Table of Contents. Acknowledgments. Chapter 1: Introduction to Corporate Tax 1. Chapter 2: Taxation of S Corporations 5

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1 Preface Acknowledgments xxi xxv Chapter 1: Introduction to Corporate Tax 1 Chapter 2: Taxation of S Corporations 5 A. Passthrough System under Subchapter S 5 1. Tax Responsibilities of the S Corporation 5 2. Shareholder Inclusion of Tax Items 6 Problem Shareholder Basis Adjustments 8 Problem Limitation on the Passthrough of Losses 10 Uri v. Commissioner 10 Problem Gitlitz v. Commissioner Absence of Inside Basis Adjustments 22 Notice Distributions by S Corporations Without E&P 24 Problem B. Eligibility and Election Eligibility for S Status 28 a. Limited Number of Shareholders 29 b. Only Individuals and Certain Entities May Be Shareholders 29 Rev. Rul c. No More Than One Class of Stock 34 Paige v. United States 34 Problem Election and Termination of S Status 39 Problem Problem xi

2 xii Table of Contents C. Some Data on S Corporations and Other Business Entities 41 Chapter 3: Taxation of C Corporations 47 A. Classification Issues Incorporated Entities 48 Commissioner v. Jesse C. Bollinger Unincorporated Entities 52 B. Taxation of C Corporation Income and Loss Brief Overview of Taxation of C Corporations 56 Treasury Department Excerpt Brief Overview of Taxation of Investors in C Corporations Avoiding or Mitigating the Effect of the Double Tax 69 a. Compensation 69 Menard, Inc. v. Commissioner 70 b. Capital Structure 79 Problem Notice Notice c. New Financial Products 86 Alvin C. Warren, Jr., U.S. Income Taxation of New Financial Products 86 Problem d. Earnings Accumulation 91 C. Reforming the Taxation of C Corporations Corporate Integration 98 Joint Committee on Taxation Excerpt Providing Greater Conformity Between Book and Taxable Income 102 Joint Committee on Taxation Excerpt Broadening the Corporate Income Tax Base 110 Treasury Department Excerpt 111 Chapter 4: Substance vs. Form 119 A. Judicial Principles 119 Gregory v. Helvering 122 United Parcel Service of America, Inc. v. Commissioner 127 B. Other Government Responses to Tax Avoidance Introduction 135 Notice

3 xiii 2. Disclosure and Related Requirements to Curb Tax Avoidance 138 C. Codification of Economic Substance Doctrine 143 Joint Committee on Taxation Excerpt 143 Chapter 5: Ordinary Distributions 151 A. Shareholder-Level Consequences Earnings and Profits 152 Rev. Rul Problem Rev. Rul Taxation of Dividends Received by Shareholders Who Are Individuals 159 Problem Taxation of Dividends Received by Corporate Shareholders 161 a. Dividends-Received Deduction 161 The Progressive Corp. v. United States 163 b. Special Treatment of Extraordinary Dividends 169 Problem c. Debt-Financed Portfolio Stock 171 Rev. Rul Problem B. Corporate-Level Consequences 177 General Utilities & Operating Co. v. Helvering 177 Problem C. Distributions by S Corporations with E&P 181 Problem Chapter 6: Redemptions 187 A. Introduction 187 B. Taxation of Corporate Redemptions Shareholder-Level Consequences 190 a. Constructive Ownership Rules 190 Problem Problem b. Substantially Disproportionate Redemptions 191 Rev. Rul Problem c. Redemptions Terminating the Shareholder s Interest 195 Lynch v. Commissioner 196

4 xiv Table of Contents Rev. Rul Problem Problem Problem d. Redemptions Not Essentially Equivalent to a Dividend 206 United States v. Davis 206 Patterson Trust v. United States 211 Rev. Rul Rev. Rul e. Partial Liquidations 219 Rev. Rul f. Section Corporate-Level Consequences 221 Problem Redemptions by S Corporations 223 Problem Problem C. Tax Planning Involving Corporate Redemptions 224 Grove v. Commissioner 224 Zenz v. Quinlivan 230 Rev. Rul Notice H.J. Heinz Co. v. United States 240 Chapter 7: Transfers to Controlled Corporations 249 A. Transfers of Property by Shareholders to Corporations The Required Transfer of Property 250 James v. Commissioner The Control Requirement 256 Kamborian s Estate v. Commissioner Solely for Stock Requirement 261 Rev. Rul Preservation of Gain or Loss Not Recognized in Section 351 Transaction 265 Problem Contributions to Capital 269 Commissioner v. Fink 269 B. Assumption of Liabilities Basic Rules 275 Lessinger v. Commissioner 275 Problem Anatomy of a Tax Shelter 282 Rev. Rul

5 xv Notice Coltec Industries, Inc. v. United States 292 Chapter 8: Redemptions Involving Related Corporations 305 A. Brother-Sister Acquisitions 306 Rev. Rul Merrill Lynch & Co. v. Commissioner 312 B. Parent-Subsidiary Acquisitions 315 Bhada v. Commissioner 316 Problem Chapter 9: Stock Distributions and Preferred Stock Bailouts 323 A. Distributions of Stock or Stock Rights of the Distributing Corporation Stock Distributions Subject to Shareholder Election to Receive Property Other Than Stock 324 Rev. Rul Problem Stock Distributions with Disproportionate Effect 328 Rev. Rul Problem Review Problem B. Preferred Stock Bailouts Definition of Section 306 Stock Dispositions of Section 306 Stock Exceptions 339 Chapter 10: Taxable Corporate Acquisitions and Liquidations 341 A. Shareholder-Level Consequences In General Liquidating Distributions to a Controlling Corporate Shareholder 344 Problem B. Corporate-Level Consequences Pre-1986 Law Liquidations under Current Law 351 House Ways and Means Committee Report 351 Problem

6 xvi Table of Contents 3. Asset Acquisitions under Current Law 353 a. Effect of Purchase Price Allocation Agreement 354 Commissioner v. Danielson 354 b. Allocation of Purchase Price to Intangible Assets 358 Problem Stock Acquisitions under Current Law 364 a. Transactions Qualifying under Section b. Transactions Qualifying under Section 336(e) 367 c. Transactions Involving Intermediaries 368 Notice C. Taxable Acquisitions and Liquidations Involving S Corporations In General The Built-In Gains Tax 374 Problem Excess Passive Investment Income 377 Chapter 11: Nondivisive Reorganizations 379 A. Origins of the Reorganization Concept 380 Marr v. United States 380 B. Definition of a Nondivisive Reorganization Introduction Nonstatutory Requirements 385 a. Continuity of Interest (COI) Doctrine 385 May B. Kass v. Commissioner 387 J.E. Seagram Corp. v. Commissioner 390 T.D Problem b. Continuity of Business Enterprise (COBE) Doctrine 399 T.D c. Business Purpose Requirement Asset Acquisitions Qualifying as Reorganizations 403 a. Merger of Target into Issuing Corporation 403 Rev. Rul b. Forward Triangular Merger 407 S. Rep. No c. Acquisition of Target s Assets 410 Rev. Rul Bausch & Lomb Optical Co. v. Commissioner 413 Problem Problem Stock Acquisitions Qualifying as Reorganizations 417 a. Acquisition of Target s Stock 417

7 xvii Chapman v. Commissioner 417 Problem b. Reverse Triangular Merger 426 S. Rep. No Problem Tribune Co. v. Commissioner Summary Acquisitive Transactions as Reorganizations 435 Problem Rev. Rul Other Nondivisive Reorganizations 437 a. Transfer of Assets to Controlled Corporation 437 Joint Committee on Taxation Excerpt 439 Problem b. Mere Change in Identity, Form, or Place of Organization of One Corporation 444 Rev. Rul c. Recapitalization 447 Bazley v. Commissioner 447 C. Tax Consequences of a Nondivisive Reorganization Threshold Considerations Tax Consequences to T Tax Consequences to S and P 453 a. Recognition of Gain or Loss 453 b. S s Basis in T Assets or Stock 453 c. P s Basis in S Stock 454 d. Survival of T s Attributes Tax Consequences to T Shareholders and Security Holders 455 a. Recognition of Gain or Loss 455 b. Amount and Character of Gain or Loss 456 c. Basis in Properties Received 458 Problem D. Final Observation 460 Chapter 12: Divisive Reorganizations 463 A. Introduction 463 Rockefeller v. United States 463 B. Tax Consequences to the Distributee Introduction Control and Distribution of Control 467 Commissioner v. Gordon Not a Device 476 Rev. Rul

8 xviii Table of Contents Problem Active Business Requirement 479 Rev. Rul Nonstatutory Requirements 484 Problem Tax Consequences to Distributee in Qualifying Section 355 Transaction 486 C. Tax Consequences to the Distributing Corporation Distributions Preceded by Certain Stock Purchases 490 Problem Distributions That Are Part of Certain Planned Acquisitions 493 Rev. Rul Problem Cash-Rich Split-Offs and the Problem of Disguised Exchanges 502 Problem Section 355 Alternatives 504 Notice Chapter 13: Limitations on Net Operating Loss Carryovers 509 A. Introduction and Prior-Law Limitations Developments Prior to 1954 Code 509 Libson Shops, Inc. v. Koehler Developments Between 1954 and B. Current-Law Limitations on NOL Carryovers Section 382 Limitation and Required Business Continuity Ownership Change 517 H. Conf. Rep. No Problem Problem Built-In Gains and Losses 529 Problem Anti-Avoidance Rules 531 Berry Petroleum Co. v. Commissioner 531 Chapter 14: Consolidated Returns 543 A. Introduction 543 B. Eligibility 545 Alumax Inc. v. Commissioner 545 Problem

9 xix C. Computation of Consolidated Taxable Income and the Special Treatment of Intercompany Transactions 551 Problem D. Investment Adjustment Rules 555 Woods Investment Co. v. Commissioner 556 Problem E. Loss Limitations on Dispositions of Member Stock 560 Table of Authorities 565 Index 583