Insolvents can avoid income from discharges of debt

Article Abstract:

Taxpayers discharging indebtedness income could exclude such income before the passage of the Tax Reform Act (TRA) of 1986 by choosing to elect a reduction under Sections 108 and 1017 in the basis of their depreciable property. After TRA 86, solvent taxpayers with qualified business indebtedness could no longer use the exclusion and basis reduction. Income is excludable from a discharge of indebtedness under the new provisions of Section 108 only when the discharge occurs when the taxpayer is insolvent, the bankruptcy proceedings are conducted under Title 11, and the indebtedness is qualified farm indebtedness. However, Section 108 contains a deferral provision allowing income that would be otherwise recognized to be used to reduce specified tax attributes of the debtor in order to lessen the burdens of income tax liability on insolvent and bankrupt debtors upon release from their indebtedness when they do not have a adequate cash flow.

Bankruptcy, Bankruptcy discharge

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TAMRA adds new considerations to the choice between asset and stock acquisitions

Article Abstract:

Provisions of the Technical and Miscellaneous Revenue Act of 1988 (TAMRA) and the Tax Reform Act of 1986 (TRA 86) made major changes to the taxation of corporate acquisitions. TRA 86 repealed the General Utilities doctrine which provided tax deductions for business dispositions. The General Utilities repeal does not, however, affect corporations which elected S status before 1987. TRA 86 also introduces a built-in gains tax on S corporations which changed from C to S status after 1986. TAMRA Section 1060 removed some of the flexibility in purchase price allocation and provides allocation rules for certain asset acquisitions. TAMRA has made some other changes including: changing the language so that sellers no longer have the unilateral decision to treat certain subsidiary stock distributions as asset transfers; and providing transitional rules for certain types of corporations.

Acquisitions and mergers, Accounting and auditing

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Strategies to avoid penalties on corporate estimated income tax payments after TAMRA

Article Abstract:

The Technical and Miscellaneous revenue Act of 1988 will have major effects on the payment of corporate taxes. The Act provides four different methods for computing tax liability including: current year tax return figures; prior year tax return figures; annualized income for the particular installment period; and annualized seasonal earning patterns. The Act also provides for strict recapture provisions, penalties for underpayments, and special provisions for large corporations.

Tax planning

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