Prop. regs. ease tax-free reorganization requirements
Article Abstract:
The IRS has issued proposed regulations that lift a longstanding restriction on the use of C reorganizations by acquirors that already own stock in the companies targetted for acquisition. The proposed regulations are contained in Rev. Proc. 77-37 which was released on Jun 14, 1999. These regulations contain guidelines that provide a clearer definition of what constitutes a substantive transfer of assets in C reorganizations. Specifically, the IRS has stated that the 'substantive transfer' requirement has been satisfied if at least 90% of the fair market value of the net assets and 70% of the fair market value of gross assets held by the target corporation have been transferred to the acquiring corporation in exchange for voting stock.
Publication Name: Practical Tax Strategies
Subject: Law
ISSN: 0040-0165
Year: 1999
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Insolvent S corporation's debt discharge does not increase basis
Article Abstract:
The Tenth Circuit has issued two rulings covering the debt of insolvent S corporations. In both the 'Gitlitz' and 'Nelson' cases, the appellate court ruled that the discharge of debt realized but not recognized did not increase the shareholders' stock bases in the insolvent S corporation. Citing provisions of Section 108, Section 1366 and Section 1367, the Tenth Circuit ruled against the IRS, noting that the Service had erroneously issued deficiency notices to the shareholders of the S corporations concerned. In both cases, the appellate court disagreed with the IRS's argument that the Service could disallow a basis increase on the grounds that the excluded discharge of debt did not pass through to the S corporation's shareholders.
Publication Name: Practical Tax Strategies
Subject: Law
ISSN: 0040-0165
Year: 1999
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