Tax effects of boot in corporate reorgs. can be controlled

Article Abstract:

The tax-free status of a corporate reorganization may be jeopardized if the transaction involves the receipt of additional property instead of just being limited to the exchange of equity interests between the participating organizations and their shareholders. At the very least, the presence of such additional property, called boot, in the reorganization transaction can result in the partial recognition of gain. The worst consequence of the boot is the total loss of the reorganization's tax-free characterization. Discussed are the effects of the receipt of boot on the following types of corporate reorganization: statutory mergers or consolidations; stock-for-stock exchanges: stock-for-asset exchanges; divisive reoganizations governed by Section 355; recapitalizations; change in the corporation's form, identity and location; and transfers in Title 11 or bankruptcy transactions.

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Divisive reorgs. must tread more softly after RRA '90

Article Abstract:

The taxation of distributions of subsidiary stock in divisive reorganizations has been affected by the amendments made to the divisive corporate transaction provisions of Section 355 of the Internal Revenue Code (IRC) by the Revenue Reconciliation Act of 1990. Corporations may have to recognize the gain on the distribution of controlled corporation stock, even if IRC Section 368(a)(1)(D) states that the transaction is tax-free. Gains may be recognized by C corporations or S corporations. IRC Section 355(a)(1)(B) states that the distribution of controlled corporation stock must not be used as a method of distributing the controlled corporation's or the distributing corporation's earnings and profits.

Accounting and auditing, Subsidiary corporations, Subsidiaries, Securities, Capital gains tax

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Asset sales come under tighter scrutiny by IRS

Article Abstract:

Section 1060 outlines the allowable allocation and reporting procedures for applicable asset acquisitions. The provisions of Section 1060 specify that the purchase price of an asset acquired be determined by the residual method of Section 338(b), unless a written agreement between buyer and seller allows otherwise. If a written agreement serves as a basis for the allocation, the agreement is binding unless found inappropriate by the IRS.

Laws, regulations and rules, Assets (Accounting)

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