State Bar of South Dakota
Tax Update XXXV
Hot Topics in Corporate Tax Law
December 13, 2013
Kevin W. Kaiser
Agenda
• Is the C Corporation the New Entity Choice?

• Purchase Price Allocations
• Transaction Costs Allocations

• Qual...
Choice of Entity
The C Corporation Question
• Choice of Entity Possibilities
– Pass-Through Entities
• LLCs
• Partnerships...
Choice of Entity
The C Corporation Question
• Tax Rates
Individual Rates (IRC section 1)
Prior Law
Maximum Rate
Ordinary i...
Choice of Entity
The C Corporation Question
• Tax Rates
Individual Capital Gain Rates (section 1(h))
Current Rates
• Highe...
Choice of Entity
The C Corporation Question
• Tax Rates
Corporate Tax Rates (IRC section 11)
Taxable Income
$0 to $50,000
...
Choice of Entity
The C Corporation Question
• The tax rate gap between individuals and corporations is
growing larger
• Pr...
Choice of Entity
The C Corporation Question
• Advantages of C Corporations
– Ability to choose fiscal year (for non-PSCs)
...
Choice of Entity
The C Corporation Question
• Disadvantages of C Corporations
 Double taxation on corporate earnings
o In...
Choice of Entity
The C Corporation Question
• Corporate Double Taxation Example
AnyCo Corporation
Taxable Income
Tax @ 34%...
Choice of Entity
The C Corporation Question
• Pass-through Example
AnyCo LLC
Taxable Income
Tax @ 39.6%
Net after tax inco...
Choice of Entity
The C Corporation Question
• Compare Corporate Double-tax with Pass-through Example
Taxable Income: $1,00...
Choice of Entity
The C Corporation Question
• The Shift to Doing Business as a Corporation
– Don't forget these old friend...
Choice of Entity
The C Corporation Question
• Tax Planning and Control
 Dividend payments can be controlled and deferred
...
Choice of Entity
The C Corporation Question
• Corporate Entity Choice
– Exit Strategy Considerations
o C Corporation doubl...
Choice of Entity
The C Corporation Question
• Stay Tuned
– Corporations may be making a come back
– Current corporate doub...
Recent Developments
and other
Corporate Tax Hot Topics

17
Asset Purchases
Purchase Price Allocation
• Section 1060 prescribes allocation rules for asset acquisition that
constitute...
Asset Purchases
Purchase Price Allocation
• Section 1060 amended in 1990 to codify the "Danielson" rule
and bind the buyer...
Asset Purchases
Purchase Price Allocation
IRS Form 8594 – seven asset classes "I - VII” used for the "Residual Method"
Cla...
Asset Purchases
Purchase Price Allocation
• Purchase Price Allocation Cannot Be Changed – Post
Acquisition
• Peco Foods In...
Asset Purchases
Purchase Price Allocation
• Peco Foods Inc. v. Comm. – Holding relevant to:
 Asset purchases
o Regardless...
Asset Purchases
Purchase Price Allocation
Revenue Ruling 99-6
Sellers' Treatment :
Sale of Partnership Interests

A

B

50...
Asset Purchases
Purchase Price Allocation
• Peco Foods Inc. v. Comm. –
 Query: Should purchase agreements include purchas...
Transaction Costs
and the Next Day Rule
• IRS General Legal Advice Memo ("GLAM") 2012-010 addresses the timing
of certain ...
Reverse Triangular Merger (taxable)
aka, Reverse Cash Merger
GLAM 2012-010: Acquiring forms a “first-tier” subsidiary (Mer...
Transaction Costs
and the Next Day Rule
•

27

Target incurred certain deductible costs that the IRS assumed became deduct...
Transaction Costs
and the Next Day Rule
• Consolidated Return End-of-Day Rule: The end-of-day rule under Treas.
Reg. Sec. ...
Transaction Costs
and the Next Day Rule
• Rulings:
– Items 1: Stock Option Expense – Target's obligation to pay the amount...
Transaction Costs
and the Next Day Rule
• Observations:
– General Legal Advice Memorandum (GLAM) is "informal" advice and
...
Qualified Stock Dispositions
Section 336(e)
§336(e) Election – Deemed Asset Sale
• Final regulations (T.D. 9619) issued Ma...
Qualified Stock Dispositions
Section 336(e)
§336(e) Election – Deemed Asset Sale
• "Qualified Stock Disposition" is a tran...
Qualified Stock Dispositions
Section 336(e)
§336(e) Election – Deemed Asset Sale
• Acquirer does not have to be a corporat...
Qualified Stock Dispositions
Section 336(e)
§336(e) Election – Deemed Asset Sale
• Domestic corporation or S corporation s...
Loss Importation Rules
Section 362(e) and Section 334(b)
• Sections 334(b)(1)(B) and 362(e)(1) are intended to prevent the...
Loss Importation Rules
Proposed Regulations
• Loss importation proposed regulations (REG 161948-05)
published under Sectio...
Loss Importation Rules
Proposed Regulations
• Definition of "Importation Property"
– If any gain or loss recognized on a d...
Loss Importation Rules
Example
•Transaction: FS Liquidates into US Parent under
Sec 332

US
Parent

•All property loss imp...
Section 382 Aggregation/Segregation Regulations
• Section 382 limits a corporation’s use of its net operating losses if th...
Section 382 Aggregation/Segregation Regulations
• Final regulations provide three new exceptions to the current
segregatio...
Section 382 Aggregation/Segregation Regulations
• Aggregation rules generally apply to shareholders who each
own less than...
Section 382 Aggregation/Segregation Regulations
• The 5% Shareholder
• Any individual owning directly or indirectly 5% or ...
Section 382 Aggregation/Segregation Regulations
• Secondary transfer exception
– Transfer of LossCo stock by individuals o...
IRS Private Letter Ruling Policy Change
•

44

Revenue Procedure 2013-32 - Reduced Scope of Corporate PLR requests
– IRS w...
Hot Topics in Corporate Tax Law

Thank You
Contact Information
Kevin W. Kaiser
Lindquist & Vennum LLP
4200 IDS Center
80 South Seventh Street
Minneapolis, MN 55402
P...
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Kaiser corp tax update - 2013

  1. 1. State Bar of South Dakota Tax Update XXXV Hot Topics in Corporate Tax Law December 13, 2013 Kevin W. Kaiser
  2. 2. Agenda • Is the C Corporation the New Entity Choice? • Purchase Price Allocations • Transaction Costs Allocations • Qualified Stock Dispositions – Section 336(e) • Loss Importation Rules – Section 362(e) • Section 382 Small Shareholder Segregation Rules • IRS Private Letter Ruling Policy Change 2
  3. 3. Choice of Entity The C Corporation Question • Choice of Entity Possibilities – Pass-Through Entities • LLCs • Partnerships • S Corporations • Other – REITS – RICs – Trusts – Taxable Entity • C Corporation 3
  4. 4. Choice of Entity The C Corporation Question • Tax Rates Individual Rates (IRC section 1) Prior Law Maximum Rate Ordinary income 35.0% Medicare Tax on Investment income N/A Total Tax Rate 35.0% Current Law 39.6% 3.8% 43.4% Note: Wages in excess of $200,00 for single filers and $250,000 for joint filers are subject to an additional 0.09% Medicare tax. 4
  5. 5. Choice of Entity The C Corporation Question • Tax Rates Individual Capital Gain Rates (section 1(h)) Current Rates • Highest Ordinary Income Tax Bracket 20.0% • Ordinary Income Tax Brackets Between 25.0 to 39.6% 15.0% • Ordinary Income Tax Brackets Below 25.0% 0.0% * Capital gains rates also apply to qualified dividend income (section 1(h)(11)). 5
  6. 6. Choice of Entity The C Corporation Question • Tax Rates Corporate Tax Rates (IRC section 11) Taxable Income $0 to $50,000 $50,000 to $75,000 $75,000 to $10,000,000 Over $10,000,000 Current Rates 15% 25% 34% 35% Note: The lower tax bracket rates are phased out for incomes greater than $100,000. 6
  7. 7. Choice of Entity The C Corporation Question • The tax rate gap between individuals and corporations is growing larger • Proposals to reduce the corporate tax rate to 28% or 25% (in line with other OECD members) • It may be more tax efficient to pool income in a C Corporation and subject investment earnings to the lower corporate tax rate 7
  8. 8. Choice of Entity The C Corporation Question • Advantages of C Corporations – Ability to choose fiscal year (for non-PSCs) – Low tax rates on the first $75,000 of annual income – Section 1202 Qualified Small Business stock gain exclusion 100% exclusion applicable for stock acquired after 9/27/10 and before 1/01/14 (50% exclusion after 12-31-13) – Section 1244 ordinary loss deduction for stock held in certain small C Corporations – Deferral of income through control of dividend timing 8
  9. 9. Choice of Entity The C Corporation Question • Disadvantages of C Corporations  Double taxation on corporate earnings o Income subject to tax at corporation level o Income subject to tax again when distributed to shareholder o Dividend income subject to 3.8% Medicare tax  Lack of partnership/LLC flexibility and tax benefits o Flexibility in structuring economic rights (allocations) o Loss pass-through to owners o Basis credit for allocation of liabilities (significant in certain industries such as real estate) 9
  10. 10. Choice of Entity The C Corporation Question • Corporate Double Taxation Example AnyCo Corporation Taxable Income Tax @ 34% Net after tax income Shareholder Dividend Income Tax @ 23.8% (20 + 3.8) Net after-tax cash Net Effective Tax Rate 10 $1,000,000 (340,000) $660,000 (Pay dividend to shareholders) $660,000 (157,080) $502,920 49.7% (Not including state tax)
  11. 11. Choice of Entity The C Corporation Question • Pass-through Example AnyCo LLC Taxable Income Tax @ 39.6% Net after tax income Net Effective Tax Rate $1,000,000 (396,000) $604,000 (Pay dividend to shareholders) 39.6% (Not including state tax) Note: The 3.8% Medicare tax does not apply to active trade or business income. In the corporate example, the 3.8% Medicare tax applies to the dividend payment. 11
  12. 12. Choice of Entity The C Corporation Question • Compare Corporate Double-tax with Pass-through Example Taxable Income: $1,000,000 Entity Type Cash AnyCo LLC - net after-tax cash $604,000 AnyCo Corporation – net after-tax cash $502,920 Difference $101,080 Rate 39.6% 49.7% 10.1% How low do corporate rates need to go before corporations become the first choice for small businesses? (Current proposals: 25-28%. Low Enough?) 12
  13. 13. Choice of Entity The C Corporation Question • The Shift to Doing Business as a Corporation – Don't forget these old friends: o Accumulated Earnings Tax o Personal Holding Company Tax Note: AET and PHC generally apply if accumulating passive assets and investment income (excess retained earnings)  Other Considerations: o International and cross-border operations o State Taxes o Changes to flow-through regimes (Camp proposal – Unified Passthrough) 13
  14. 14. Choice of Entity The C Corporation Question • Tax Planning and Control  Dividend payments can be controlled and deferred o Flow through income generally taxed when earned  Shareholder employees can increase salary and compensation deduction (within reason) to reduce corporate taxable income  Use of fiscal year-end (for non-PSC) may defer income 14
  15. 15. Choice of Entity The C Corporation Question • Corporate Entity Choice – Exit Strategy Considerations o C Corporation double-tax most significant to the closely-held business owner when selling the business  Buyers want to buy assets – Seller problem: Any appreciated assets held in the corporation will be subject to the corporate double-tax Sellers want to sell stock – Buyer problem: No stepup in the asset basis (also, liability concerns) 15
  16. 16. Choice of Entity The C Corporation Question • Stay Tuned – Corporations may be making a come back – Current corporate double taxation is significant impediment to choosing the corporate form of doing business for the closely held business – Changes in corporate tax rates may result in expanded structuring possibilities of combining corporations and other pass-throughs to minimize and/or defer the timing of tax – There may be no one simple answer for the closely held business choice of entity – Comprehensive tax reform may change everything, full integration? 16
  17. 17. Recent Developments and other Corporate Tax Hot Topics 17
  18. 18. Asset Purchases Purchase Price Allocation • Section 1060 prescribes allocation rules for asset acquisition that constitute an Applicable Asset Acquisition • Applicable Asset Acquisition – Generally, defined as the taxable purchase of assets comprising a trade or business • Section 1060(a) provides that where parties to an asset acquisition agree in writing, as to the allocation of any amount of consideration, or, as to the FMV of any of the assets transferred, that agreement is binding on the seller and buyer, unless the Commissioner determines that the allocation or FMV is not appropriate 18
  19. 19. Asset Purchases Purchase Price Allocation • Section 1060 amended in 1990 to codify the "Danielson" rule and bind the buyer and seller to any asset allocation agreement (taxpayers must adhere to the form they choose) • Section 1060 provides that where the parties do not agree in writing, the so-called "residual method" applies, as set forth in Section 338(b)(5) • Allocation reported on IRS Form 8594 – seven asset classes "I VII” 19
  20. 20. Asset Purchases Purchase Price Allocation IRS Form 8594 – seven asset classes "I - VII” used for the "Residual Method" Class I assets: cash and general deposit accounts Class II assets: certificates of deposits, U.S. gov't securities, marketable securities, and foreign currency Class III assets: accounts receivable, mortgages, and credit card receivables Class IV assets: stock in trade of the taxpayer or other property of a kind which would be included in the inventory of the taxpayer Class V assets: all assets other than Class I, II, III, IV, VI, VII assets [plant, property & equipment] Class VI assets: section 197 intangibles, as defined by section 197, except goodwill and going concern value Class VII assets: goodwill and going concern value (whether or not the goodwill or going concern value qualifies as a section 197 intangible). Treas. Reg. § 1.338-6(b). Note: Purchase price is allocated to each of the purchased assets, within the respective asset Classes I though VII based on the relative fair market values. 20
  21. 21. Asset Purchases Purchase Price Allocation • Purchase Price Allocation Cannot Be Changed – Post Acquisition • Peco Foods Inc. v. Comm., 522 Fed.Appx 840 (11th Cir. 2013) – Acquirer of assets bound by purchase price allocation – Eleventh Circuit Court of Appeals affirmed the Tax Court's decision holding that a corporation was not entitled to modify purchase price allocations in connection with postacquisition cost segregation study – APA was clear and there was no mistake or unknown facts – Court applied the rule of Danielson to bar a unilateral change 21
  22. 22. Asset Purchases Purchase Price Allocation • Peco Foods Inc. v. Comm. – Holding relevant to:  Asset purchases o Regardless of entity type  Partnership interest purchases o Section 751 "Hot Asset" allocation considerations  Rev. Proc. 99-6 Membership interest purchases o Seller treats as sale of partnership interest o Buyer treats as purchase of assets 22
  23. 23. Asset Purchases Purchase Price Allocation Revenue Ruling 99-6 Sellers' Treatment : Sale of Partnership Interests A B 50% 50% Target LLC 23 Buyer's Treatment : Purchase of Target LLC Assets Buyer LLC Equity 100% Target LLC A B 50% 50% Target LLC Buyer 100% Target LLC
  24. 24. Asset Purchases Purchase Price Allocation • Peco Foods Inc. v. Comm. –  Query: Should purchase agreements include purchase price allocation agreements?  Certainty and consistent reporting between buyer and seller  Must the Form 8594s filed by buyer and seller match?  Corporate Purchase Allocation: Corporations do not have a capital gains preference. Maybe precise allocation to specific assets not so important? 24
  25. 25. Transaction Costs and the Next Day Rule • IRS General Legal Advice Memo ("GLAM") 2012-010 addresses the timing of certain corporate deductions for transaction costs under the consolidated return rules, including the next-day rule. • FACTS: Acquiring corporation (Acquiring) acquired stock of the target corporation (Target) when a subsidiary of Acquiring merged with and into Target, with Target surviving (the Acquisition) – Reverse Triangular Merger. Acquiring was the common parent of an affiliated group of corporations that had elected to file a consolidated tax return for U.S. federal income tax purposes (the Acquiring Group). Target became a member of the Acquiring Group as a result of the Acquisition. 25
  26. 26. Reverse Triangular Merger (taxable) aka, Reverse Cash Merger GLAM 2012-010: Acquiring forms a “first-tier” subsidiary (Mergerco) that merges with and into Target Acquiring Shareholders Acquiring Target Shareholders MergerCo Target Merge • • • • • 26 Acquiring is calendar year taxpayer and common parent of consolidated return group Acquisition completed on November 30, 20XX Target shareholders exchange their Target stock for cash Target is the survivor See Rev. Rul. 90-95 – similar transaction treated as taxable stock purchase
  27. 27. Transaction Costs and the Next Day Rule • 27 Target incurred certain deductible costs that the IRS assumed became deductible on the date of the transaction (the Acquisition Date), including the following: – Item 1: Stock Option Expense - Payments to Target’s employees for stock options and stock appreciation rights due upon a change in control of Target and that became fixed and determinable at the time of the Acquisition. – Item 2: Investment Bank Success Fee - Payments to Target’s financial advisers and investment banking firms for consulting advice rendered to Target in connection with the Acquisition that were contingent on the successful closing of the Acquisition. – Item 3: Bond Early Retirement Redemption Premium - Payments to retire certain debt belonging to Target. Target paid certain bondholders a premium over the adjusted issue price to retire certain of its outstanding bonds. The bondholders tendered the bonds two days before the Acquisition date, though Target was not obligated to purchase the tendered bonds. On the Acquisition date, but after the Acquisition had closed, Target accepted the tendered bonds for reacquisition. Later that day, Target retired the bonds at a premium, using its own funds or funds received from Acquiring.
  28. 28. Transaction Costs and the Next Day Rule • Consolidated Return End-of-Day Rule: The end-of-day rule under Treas. Reg. Sec. 1.1502-76(b)(1)(ii)(A) generally provides that if a subsidiary ("Sub") becomes or ceases to be a member of a consolidated return group during the year, the Sub becomes or ceases to be a member at the end of the day on which its status changes, and its tax year ends for all federal income tax purposes at the end of the day. End-of-day general rule exception - the next-day rule. • Consolidated Return Next-Day Rule: The next-day rule under Treas. Reg. Sec. 1.1502-76(b)(1)(ii)(B) provides that if, on the day of the Sub’s change in status as a group member, a transaction occurs that is properly allocable to the portion of the Sub’s day after the event resulting in the change, the Sub must treat the transaction as occurring at the beginning of the following day. 28
  29. 29. Transaction Costs and the Next Day Rule • Rulings: – Items 1: Stock Option Expense – Target's obligation to pay the amount of its liability became fixed and determinable upon closing. Accordingly, the deductions relating to the exercise of the Target shareholder's stock options should be taken into account on the Target's standalone tax return for the short-year ending on the date of the acquisition. – Item 2: Investment Bank Success Fee – Target's obligation to pay the amount of its liability became fixed and determinable upon closing. Accordingly, the deductions relating to the success fee payable to the investment banker should be taken into account on the Target's standalone tax return for the short-year ending on the date of the acquisition. – Item 3: Bond Early Retirement Redemption Premium - Target’s costs under Item 3 may be subject to the next-day rule and thus it may be reasonable to report the deduction on Target’s return as part of the Acquired Group’s consolidated tax return. The IRS noted that the deduction for retiring the bonds at a premium arose as a result of a postAcquisition payment made after closing. 29
  30. 30. Transaction Costs and the Next Day Rule • Observations: – General Legal Advice Memorandum (GLAM) is "informal" advice and may not be cited as precedent, however the guidance is useful to understand the IRS's view on how certain deduction items should be allocated between short tax periods – Reasoning may be extended beyond consolidated return entity structure – The GLAM highlights that the IRS applies a narrow view of applying the next day rule – The deductions for transaction costs are often taken into account when negotiating purchase and sale agreements. The GLAM and related guidance highlights that there may be limitations on the ability to shift items and deductions between buyers and sellers. 30
  31. 31. Qualified Stock Dispositions Section 336(e) §336(e) Election – Deemed Asset Sale • Final regulations (T.D. 9619) issued May 15, 2013 • Election available effective May 15, 2013 • Similar treatment to Section 338(h)(10) • "Qualified Stock Disposition" 31
  32. 32. Qualified Stock Dispositions Section 336(e) §336(e) Election – Deemed Asset Sale • "Qualified Stock Disposition" is a transaction or series of transactions in which target stock: – Meeting an 80% vote and value test; – Is either sold, exchanged or distributed, or any combination thereof; – By the seller in a disposition not resulting in a carryover or substituted basis; – During the 12-month disposition period. 32
  33. 33. Qualified Stock Dispositions Section 336(e) §336(e) Election – Deemed Asset Sale • Acquirer does not have to be a corporation (unlike elections under section 338) – LLCs or PE funds OK • No requirement that stock be sold or distributed to a single purchaser 33
  34. 34. Qualified Stock Dispositions Section 336(e) §336(e) Election – Deemed Asset Sale • Domestic corporation or S corporation shareholder(s) that dispose of domestic corporation stock may elect to treat the disposition as a deemed asset sale – All S corporation shareholders must consent • Target is deemed to sell its assets to an unrelated person, followed by a liquidation into the seller • Election statement must be included with the return 34
  35. 35. Loss Importation Rules Section 362(e) and Section 334(b) • Sections 334(b)(1)(B) and 362(e)(1) are intended to prevent the importation of loss in certain corporate nonrecognition exchanges. – Sections 334(b)(1)(B) applies to the acquisition of loss property in Section 332 liquidations – Section 362(e)(1) applies to acquisition of loss property in Section 351 exchanges, contributions to capital and tax-free reorganizations • Section 362(e)(2) is intended to prevent the duplication of loss in certain corporate nonrecognition exchanges – Applies to corporate acquisitions of property with a net built-in loss in transactions described in Section 362(a) (i.e., Section 351 exchanges and Section 118 contributions to capital) – Transferee's basis in the loss property is reduced by the property's allocable portion of the transferor's net built-in loss – Election available to reduce basis exchanged stock instead of assets 35
  36. 36. Loss Importation Rules Proposed Regulations • Loss importation proposed regulations (REG 161948-05) published under Sections 334(b)(1)(B) and 362(e)(1) on September 6, 2013 intended to stop taxpayers from importing losses in the U.S. by using tax-free transfers of loss property to corporations that are subject to federal tax • Loss importation rules generally apply to domestic and foreign transactions 36
  37. 37. Loss Importation Rules Proposed Regulations • Definition of "Importation Property" – If any gain or loss recognized on a disposition of the property: o Would not be subject federal income tax in the hands of the transferor immediately before the transfer (Subpart F not included) o Would be subject to federal tax in the hands of he transferee immediately after the transfer  Acquirer, using a hypothetical sale analysis determines aggregate basis in "importation property" o Determined on aggregate basis – not item by item o If aggregate basis > aggregate value, then "importation transaction" o If aggregate basis < aggregate value, then loss importation rules do not apply o If importation transaction, then all importation property marked to FMV 37
  38. 38. Loss Importation Rules Example •Transaction: FS Liquidates into US Parent under Sec 332 US Parent •All property loss importation property •Metrics o Aggregate Value: o Aggregate Basis: Foreign Sub (FS) $140 $150 Liquidate FS E&P = $200 • US Parent basis in each asset is as follows: o Asset 1: $90 o Asset 2: $50 • US Parent must take the $200 of foreign E&P into account pursuant to Reg. 1.367(b)-3(b)(3) •Query: Should basis reduction reduce FS E&P? Comments requested by Treasury. 38 Asset 1 Asset 2 AB = 70 FV = 90 AB = 80 FV = 50
  39. 39. Section 382 Aggregation/Segregation Regulations • Section 382 limits a corporation’s use of its net operating losses if there is an “ownership change” • On October 22, 2013, the IRS issued final Regulations designed to ease the administrative burden and complexity of the segregation rules • The final regulations adopt the proposed regulations, with certain amendments, published on November 23, 2011 • The final regulations are generally effective from October 22, 2013 39
  40. 40. Section 382 Aggregation/Segregation Regulations • Final regulations provide three new exceptions to the current segregation rules for small shareholders: – Secondary transfer exception – Small redemption exception – Exception to the segregation rules for 5% entities 40
  41. 41. Section 382 Aggregation/Segregation Regulations • Aggregation rules generally apply to shareholders who each own less than 5% of a loss company – Less than 5% shareholders can be assigned to a single group • Segregation rules operate to split up certain small shareholders into separate groups 41
  42. 42. Section 382 Aggregation/Segregation Regulations • The 5% Shareholder • Any individual owning directly or indirectly 5% or more (based on value) • Aggregate group of <5% shareholders can be treated as single 5% owner Aggregate < 5% S/H Public Group X 10% 90% LossCo 42
  43. 43. Section 382 Aggregation/Segregation Regulations • Secondary transfer exception – Transfer of LossCo stock by individuals of first-tier entities that directly own 5% or more in LossCo to public does not create a new public group. o Existing public groups deemed to acquire proportionate shares instead of new segregated public group acquiring the shares. • Small redemption exception  Small redemptions will not cause a new public group to be created and result in an ownership shift. Generally, small redemption is less than 10% value of LossCo. • Exception to the segregation rules for 5% entities  Transactions involving public groups owning first-tier or higher-tier entities will not create new segregated public group (with resulting ownership shift) if the first-tier or higher-tier entity owns less than 10% of Lossco. 43
  44. 44. IRS Private Letter Ruling Policy Change • 44 Revenue Procedure 2013-32 - Reduced Scope of Corporate PLR requests – IRS will restrict the scope of private letter rulings that address issues with respect to transactions under Section 332, 351, 355, and Section 368 – No more full and comprehensive corporate rulings on complex transactions, notably Section 368 reorganizations and Section 355 spin-offs – The IRS will not longer rule on whether a transaction qualifies for nonrecognition treatment – The IRS will only address discrete "significant" issues – Example: IRS will not rule on the general qualification of a Section 351 exchange, however, if there is a "significant issue" regarding the application of Section 358 to basis determination, the IRS will rule on the Section 358 issue – Extension of Revenue Procedure 2003-48, in which the IRS announced that, with respect to Section 355 tax-free spin-offs, the agency would no longer issue rulings addressing (1) business purpose, (2) device for distribution of E&P, or (3) Section 355(e) anti-morris trust rules (step transaction)
  45. 45. Hot Topics in Corporate Tax Law Thank You
  46. 46. Contact Information Kevin W. Kaiser Lindquist & Vennum LLP 4200 IDS Center 80 South Seventh Street Minneapolis, MN 55402 Phone: (612) 371-2467 E-mail: kkaiser@lindquist.com

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