New proposed regulations limit the deemed exercise rule for options under Section 382

Article Abstract:

The IRS has issued proposed regulations for IRC Section 382 governing the conditions under which the acquiring of stock from a loss corporation triggers a change in ownership. The new regulations will supersede the overly rigorous temporary regulations by declaring that options will be treated as exercised only during abusive situations. Several factors define an abusive situation such as a stock price well under the fair market value. The IRS has acted wisely in easing the strictness of Section 382.

Acquisitions and mergers, Corporate taxes, Stock options, Corporations

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Downstream reorganizations of holding corporations owning minority stock interests

Article Abstract:

Corporations wishing to transfer appreciated minority interest in another corporation to shareholders without triggering a taxable dividend distribution should consider downstream reorganization. The reorganization will be tax-free under IRC section 368(a) if the assets and minority interest are transferred to the minority-interest corporation and if continuity of business is maintained. The corporation also must be able to show a valid business purpose for the reorganization.

Subsidiary corporations, Subsidiaries, Dividends, Corporate reorganizations

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Are expenses incurred in obtaining LBO loans deductible?

Article Abstract:

The IRS has determined that loan commitment fees associated with obtaining loans to redeem stock are not deductible as amortizable expenses. A federal court sustained this position in a recent case involving a corporation that incurred large fees while acquiring loans during a leveraged buyout. It is unclear if this was the original intent of Congress in passing section 162(k). Other possible ways of deducting the expenses incurred through such loans are discussed.

Analysis, Leveraged buyouts, Amortization

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