A few years and a corporate reorganization
later, the stock is sold for $300 million.
The purpose of the COI requirement is to prevent transactions that resemble sales from qualifying for nonrecognition of gain or loss available in corporate reorganizations. Regs.
Additional Final Regulations: COI Requirement for Corporate Reorganizations
368(a)(1)(a) as a "statutory merger or consolidation," is the prototypical corporate reorganization
. Tax advisers are familiar with subchapter C's operational rules that apply to a so-called "tax-free" Type A reorganization.
Thus, with the exception of the ongoing dispute between the IRS and the Tax Court involving acquisitions of commonly controlled corporations, prior to Clark the amount of dividend income for corporate reorganizations was routinely limited to the transferor's E&P.
Thus, is it reasonable that additional dividend income potential should be created merely because the shareholder is involved in a corporate reorganization? A shareholder who receives boot in a reorganization should not have to recognize a greater amount of dividend income than if the distribution had been made directly from the transferor to the shareholder in the ordinary course of business.
Since the Supreme Court's decision, there has been considerable concern that IRS personnel would interpret INDOPCO as requiring the capitalization of expenditures unrelated to corporate reorganizations
that have customarily been regarded by taxpayers as currently deductible.
Under the mergers directive, the EC members intend that corporate reorganizations
be tax free and any capital gains arising from specified transactions be deferred in a manner similar to the reorganization provisions in the U.S.
8 (2005) (Times Mirror), the Tax Court held that a corporate reorganization
was not tax flee under Sec.
MNCs considering or planning a global corporate reorganization
for tax efficiency or other purposes should look into the potential customs duty opportunities from implementing a "first sale" strategy, if appropriate.
The Service disagreed, claiming the fees were corporate reorganization
costs that should have been capitalized because the S election produced benefits extending beyond the tax year.
The step-transaction doctrine has been applied in a variety of corporate reorganization
contexts other than C reorganizations.