Break-up fees paid to unsuccessful white knight held deductible as ordinary business expense or as abandonment loss

Article Abstract:

An Ohio District Court decision in United States v. Federated Department Stores, Inc. allowed fees paid to an unsuccessful 'white knight' to be deducted either as an ordinary business expense under Section 162 or as an abandonment loss under section 165. The 'white knight' was called in to attempt to avoid a hostile takeover. The crucial element involved treating the transaction with the white knight as separate from the hostile takeover that ultimately occurred. The case also illustrates the widening influence of the U.S. Supreme Court's INDOPCO decision.

Analysis, Loss deductions

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Distribution of stock received upon merger by partnership does not violate continuity of interest required of tax-free reorganizations

Article Abstract:

The IRS has stated in Revenue Ruling 95-69 that the continuity of interest principle for tax-free reorganizations is not offended by distribution of stock to partners of a partnership holding an interest in the merged corporation. In the merger of a corporation with a 100% owner and a corporation wholly owned by a partnership, stock in the surviving corporation was distributed through the partnership so that the corporation could elect S status. The IRS found continuity of interest though the partners ownership changed from indirect to direct.

Corporate reorganizations, Tax-free exchanges

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"Greenmail" held not deductible but possibly amortizable by district court

Article Abstract:

The 4th Circuit's 1996 decision in Wrangler Apparel held greenmail-related expenses are not tax-deductible, although the court also indicated these expenses may be eligible for amortization. The fact that the court left this latter question somewhat unresolved prevented the government from securing a complete victory in the case.

Amortization, Greenmail

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