Creative use of section 355: the Hughes Aircraft-Raytheon transaction

Article Abstract:

The transactions entered into by General Motors and Raytheon Co. regarding GM's Hughes Electronics Corp. suggest that IRC section 355 can be used to spin off a newly organized subsidiary tax-free, but proposed legislation may limit such planning. The GM-Raytheon transaction involved contributing Hughes to a subsidiary of GM and then having that subsidiary acquire Raytheon. The IRS is suspicious of pre-arranged acquisitions following spin-offs. The Clinton Administration and Congress are considering amendments to section 355 that would preclude tax-free treatment of such transactions.

Mergers & Acquisitions, Mergers, acquisitions and divestments, GMH, Raytheon Co., Corporate reorganizations, Corporate divestiture, Divestiture, RTN, GM Hughes Electronics Corp.

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Gifting stock options

Article Abstract:

The stock option plans of many public corporations have been revised to allow participants to gift stock options to family members and family trusts and partnerships. Such gifts can provide the stock option holders with the opportunity to transfer wealth out of the estate while the gift tax valuation is still relatively small. The IRS has ruled that the risk of forfeiture in stock options that may occur from death or voluntary termination does not constitute a retained power of disposition. The SEC has not exempted gifts to family members from section 16(b) liability.

Laws, regulations and rules, Stock options, Gift tax

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Clouds gathering over corporate equity split-dollar insurance plans

Article Abstract:

IRS efforts to restrict the use of equity split-dollar life insurance arrangements to compensate executives without current taxation may be minimized by proper planning. In Technical Advice Memorandum 9604001, the IRS stated that term costs and the excess of cash value increases over repayments owed are taxable and that ownership of the policy by a trust may trigger gift taxes. Creation of a contemporaneous deferred compensation plan or imposing a risk of forfeiture may solve the income recognition problems.

Methods, Tax planning, Employee benefits, Split-dollar life insurance, Split dollar life insurance

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