Avoid tax when incorporating with encumbered assets

Article Abstract:

A 1998 decision by the Ninth Circuit held that a taxpayer who contributed a promissory note to his new corporation avoided tax that was otherwise payable as a result of his contribution of assets subject to liabilities exceeding basis. In examining 'Peracchi,' the court studied the scope of Sec 357(c) on facts that were very similar to those found in 'Lessinger,' a 1989 case that was handled by the Second Circuit. In that earlier case, the court held that Sec 357(c) did not mandate the recognition of gain when a transfer of promissory note is made to balance an inadequacy in the basis of the transferred assets relative to the liabilities to which the corporation succeeded. The Ninth Circuit arrived at the same conclusion but relied on a very different rationale. Nevertheless, it provides further support to the Second Circuit position that contribution of promissory note eliminates Sec 357(c) gain.

Cases, Transfer taxes, Recognition of gain or loss (Taxation), Recognized gain or loss (Taxation), Promissory notes

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Poor timing precluded deduction of guarantor fees

Article Abstract:

The Court of Federal Claims has issued a ruling on a case involving a closely held corporation that deducted fees paid to shareholders for guaranteeing its debt. In 'Seminole Thriftway, Inc,' the court ruled in favor of the IRS which had challenged the deductions claimed. The ruling is a reminder that the court is unlikely to agree that purportedly deductible payments are needed in cases where guarantor fees are not backed by a written agreement.

Laws, regulations and rules, Stockholders, Tax deductions, Close corporations, Closely held corporations, United States. Court of Federal Claims, Suretyship and guaranty, Guarantees, Sureties, Tax courts

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Trio of rulings foster tax-free triangular reorganizations

Article Abstract:

The authors discuss IRS rulings that provide greater flexibility in the use of triangular mergers during acquisitive corporate reorganizations. Topics include forward and reverse triangular mergers, drop-downs of stock or assets, and planning tips.

United States, Taxation, Acquisitions and mergers, Corporate reorganizations

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