Practice Before the Internal Revenue Service 77 New York Rules of Professional Conduct 86 Montana Rules for Lawyer Disciplinary Enforcement 108 Revenue Ruling xi

4 xii Contents PART I CORPORATE FORMATION AND CHARACTERISTICS 111 CHAPTER 2 Choice of Entity 113 COMMENTARY 113 A. Entity and Aggregate Views of Tax Arrangements 114 B. General Types of Tax Entities Disregarded Arrangements Tax Partnerships Tax Corporations Other Types of Tax Entities 120 a. Business and Investment Trusts 120 b. RICs 121 c. REITs 121 d. REMICs 121 C. Types of State-Law Entities Corporations Limited Liability Companies (LLCs) Limited Partnerships General Partnerships Business Trusts 125 D. Check-the-Box Tax Classification Disregarded vs. Tax Partnership Tax Partnership vs. Tax Corporation Automatic Check-the-Box Elections 127 PRIMARY LEGAL AUTHORITY 127 Morrissey v. Commissioner 127 Commissioner v. Bollinger 135 Preamble to Check-the-Box Regulations 141 CHAPTER 3 Corporate Capital Structure 145 COMMENTARY 145 A. Tax Implications of Equity Corporate Consequences Shareholder Consequences 147 B. Tax Implications of Debt Corporate Consequences Lender Consequences 149 C. Striking a Balance 149 D. Distinguishing Debt from Equity 150 PRIMARY LEGAL AUTHORITY 154

5 Contents xiii Fin Hay Realty Co. v. United States 154 PepsiCo Puerto Rico, Inc. v. Commissioner 159 TIFD III-E, Inc. v. United States 185 CHAPTER 4 Corporate Formation 203 COMMENTARY 203 A. Control 204 B. Property 205 C. Solely in Exchange for Stock 205 D. Basis 206 E. Assumption of Liabilities 207 F. Holding Period 207 PRIMARY LEGAL AUTHORITY 208 E. I. du Pont de Nemours & Co. v. United States 208 Hempt Bros., Inc. v. United States 218 Portland Oil Co. v. Commissioner 224 Intermountain Lumber Co. v. Commissioner 238 Peracchi v. CIR 245 Black & Decker Corp. v. United States 257 Revenue Ruling PART II CORPORATE TRANSACTIONS WITH SHAREHOLDERS 267 CHAPTER 5 Operating Distributions 269 COMMENTARY 269 A. Distributions of Cash Defining a Dividend Allocating Earnings and Profits 271 B. Distributions of Property 272 C. Constructive Dividends 273 D. Corporate Shareholders 273 E. Redemptions Not Essentially Equivalent to a Dividend for the Shareholder Substantially Disproportionate Redemption Complete Termination Not Essentially Equivalent to a Dividend for the Corporation 277 F. Stock Dividends 278 PRIMARY LEGAL AUTHORITY 280 Kinch v. Commissioner 280 Welle v. Commissioner 281 Revenue Ruling

6 xiv Contents Revenue Ruling United States v. Davis 290 Lynch v. Commissioner 297 Koshland v. Helvering 304 CHAPTER 6 Related Corporations and Other Bailout Techniques 309 COMMENTARY 309 A. Acquisitions by Related Corporations Brother-Sister Acquisitions Parent-Subsidiary Acquisitions Shareholder Treatment Corporate Treatment 313 B. Preferred Stock Bailouts Section 306 Stock Dispositions Exceptions 316 PRIMARY LEGAL AUTHORITY 316 Niedermeyer v. Commissioner 316 Chamberlin v. Commissioner 327 Coyle v. United States 338 CHAPTER 7 Complete Liquidations 345 COMMENTARY 345 A. Non-Subsidiary Liquidations Shareholder Consequences Corporate Consequences 347 B. Subsidiary Liquidations Parent Liquidating Subsidiary Distributions to Minority Shareholders 348 PRIMARY LEGAL AUTHORITY 349 Cherry-Burrell Corp. v. United States 349 George L. Riggs, Inc. v. Commissioner 358 PART III TRANSFORMATIVE TRANSACTIONS 373 CHAPTER 8 Taxable Acquisitions 375 COMMENTARY 375 A. Mergers and Acquisitions 375 B. Asset Acquisitions 376

7 Contents xv C. Stock Acquisition 378 D. Section 338 Elections Aggregate Deemed Sales Price Adusted Grossed-Up Basis Stock Acquisitions of Corporate Subsidiaries 382 PRIMARY LEGAL AUTHORITY 383 Commissioner v. Court Holding Co. 383 United States v. Cumberland Pub. Serv. Co. 384 Kimbell-Diamond Milling Co. v. Commissioner 387 CHAPTER 9 Tax-Free Acquisitive Reorganizations 395 COMMENTARY 395 A. Tax-Free Reorganizations Judicial Requirements Statutory Requirements 398 a. A Reorganizations 398 b. B Reorganizations 399 c. C Reorganizations 400 d. Forward Subsidiary Merger 402 e. Reverse Subsidiary Merger 403 f. Parenthetical Triangular Reorganizations Step Transaction Doctrine and B. Nonrecognition Treatment Consequences to the Corporate Transferor Consequences to the Corporate Transferee Consequences to Shareholders 406 PRIMARY LEGAL AUTHORITY 407 Pinellas Ice & Cold Storage Co. v. Commissioner 407 Helvering v. Minnesota Tea Co. 412 Bentsen v. Phinney 416 John A. Nelson Co. v. Helvering 420 Revenue Ruling Revenue Ruling McDonald s Restaurants of Ill., Inc. v. Commissioner 426 King Enters., Inc. v. United States 436 Commissioner v. Clark 446 Revenue Ruling CHAPTER 10 Tax-Free Divisive Reorganizations 455 COMMENTARY 455 A. Statutory Requirements Distribution of Stock and Securities 456

8 xvi Contents 2. Device Test Active Conduct of a Trade or Business 457 B. Common Law Requirements 458 C. Statutory Anti-Abuse Provisions 459 D. Corporate and Shareholder Consequences Treatment of Distributing Corporation Treatment of Shareholders 461 PRIMARY LEGAL AUTHORITY 462 Revenue Ruling Rafferty v. Commissioner 464 Estate of Lockwood v. Commissioner 470 Gregory v. Helvering 478 Commissioner v. Morris Trust 480 CHAPTER 11 Other Tax-Free Transactions 487 COMMENTARY 487 A. Horizontal Double Dummy Acquisitions 487 B. Recapitalizations 489 C. F Reorganizations 490 PRIMARY LEGAL AUTHORITY 491 Private Letter Ruling Bazley v. Commissioner 496 Revenue Ruling Revenue Ruling PART IV THE BORDERS OF SUBCHAPTER C 505 CHAPTER 12 Consolidated Returns 507 COMMENTARY 507 A. The Consolidated Group Includible Corporations % Voting and Value Test 508 B. The Consolidated Return Deferred Intercompany Transactions Stock Basis Adustments and the Excess Loss Account 511 PRIMARY LEGAL AUTHORITY 512 Alumax Inc. v. Commissioner 512 Rite Aid Corp. v. United States 517 Notice

9 Contents xvii CHAPTER 13 S Corporations 525 COMMENTARY 525 A. Eligibility Shareholder Limit Single Class of Stock Permitted Shareholders and Subsidiaries 527 B. Election 528 C. Taxation Shareholder Taxation Distributions 529 PRIMARY LEGAL AUTHORITY 530 Mazo v. Commissioner 530 Ward v. United States 532 CHAPTER 14 Survival of Tax Attributes 537 COMMENTARY 537 A. Carryovers of Tax Items Carryover Items Operating Rules 539 B. Carryover Limitations Section Section a. Ownership Change 540 b. Section 382 Limitation 541 PRIMARY LEGAL AUTHORITY 542 Helvering v. Metropolitan Edison Co. 542 New Colonial Ice Co. v. Helvering 544 Denver & Rio Grande W. R.R. v. Commissioner 547 Table of Cases 551 Table of Authorities 559 Index 569