Business Tax Stories: An In Depth Look at the Ten Leading Corporate and Partnership Tax Cases
Author:
Bank, Steven A.
Edition:
1st
Copyright Date:
2005
14 chapters
have results for Business Tax Stories
Introduction: An Evolutionary Perspective on the History of U.S. Business Taxation 33 results (showing 5 best matches)
- The Story of LLCs: Combining the Best Features of a Flawed Business Tax Structure
- As Bank explains, some have called the introduction of double taxation under the circumstances of the Revenue Act of 1936 “inadvertent” or a case of “business talk[ing] itself into a higher tax bill.” The story, however, is much more complicated than that, involving a clash over the control of corporate earnings. The threat posed to managers by the undistributed profits tax led to the retention of the corporate income tax and the repeal of the dividend exemption. Far from being a typical New Deal assault on big business or an inadvertent by-product of the compromise over Roosevelt’s original proposal, double taxation was a pro-manager measure adopted to blunt the force of the undistributed profits tax. Business leaders and their ...dividend exemption and the resulting imposition of double taxation would aid in aligning management-shareholder attitudes toward the retention of corporate earnings. Double taxation thus became a tool in the campaign against the undistributed profits tax...
- The Story of the Separate Corporate Income Tax: A Vehicle for Regulating Corporate Managers
- It is our hope that the ten chapters presented in this book will offer students of U.S. tax law new insights on the dynamic processes of change at work in the evolution of American business taxation. As we have tried to demonstrate in this introduction, these “stories” may not always point to a single “theory” or “model” of evolution, but taken together we believe that they provide ample evidence of why this field has captured the interest of several generations of tax lawyers, scholars and historians.
- The Story of Gregory: How Are Tax Avoidance Cases Decided?
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Chapter 7: The Story of Subchapter K: Mark H. Johnson‟s Quest 99 results (showing 5 best matches)
- The story of Subchapter K is part of a larger story about how much of the conceptual bones and sinews of modern tax law were created in the middle of the last century by practicing lawyers who wanted rules and theories to guide them in the day-to-day practice of law. The story of Subchapter J closely parallels that of K, but the phenomenon is broader still. Indeed, much the same story could be told about corporate tax, international tax, employee benefits, and more. A professional elite of tax lawyers was summoned into being by the rise in tax rates and the infiltration of tax concerns into all aspects of business and wealth planning. The story of Subchapter K offers a glimpse of the people and institutions that made modern tax law.
- Arthur Willis, who became chair of the Partnership Tax Section in 1953, takes our story up to the point immediately before the passage of the 1954 Code. This is from his report to the Tax Section, which apparently was written some weeks before the August 1954 meeting.
- A more likely explanation for why they thought the government indifferent to the allocation of income and loss among partners lies in the obscurity and uncertainty of partnership tax law. Tax law uncertainty precluded the sort of artful tax alchemy using partnerships melding different tax clienteles as partners and lenders that we came to know so well in the last quarter of the 20 were used despite tax law uncertainty because they were a convenient informal basis for doing business.
- The tax games that were played with partnerships involved using family partnerships to shift income to low-bracket family members, converting businesses into partnerships prior to their sale to convert ordinary income from the sale of inventory and receivables into capital gain, and selecting a tax year for a partnership to defer income. An exchange between Rabkin, Johnson, and Joyce Stanley at a 1951 Tax Institute symposium gives a small glimpse of the nature of the practice. It will ring familiar to any tax lawyer who has talked about aggressive planning among peers. The topic was the tax year of the partnership. Stanley opined that a partnership should not close its tax year upon the admission of a new partner. Closing the year is to the partners’ tax advantage because it shifts income for the balance of the year to the following year. This prompted Rabkin to ask:
- Mark H. Johnson is a forgotten protagonist of the story of Subchapter K. Born in 1911, he graduated from City College in 1932 and NYU Law School in 1935, where he was an editor of the Law Review. There is a good chance Mark attempted to find work at the elite Wall Street law firms when he got out of law school but was turned away because he was Jewish. Such were the times. This was the experience of his future co-author and partner Jacob Rabkin, also Jewish, an NYU graduate, and six years Mark’s senior. He hit his stride when he teamed up with Jacob Rabkin sometime in the early 1940s. Rabkin and Johnson produced the first loose-leaf tax treatise in the early 1940s. It may well have been the first loose leaf legal treatise of any type. Years later Mark wrote in a defense of loose-leaf treatises “the present author and his partner may justly be accused of being the first sinners.” ...two and Johnson as the theoretician. Both were on the faculty of NYU’s graduate tax program. Mark...
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Chapter 9: The Story of Seagram: The Step Transaction Doctrine On the Rocks 92 results (showing 5 best matches)
- Two stories meet in a 1995 decision of the United States Tax Court. This essay tells both tales. One is the tax story of the development of the step transaction doctrine—a judge-made doctrine which is a brooding omnipresence throughout the federal income tax, and which broods with particular force over the corporate tax provisions of subchapter C. The other is the business story of the intertwined fates of Seagram and three generations of the Bronfman dynasty.
- The essay begins with a very brief history of Samuel Bronfman and the founding of the Seagram empire. It then turns to the events of 1981 which are the subject of the Tax Court’s opinion, starting with Seagram’s attempt to acquire control of Conoco and ending with Seagram’s obtaining a minority interest in Du Pont. It next examines the Tax Court’s opinion, and explains how the opinion features in the evolution of the step transaction doctrine. The essay concludes by bringing both the tax and business stories up to date, with a recounting of the post-1981 business and tax fortunes of Seagram, the Bronfmans, Du Pont, and Conoco.
- Seagram’s 1995 disposition of its Du Pont stock promises to generate tax litigation just as compelling (for those who are compelled by that sort of thing) as the litigation over Seagram’s acquisition of its Du Pont stock in 1981. Unfortunately for the theme of this essay, the brewing controversy with respect to the disposition does not appear to involve the step transaction doctrine. Still, the story of Seagram’s investment in Du Pont would not be complete without a description of the tax and business issues relating to the 1995 disposition.
- . This section shifts the focus from the fate of legal doctrines to the business fates of Seagram’s investment in Du Pont, of Du Pont’s investment in Conoco, and of Seagram itself. For those who are bored by non-tax stories, be assured that there are tax angles here, too. In fact, this author is not aware of any other series of related corporate transactions as rich in intriguing tax issues as the Seagram-Du Pont-Conoco saga. A professor planning a seminar on advanced problems in corporate taxation could do worse than devoting the entire semester to an examination of the 1981 transaction considered above, and the transactions of 1995 and 1998-99 described below.
- story—concerning the taxation of tender offers-plus-mergers, and the application of the COI rules to pre- and post-merger stock dispositions—had happy endings. For each area of legal uncertainty, within a few years following the Tax Court’s opinion the law was clarified, in a way which made good sense in terms of both step transaction analysis and the policies underlying the corporate reorganization provisions. Taxpayers no longer have to guess as to the tax consequences of transactions in these areas, litigation is no longer necessary, and good tax policy is furthered.
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Chapter 10: The Story of the Limited Liability Company: Combining The Best Features of a Flawed Business Structure 76 results (showing 5 best matches)
- Until the creation of the Wyoming LLC, the corporation was the only domestic business organization that offered direct statutory limited liability. The limited liability protection offered by the corporate form came at a cost. Then, as now, business organizations formed as corporations faced a double tax on profits unless they qualified as S corporations. Although S corporations enjoy only one owner-level of tax similar to partnerships they are subject to a number of other restrictions not applicable to partnerships and other unincorporated business entities. of corporations and the favorable tax treatment of partnerships. But securing this double benefit required not only an accommodating state legislature, but also compliance with complex federal tax regulations concerning the classification of business entities. This chapter relates the “story” behind the remarkable rise of the LLC over the past quarter century. As we shall see, it is a story of taxpayer ingenuity, adept...
- Second, LLCs offer little potential to supplant businesses paying significant corporate taxes. Businesses fitting the prototype of a small closely-held firm that choose LLCs will cost the Treasury at most corporate tax revenues. Empirical evidence indicates that small corporations, which have always enjoyed the ability to eliminate the corporate tax by either electing subchapter S or by paying out corporate profits to the shareholders in a deductible fashion, account for a minuscule share of the corporate tax when compared to their gross receipts. LLCs also lack the ability to supplant larger widely-held corporations, even those that are not publicly traded, which do pay significant corporate taxes. This is because the business tax system treats the distributive share of income earned from a LLC as unrelated business taxable income for tax-exempt members or income effectively connected with a U.S. trade or business for foreign members. Dividends on corporate stock, however, are not...
- The Limited Liability Company: A Possible Choice For Doing Business?
- At the time the Wyoming LLC was created, the partnership classification regulations determined which unincorporated business organizations would be taxed as partnerships and which would be taxed as corporations by applying a corporate resemblance test based on four classic corporate characteristics—free transferability of interests, continuity of life, centralized management and limited liability. Under the technical language of these regulations, if any two of these four corporate characteristics were absent the unincorporated business organization would be taxed as a partnership. If three or more of these corporate characteristics were present then the unincorporated business organization would be taxed as a corporation.
- Understanding the dynamics behind the invention of the LLC after 1960 requires examining two key factors—i.e., the relative tax cost of doing business in the corporate and partnership forms and the general business climate. As we shall see, these factors help explain the motivations of the particular client—the Hamilton Brothers Oil Company—that ultimately invested the substantial time and effort necessary to invent the LLC. Until the Tax Reform Act of 1986, the combination of lower corporate tax rates, the preferential treatment of capital gains as well as other corporate preferences, resulted in a lower effective income tax burden on business profits for C corporations than for partnerships or S corporations. Consequently, from a tax perspective until 1986, business interests needing the ability to pass through start-up losses, which would otherwise be suspended in both the S and C corporation forms, had far more motivation to invent the LLC than business interests expected to...
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Business Tax Stories 11 results (showing 5 best matches)
- Chapter 1: The Story of the Separate Corporate Income Tax: A Vehicle for Regulating Corporate Managers
- Chapter 3: The Story of Gregory: How are Tax Avoidance Cases Decided?
- Chapter 8: The Story of Tufts: The “Logic” of Taxing Nonrecourse Loan Transactions
- Chapter 10: The Story of the Limited Liability Company: Combining The Best Features of a Flawed Business Structure
- Chapter 2: The Story of the Corporate Reorganization Provisions: From “Purely Paper” to Corporate Welfare
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Chapter 5: The Story of Double Taxation: A Clash over the Control Of Corporate Earnings 134 results (showing 5 best matches)
- Some have called the introduction of double taxation under the circumstances of the Revenue Act of 1936 “inadvertent” or a case of “business talk[ing] itself into a higher tax bill.” The story, however, is much more complicated than that, involving a clash over the control of corporate earnings. As this chapter will explain, the threat posed to managers by the undistributed profits tax led to the retention of the corporate income tax and the repeal of the dividend exemption. Far from being a typical New Deal assault on big business or an inadvertent by-product of the compromise over Roosevelt’s original proposal, double taxation was a pro-manager measure adopted to blunt the force of the undistributed profits tax. Business leaders and their allies in Congress hoped that the repeal of the dividend exemption and the resulting imposition of double taxation would aid in aligning management-shareholder attitudes toward the retention of corporate earnings. Double taxation thus became a...tax
- Dividend Déjà Vu: Will Double Tax Relief Get Canned—Again?
- On March 3, Roosevelt addressed Congress in a supplemental budget message and announced his undistributed profits tax proposal. In advocating for the undistributed profits tax, Roosevelt did not mention its positive effect on the economy or its incidental use in antitrust enforcement. Roosevelt instead emphasized the tax’s two more politically saleable features: (1) the ability to equalize the treatment of all business owners, and (2) the promise to “stop ‘leaks’ in present surtaxes.” to the former, Roosevelt noted the present inequity where businesses utilizing the corporate form could accumulate profits without penalty, while businesses operating as partnerships or sole proprietors were subject to tax regardless of whether any profits were withdrawn from the business. According to Roosevelt, “[a] proper tax on corporate income … which is not distributed as earned, would correct the serious twofold inequality in our taxes on business profits” by forcing corporations to distribute...
- These attacks served to reinforce the criticism that the tax was just a thinlyveiled attempt to control corporate governance. A editorial observed that “[i]t has become increasingly obvious that in the eyes of most of its sponsors the proposed tax on corporation surpluses is not primarily a revenue measure, but a new economic ‘reform.’” Businessmen registered loud approval when the U.S. Chamber of Commerce adopted a resolution at its annual meeting calling the undistributed profits tax an attempt “to regulate the management of corporations.” ...were concerned that the tax was intended to drive a wedge between themselves and their stockholders. Herman Lind of the National Machine-Tool Builders Association warned that “[t]he determination of dividend policy within an individual company will bring to the fore conflicts among various types of stockholders. A very different interest in the amount of earnings to be distributed will be found between stockholders of large incomes and those...
- See Congress Leaders Plan to Expedite Tax Aid Legislation
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Chapter 2: The Story of the Corporate Reorganization Provisions: From “Purely Paper” to Corporate Welfare 241 results (showing 5 best matches)
- The Story of Macomber: The Continuing Legacy of Realization
- Once the war was officially over, however, patience with high taxes grew thin. Business leaders who during the war had restrained their opposition to the high marginal rates and the unique profits taxes, for fear of being labeled unpatriotic, became increasingly vociferous in demanding tax reduction and the elimination of the excess profits tax. Even before it was enacted in 1917, business leaders had complained about the exceptional and complex nature of the excess profits tax. Yet once the excess profits tax became law, members of the business community for the most part confined their disapproval to highly private correspondences with administration officials, in the hopes of limiting the already pervasive anti-corporate sentiments. With the end of the war, and the political power shift in Congress, business leaders felt liberated in requesting tax reduction; letters, telegrams and petitions pleading for reduced rates and the abolition of the excess profits tax soon poured into...
- The Treasury Department’s attempts to legitimate the reorganization tax preference by eliminating egregious tax avoidance schemes was emblematic of a much larger structural transformation in business-government relations at the time. Indeed, the countless calls for tax certainty over tax relief illustrated the co-evolution of the partnership between government and business. By the mid-1920s the early corporatism of the Great War—where business, labor and the state bargained and cooperated to achieve political and economic gains—had been transformed into a robust form of corporate liberalism. During this period enlightened leaders of the business and legal community were able to convince government officials not to avoid all regulation, or to retreat to a pre-WWI regime of regressive consumption taxes; but to avoid, on the one hand, the perils of unfettered competition and an unpredictable tax environment, and, on the other, the emergence of complete state control and a highly...
- Despite this history of corporate consolidations, there was little evidence before 1915 of government attempts to tax the gains from these transactions. In theory, state and local governments, and even the federal government, under the corporate tax of 1909, could tax the capital gains derived from the exchange of corporate property. Nonetheless, taxing authorities at the local, state and national levels did not appear to have a clear conception of how such transactions should be treated. State and local governments had been taxing business property throughout the nineteenth century, and even began to tax business income by the start of the twentieth century. Yet the exchange of property, especially when related to business combinations, was relatively unchartered tax territory. Even with the first national corporate excise tax, ...exchanges and corporate readjustments. The usual historical antecedents, therefore, provided lawmakers operating under the federal income tax regime with...
- Given the parties involved in these controversial cases, and the amount of money at stake, it is not surprising that these decisions garnered considerable nationwide public attention. Not only were John D. Rockefeller and his Standard Oil associates the lead taxpayers in the oil spin-off cases, the government claimed that significant sums of total tax revenue would result from the combined cases and other pending litigation. This was a story that the popular press could not ignore. Leading periodicals, such as , reported the court’s decision to uphold the government’s tax on these reorganizations, and often reprinted the opinions in their entirety. Furthermore, these victories emboldened the government to file similar tax suits against many of the numerous other reorganizations involving the spin-off of oil companies and the reincorporation of businesses in Delaware.
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Chapter 3: The Story of Gregory: How are Tax Avoidance Cases Decided? 226 results (showing 5 best matches)
- The Story of
- The story of a case decided by the Supreme Court in 1935, begins in 1928, when a Brooklyn housewife, Evelyn Gregory, decided to sell some stock she owned and wanted to pay as little tax as possible in the process. But the story of is a case of tax avoidance, and tax avoidance is one instance of the universal attempt to circumvent the law using shrewd stratagems that adhere to the letter of the law but not to its spirit. Every area of law, not just tax law, is replete with this kind behavior and one can also find it in kindred normative systems. Much of the ingenuity of religious thinkers throughout the ages has been spent on inventing ingenious devices whose sole purpose is to bypass the stricter edicts of various religions.
- Based on a search conducted in July and August 2002 of Hein-On-Line, a database of historic law review articles. The database contains about 75 journals published before the 1940s. The terms searched were “tax avoidance,” “tax evasion,” “tax planning,” “tax minimization,” “tax fraud,” “fraud upon the revenue,” “tax mitigation” and “tax loopholes.” The journals contained in the database are legal journals. A study of the accounting and business literature of the period may yield different results.
- was not a revolutionary case. As part of a long line of cases on tax interpretation and tax avoidance, it can be explained solely by internal doctrinal developments without any need to discuss other factors. Unfortunately, this is not the case. Internal doctrinal developments alone cannot explain the decision in for two reasons: First, because when one examines the micro-level of doctrinal development, the picture is one of a chaotic, quantum-mechanics-like movement rather than clear trends. Secondly, when one looks beyond the cases to the professional literature, it appears that in the 1930s two contradictory trends were at work; while some courts and judges were embracing a less tolerant attitude to tax avoidance, a contradictory trend appeared in the professional legal literature; a movement towards a clearer distinction between permissible avoidance and impermissible evasion. The story of legal development in the 1920s and 1930s, then, is not a coherent story of clear, linear...
- Finally, the story of is important as part of a more comprehensive jurisprudential attempt to understand how judges decide cases in general, and tax avoidance cases in particular. As Oliver Wendell Holmes said, when remarking on the eclectic and contingent nature of judicial lawmaking, “the felt necessities of the time, the prevalent moral and political theories, intuitions of public policy, avowed or unconscious, even the prejudices which judges share with their fellow-men, have had a good deal more to do than the syllogism in determining the rules by which men should be governed.” More than 120 years after Holmes wrote these words, they are still relevant for those interested in understanding tax avoidance adjudication. For if the story of teaches us anything, it teaches us that only by being aware of, and taking into account many factors—legal, cultural, economic, political and psychological—can we really begin to understand how tax avoidance cases are decided.
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Chapter 8: The Story of Tufts: The “Logic” of Taxing Nonrecourse Loan Transactions 47 results (showing 5 best matches)
- Tax Shelters, Nonrecourse Debt, and the
- 61 Taxes 949 (1983); Calvin H. Johnson, , 47 Tax Notes 593 (1990); Calvin H. Johnson, 11 Va. Tax Rev. 631 (1992); Calvin H. Johnson, 11 Va. Tax Rev. 631 (1992); Daniel Shaviro,
- that the Ninth Circuit refused to recognize. The latter arguably was a mere contrivance designed to generate tax deductions whereas the loan in was a result of a real business transaction (one that the federal government endorsed) that went sour.
- The Supreme Court’s unanimous opinion was written by Justice Blackmun, who, as a former tax attorney, may have been the most qualified of the Supreme Court justices to opine on tax matters.
- Under either scenario, T walks away from his investment with $100,000 in profit. Yet the tax treatment of each scenario is very different. Barnett’s point was that from T’s perspective, these two alternatives are identical economically, and that they therefore should be taxed in the same way. The law was clear as to how alternative #1 would be taxed: T would have $25,000 ordinary gain on the discharge of indebtedness, all or a portion of which might be deferred or excluded under § 108. T would also have a $25,000 capital gain on the sale of the real estate. In the case of Alternative #2, however, current law would tax T on a capital gain of $50,000 (amount realized of $200,000 less basis of $150,000). The defect is that current law does not account for the fact that T’s debt has decreased in value, while his property has increased in value. Current law treats the entire gain as though it were attributable to the property. Barnett argues for variety of reasons that this latter...
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Chapter 1: The Story of the Separate Corporate Income Tax: A Vehicle for Regulating Corporate Managers 74 results (showing 5 best matches)
- “I deny the right of Congress to levy a tax upon the business of corporations as such …. It is an arbitrary [classification]; it is an unfair one …. [I]t is a tax upon the right to do business as a corporation as distinguished from the right to do business as an individual or as a copartnership.” 44 Cong. Rec. 3976 (1909) (statement of Sen. Cummins).
- The 1894 Act for the first time imposed a tax of 2% on the net income of all “corporations, companies, or associations doing business for profit in the United States, no matter how created or organized, but not including partnerships.” At first impression this appears to be a stark departure from the Civil War income tax, which taxed corporate income in the hands of the shareholders and only employed withholding at the corporate level as a collection device. However, Steven Bank has convincingly demonstrated that such a reading of the 1894 Act is misleading. First, he points out that dividends from taxable corporations were excluded from shareholder income, so that the corporate tax could be viewed as a collection device for the shareholder-level tax (imposed at the same rate). Second, the House version of the 1894 Act followed the Civil War income tax in imposing a withholding tax on dividends and interest, except that the tax was also applied to undistributed income and to all...
- The various motives for enacting the corporate tax, which reflect the three theories of the corporation, can be seen in President Taft’s message to Congress and in the debate that preceded enactment in the Senate. President Taft’s message of June 16, 1909 gives three reasons for enacting a corporate tax (rather than a general income tax, which may be unconstitutional, or an inheritance tax, which did not have sufficient political support among Republicans in the Senate). The first reason is that “[t]his is an excise tax upon the privilege of doing business as an artificial entity and of freedom from a general partnership liability enjoyed by those who own the stock.” This argument is clearly based on an artificial entity view of the corporation as a creature of the state. However, Taft was aware that it is difficult to make this argument for a federal tax when the privileges enjoyed by the corporation derived from state law. ...necessary to ensure the tax’s constitutionality, since...
- The same concerns regarding trusts are reflected in the debates over the corporate tax, which was seen by both supporters and opponents as a regulatory measure. Kornhauser focused primarily on the publicity feature of the tax, but this was not its only regulatory aspect—both supporters and opponents saw the tax also as having the potential to restrict managerial power directly. Thus Senator Root, the principal drafter of the tax on the Senate side, spoke about the accumulation of wealth in the hands of corporations as a principal reason for the tax. Senator Newlands likewise supported the tax because “there was no reason why the great combinations monopolizing these industries should not pay some part of the national expenses.” And Senator Cummins, an opponent of the tax, likewise spoke about “the new force entering American life and American business” which is “a prelude to industrial commercial slavery unless the Government intervenes with its strong arm.” ...tax because it...
- Some academics have defended the double tax on corporations but have focused on whether the tax should be integrated, not on whether it should exist in the first place.
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Chapter 4: The Story of General Utilities and its Repeal: Much Ado About Nothing? 51 results (showing 5 best matches)
- The foregoing analysis has demonstrated that tax efficient behavior should ensure that no asset that either will or may appreciate for income tax purposes will ever again “enter” corporate solution. That is, corporations will be able to make unimpeded use of such assets in their businesses, but the assets’ appreciation for income tax purposes will remain safely outside of corporate solution. Note that the motivation for this “tax efficient” behavior is not repeal. If it is true that tax efficient behavior will (in the future) keep all asset appreciation out of corporate solution, then it must also be true that GU repeal will (in the far future) apply only in instances of tax inefficient behavior. That, in turn, will make GU repeal a rather stupid law, since it will do nothing more than to deny an escape from incremental double taxation to those taxpayers who stumble into such potential double taxation by failing to squander social resources on sophisticated tax advice or who walk...
- The latter fact is obvious. To demonstrate the former, consider an individual O with 100 to invest. O can use the 100 to buy a fully taxable bond, thus achieving 6.67 of annual after-tax cash flow that she can dispose of in any way she likes. But she can achieve this same unfettered cash flow in more imaginative ways as well. Thus, suppose that she uses 6.67 to buy a one-year note paying 10% interest. And suppose she uses 93.33, together with an additional 6.67 borrowed at 10% interest, to buy the given asset. During the first year, she will receive 0.67 of fully taxable interest on her note. In addition, she will incur 0.67 of fully deductible business interest with respect to the loan incurred to buy the (business) asset. These amounts cancel each other, both from the vantage of cash flow, and from the vantage of the income tax. However, she has an additional year one cash flow: she will receive a return of principle from the note she purchased. Thus, she will receive 6.67 of tax...
- The Supreme Court’s decision did not so much cause as crystallize a fundamental discontinuity in the corporate double-income-tax regime. Thus post- , if a corporation disposed of an appreciated asset (whether or not in the ordinary course of its business) and distributed the proceeds it received from such asset disposition to its shareholders (whether or not at a time closely proximate to the time of the disposition), two income taxes would be levied: first, the corporation would recognize gain with respect to the disposition and second, the shareholders would recognize dividend income with respect to the distribution. On the other hand, if the corporation first distributed an identical appreciated asset to its shareholders and those shareholders disposed of such asset, only one income tax would be levied: the shareholders would recognize dividend income with respect to the distribution. Needless to say, this discontinuity created a significant incentive for taxpayers to arrange for...
- Suppose that a corporate entity E desires to use this asset in its business. One possibility is for E to lease the asset from its current owner, O. Since O requires 6.67 of annual after-tax cash flow, O will most likely demand a flat annual lease payment of at least 10. Clearly, E will not have the cash on hand to make this payment in the first year. But suppose E is willing to borrow 6.67 against its leasehold interest from some third party lender, and suppose further that E has sufficient income from sources other than the asset to make full current use of the tax deduction generated by a lease payment of 10, so that it effectively receives 3.33 of cash from the fisc (in the form of a tax reduction) if it makes such payment. In such case, E can make the required payment and move on to subsequent years. Mercifully, all such subsequent years look alike: E receives fully taxable cash flow from the asset in the amount of 10.67, makes a fully deductible interest payment to the third-...
- These two features have already been addressed above. Thus, I observed that tax efficiency requires keeping an asset that has an allowance for tax depreciation in excess of economic depreciation out of E’s corporate solution, something that can generally be accomplished by means of a lease. And I further observed that tax efficiency requires keeping an asset with potentially positive volatile changes in value out of E’s corporate solution, something that can generally be accomplished by means of a combination of a hedge and either a lease or a borrowing. So it would be natural for taxpayers to attempt to keep (appreciation in) workforce-in-place and going concern value and goodwill outside of E in a similar manner. But this simply cannot be done. None of these assets, by their very nature, can have an existence apart from—outside of—E. That is, O can neither “own” nor otherwise “possess” E’s workforce-in-place or going concern value or goodwill. Indeed, it is arguably precisely...
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Biography of Contributors 12 results (showing 5 best matches)
- is a Professor of Law at the University of California, Los Angeles School of Law. Professor Bank teaches Introduction to Federal Income Taxation, Taxation of Business Enterprises, Corporate Tax Policy, and Tax Aspects of Mergers and Acquisitions. He holds a B.A. from the University of Pennsylvania and a J.D. from the University of Chicago. Prior to joining the UCLA School of Law faculty, Professor Bank practiced with Hughes & Luce, Dallas and was an associate professor at Florida State University College of Law. Professor Bank is currently working on a book tentatively titled
- is a Professor of Law at the University of Alabama School of Law. She holds a B.A. from Emory University, a J.D. from Tulane University Law School, an LL.M. in Taxation from New York University, and an M.A. in theological studies from Beeson Divinity School at Samford University. Professor Hamill teaches Business Organizations, Federal Income Tax, Taxation of Business Entities, and Business Ethics. Prior to coming to the University of Alabama, Professor Hamill served as an attorney adviser for the Chief Counsel’s Office of the IRS and practiced with Sullivan & Cromwell and Chadbourne & Parke in New York. She also assisted in the preparation of the Uniform Limited Liability Company Act. Professor Hamill has published several books reviewing tax policy from an ethical perspective, including
- is the Irwin I. Cohn Professor of Law at the University of Michigan Law School. Professor Avi-Yonah teaches courses in corporate tax, international tax, and tax policy. He holds a B.A. from Hebrew University, an A.M. in history and a Ph.D. in history from Harvard University, and a J.D. from Harvard Law School. Avi-Yonah has been a visiting professor of law at New York University and the University of Pennsylvania, an assistant professor of law at Harvard, and an assistant professor of history at Boston College. He has also served as a consultant to the U.S. Treasury, the Joint Committee on Taxation, the World Bank, and the Chinese government. He has testified on tax shelters before the U.S. Senate and chaired an American Bar Association Tax Section panel on permanent establishments. Avi-Yonah has practiced law with Milbank, Tweed, Hadley & McCloy, New York; Wachtell, Lipton, Rosen & Katz, New York; and Ropes & Gray, Boston. He is the author of ...2002) and numerous articles on tax...
- Federal Income Tax Anthology
- Noël B. Cunningham is a Professor of Law and Director of the Graduate Tax Program at New York University School of Law. Professor Cunningham is one of the nation’s leading tax scholars working in the area of partnership/pass-through taxation. He holds a B.S. from the City College of New York, an M.A. and J.D. from the University of Connecticut, and an LL.M. from New York University. Professor Cunningham has worked as a staff member of the U.S. Treasury’s Office of Tax Legislative Counsel. He is a co-author of
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Chapter 6: The Story of Hendler: From Pyrrhic Victory to Modern Section 357 64 results (showing 5 best matches)
- See Business Mergers and Tax Exemptions: Congress Provides for Temporary Relief in Such Cases in 1939 Revenue Act
- , decided in March 1938, has a well-deserved reputation as one of the government’s most pyrrhic tax victories. , however, the Supreme Court held that the corporate transferor had received the equivalent of cash as a result of the transferee’s assumption and payment of its liabilities, triggering “boot” gain under the Internal Revenue Act of 1928. The government was confronted with potentially massive revenue losses as a result of claims for a tax-free basis step-up in numerous earlier reorganizations and incorporations in which the transferor had not reported gain. In 1939, at the urging of government and business, Congress hastily enacted legislation reversing the ...The 1939 amendments, now embodied in §§ 357, 358, and 362, have shaped the treatment of assumption of liabilities in tax-free corporate exchanges right up to the present time. Not until 1999 did Congress significantly revise the § 357 liability assumption rules in an attempt to bring them into line with economic...
- To eliminate protracted uncertainty that could be resolved only by a slow and cumbersome judicial process, both the government and taxpayers turned to Congress in the summer of 1939. Leaders of the tax bar and business associations warned that threatened to “practically stop business reorganization.”
- Between 1939 and 1954, Congress and the courts became increasingly familiar with debt-financed property transactions and tax-free borrowing against the appreciated value of property. Section 357(c) plugged a potential loophole in the scheme of § 357(a) and (b) by recapturing tax benefits when property was transferred subject to liabilities in excess of basis. While § 357(b) treated assumed liabilities as boot if the principal purpose for such assumption was tax avoidance, it was generally considered too subjective to have much effect. In 1939, the tax-avoidance exception of §112(k), the predecessor of § 357(b), was seen as imposing a “startlingly new condition” on nonrecognition treatment strongly reminiscent of With the addition of § 357(c), however, the tax-avoidance clause of § 357(b) was relegated to a relatively minor role. Courts interpreted the clause narrowly to require a principal purpose to avoid income taxes with respect to the assumption on the exchange. Such a tax-...
- Section 357: A Hidden Trap in Tax-Free Incorporations
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- Publication Date: May 24th, 2005
- ISBN: 9781587787294
- Subject: Taxation
- Series: Law Stories
- Type: Overviews
- Description: This book does not deal solely with judicial opinions. In the field of business taxation, many of the most significant developments are not cases, and certainly not Supreme Court cases, but rather legislative and administrative changes and transactional innovations. Business Tax Stories includes chapters on several landmark cases; however, it also surveys many of the critical developments in the history of U.S. corporate and partnership taxation. Taken as a whole, this title is organized to serve as a history of business taxation over the last century.
