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Finally, a tax course designed to meet the unique needs of financial executives! Get the latest information on tax developments which will impact your company. Recent tax legislation, regulations, cases and rulings will be presented from the internal management perspective. In addition you will stay on top of those "hardto- handle" issues facing members in industry practice such as reasonable compensation for shareholders, payroll taxes and worker classification, depreciation, UNICAP rules, and travel and entertainment, as well as current multistate tax issues such as nexus.
Objectives:Prerequisite: A working knowledge of business taxation
TOC from previous edition. Please check back for updates.
745570
Excerpt from previous edition. Please check back for updates.
Chapter 0 - Introduction
This update will review sections of multiple laws passed since last year's update. They are labeled in the update as follows:
In addition to these laws this course will discuss guidance from both the executive and judicial branches. Given the volume of statutory, administrative, and judicial guidance that is issued every year, it is impossible to cover all items. The goal of this course is to provide insight into the areas deemed most likely to affect CPAs in industry positions as financial executives or controllers. The table of contents lists the topical coverage of this course.
In addition to formally published guidance, this update includes some cases that are listed as unpublished opinions by the various courts. These cases are not included in the update to be used as precedent. Legal advice should be sought before such use is made. They are included, however, to provide the participant in this course with knowledge of how the courts are interpreting matters of interest. Likewise, private rulings issued by the IRS (Service), while only binding with regard to that particular taxpayer, are useful to practitioners in identifying the Service's opinion of various issues for which higher levels of administrative guidance have not been issued.
Throughout the text, references made to the Service should be taken by the reader to mean the Internal Revenue Service (IRS) unless otherwise noted. Similarly, in some cases in which the statutory guidance refers to either the Secretary or Commissioner, the author may have substituted the term Service. This is done for simplicity since the Service is the designee of the Secretary in the case of tax matters. Use of the word section (at the beginning of sentences or paragraphs) or the § symbol (within sentences) throughout the course should be taken to mean the relevant section of the Internal Revenue Code unless otherwise noted.
It is important to note that as of the time this manual went to print, many expiring provisions have not yet been extended to cover 2008. It will be important that practitioners watch for changes in this area prior to filing 2008 returns. Some of the major provisions not yet extended for 2008 include:
Chapter 1 - C Corporations
Transaction Designed as a Reverse Subsidiary Reorganization Treated as Stock Purchase and Subsequent Liquidation
Revenue Ruling 2008-25, IRB 2008-21, examines a merger of a corporation's newly formed subsidiary into a target corporation, which is subsequently followed by the liquidation of the target. The Ruling determined that this did not qualify as a reverse subsidiary reorganization. It was instead determined to be a qualified purchase of stock followed by a liquidation of the target.
Section 368(a)(1)(A) defines a reorganization as a statutory merger or consolidation, commonly referred to in practice as a state law merger or an A reorganization. Section 368(a)(2)(E) provides that a transaction otherwise qualifying as an A reorganization is not disqualified simply because stock of a corporation in control of the merged corporation is used in the transaction provided certain requirements are met. To meet these requirements, after the transaction, the corporation surviving the merger must hold substantially all of its properties and the properties of the merged corporation (other than stock of the controlling corporation distributed in the transaction). In addition, the former shareholders of the surviving corporation must have exchanged, for voting stock of the controlling corporation, stock in the surviving corporation which constitutes control of that surviving corporation. The Ruling notes that, additionally, Regulation §1.368-2(j)(3)(iii) provides that assets transferred from the controlling to the merged corporation as part of the plan of reorganization are not taken into account as part of the substantially-all test with regard to the merged corporation.
Section 368(a)(2)(B) provides for a B reorganization, commonly referred to as a stock-for-stock reorganization, which involves one corporation acquiring substantially all of the properties of another corporation, and which would qualify under §368(a)(1)(C) except that the acquiring corporation exchanges money or other property in addition to voting stock, and the acquiring corporation acquires, solely for voting stock described in §368(a)(1)(C), property of the other corporation having a fair market value which is at least 80% of the fair market value of all of the property of the other corporation. In this type of reorganization, any liabilities assumed by the acquiring corporation are treated as money paid for the property.
Section 368(a)(1)(C) provides for a C reorganization, commonly referred to as an assets for stock reorganization, which involves the acquisition by one corporation, in exchange solely for all or part of its voting stock, of substantially all of the properties of another corporation. In addition, in determining whether the exchange is solely for stock, the assumption by the acquiring corporation of a liability of the other shall be disregarded.
The Ruling notes that Regulation §1.368-1(a) generally provides that in examining the qualifications of a reorganization, the step-transaction doctrine must be considered along with any other relevant provisions of the Code. It is possible for distributions to be made to shareholders without disqualifying the transaction. Regulation §1.368-2(k) states that a reorganization is not disqualified simply because of distributions to shareholders even if they include the assumption of liabilities as long as:
Earlier guidance in Revenue Ruling 67-274, 1967-2 CB 141, held that an acquiring corporation's acquisition of all of the stock of a target corporation solely in exchange for voting stock of the acquiring corporation, followed by the liquidation of the target corporation as part of the same plan, was treated as an acquisition by the acquiring corporation of substantially all of the target corporation's assets in a C reorganization. It found that both the acquisition and the liquidation were part of the overall plan of reorganization. It was, therefore, not appropriate to consider the steps independently.
Additional guidance in Revenue Ruling 2001-46, 2001-2 CB 321, held that, where a newly formed wholly owned subsidiary of an acquiring corporation merged into a target corporation, followed by the merger of the target corporation into the acquiring corporation, the step transaction doctrine is applied. This resulted in the transaction being treated as an A reorganization (a single statutory merger). The current Ruling noted that in Ruling 2001-46, the Service found that the intent of §338 was not violated by treating the steps as an A reorganization and resulted in a carryover basis in the assets per §362, instead of a cost basis per §1012.
Section 338(a) provides for a corporation to make a qualified stock purchase and have it treated as an asset purchase if the proper election is made. This election is made on Form 8023, and is to be made by the fifteenth day of the ninth month after the month of acquisition. To qualify, 80% of the target's stock (vote and value, except for certain types of non-voting preferred stock) must be purchased within a 12-month period. Most acquisitions of stock will count as a purchase, but not exchanges to which §§351, 354, 355, or 356 apply.
745570
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