A Short & Happy Guide to Corporate Taxation (Short & Happy Guides)

Corporate taxation is widely considered one of the more difficult courses in the law school curriculum. The purpose of the book is to make the subject matter slightly less daunting by familiarizing the student with some of the core concepts of corporate taxation: distributions, redemptions, liquidations, divisions, reorganizations, and the like. Integrating black-letter law with a healthy dose of critical analysis, this Short and Happy tome can serve either as a stand-alone volume or as a complementary study aid to a longer and undoubtedly dourer textbook. Chapter 1 Preface 17 Chapter 2 Models of Corporate Taxation, a Brief History Lesson, and the Current State of Affairs 19 A. The Classical Model 19 B. Integration 20 C. The Evolution of Integration 20 Chapter 3 Indirect Taxation and Incidence 24 Chapter 4 Dividends as Income 28 A. Post-Acquisition Earnings 28 B. Pre-Acquisition Earnings 29 C. Phellis 29 D. The Proper Procedure: Bifurcation 31 Chapter 5 Dividends Received Deduction 33 A. Basics 33 B. Distribution of Pre-Acquisition Earnings 34 C. Congressional Reactions 35 1. Section 246(c) 36 2. Section 1059 36 D. Debt-Financed Portfolio Stock 38 Chapter 6 Sale of Shares 40 A. Introduction 40 B. Bootstrap Sales 41 1. The Plan (Avoiding Double Taxation) 41 2. The Man (the Commissioner’s Position) 41 3. The Proverbial Fan (the Cases Hit the Courts) 42 Chapter 7 Individual Shareholders 44 A. Bifurcation 44 B. Congressional Response 45 Chapter 8 Dividends and Distributions From Capital 48 A. Introduction 48 B. Distribution of Capital 49 C. Earnings and Profits—Definition 49 D. Current and Accumulated E&P 50 E. Current E & P 50 1. The “Nimble Dividend” 50 2. “The Rule of Imaginary Time” 50 F. Accumulated E&P 51 1. No Current E&P 51 2. Positive Current E&P 51 3. Negative Current E & P 52 G. Effects of Distributions on E&P 52 Chapter 9 Distribution of Property 54 A. Introduction 54 B. General Utilities and Its Aftermath 54 C. Distribution of Property Encumbered by a Debt 56 1. From the Perspective of the Corporation 56 2. From the Perspective of the Shareholders 56 D. Effect of Property Distributions on Earnings and Profits 56 1. FMV Exceeds Adjusted Basis 57 2. Adjusted Basis Exceeds FMV 57 3. Encumbered Property 58 Chapter 10 Disguised Distributions 59 A. Not Every Transfer Is a Distribution 59 B. Why the Designation Matters 60 C. Classifying the Payment 60 Chapter 11 Stock Distributions 62 A. Introduction 62 B. Case Law 62 1. Eisner v. Macomber 63 2. “Common on Preferred” 64 3. “Preferred on Preferred” 64 4. “Preferred on Common” 64 5. Summing Up the Case Law 65 C. Section 305 65 D. Quantification 66 E. Basis 67 F. Stock Dividends as a Tax Planning Tool 67 G. Section 306: Tainting the Stock 68 H. Section 306: What’s Really Going On? 69 Chapter 12 Redemptions 71 A. Introduction 71 B. Why Does It Matter? 71 1. Basics 72 2. Section 1059(e)(1)(A) 72 3. Earnings and Profits 72 4. Which Treatment Is Better? 73 C. Attribution Rules 74 1. Statutory Framework 75 2. First Attribution Rule: Family Members 75 3. Second Attribution Rule: From an Entity 76 4. Third Attribution Rule: To an Entity 76 5. Fourth Attribution Rule: Option Holders 77 6. Operating Rules 77 a. Basic Operating Rule 77 b. First Exception: “Adam and Eve” 77 c. Second Exception: To and From an Entity 77 D. Classifying the Redemption 78 E. Substantially Disproportionate Redemptions 78 1. The 80% Requirements: Non-Voting Shares and Non-Common Shares 79 a. Non-Voting Shares 79 b. Non-Common Shares 79 2. The 50% Requirement 80 3. Series of Redemptions 80 F. Complete Termination 80 1. Avoiding Family Attribution 81 2. Splitting Stock Among Family Members 82 3. Prohibited Interests 82 a. Creditors 82 b. Lessors 83 c. Service Providers 83 4. Prohibited Interests of Related Parties 83 G. Redemptions Not Essentially Equivalent to a Dividend 84 1. Potential Coalitions 85 2. Indirect Ownership 86 3. Family Hostility 87 H. Partial Liquidations 87 1. Partial Liquidation—Definition 88 2. Qualified Trade or Businesses 89 3. Why and Wherefore 90 I. Redemptions Through Related Corporations 90 1. Step One: Control 91 2. Step Two: Applying the § 302 Tests 92 3. Hold On, I’m a Bit Confused 93 4. Step Three: Earnings and Profits 93 Chapter 13 Complete Liquidations 96 A. Liquidation of a Corporation That Is Not a Subsidiary 96 1. Tax Consequences to the Shareholders 96 2. Tax Consequences to the Corporation 97 B. Liquidation of a Subsidiary 97 1. Distributions to Minority Shareholders 97 2. Distributions to the Parent Corporation 97 Chapter 14 Section 351 99 A. Introduction 99 B. Group Transfers 99 C. Mechanics of § 351 100 D. Property Containing Unrealized Loss 102 E. Avoiding § 351 103 F. Boot 103 1. Basis 104 a. Basis of the Shares in the Hands of the Transferor 104 b. Basis of the Property in the Hands of the Corporation 104 2. Assumption of Liabilities 106 a. General 106 b. Tax Avoidance 106 c. Escaping Through an IOU 107 Chapter 15 Corporate Divisions 109 A. Introduction and Terminology 109 B. Tax Consequences of a Division (Without Boot) 110 1. Basic Statutory Provisions 110 2. Corporate-Level and Shareholder-Level Taxation 110 3. Gregory 111 a. Judicial Response 113 b. Congressional Responses 113 C. Requirements 114 1. Business Purpose 114 a. Shareholder Purpose 115 b. Transfers Following a Divisive D Reorganization 115 c. Alternative Arrangements 115 2. Continuity of Proprietary Interest (COPI) 116 3. Active Trade or Business (ATB) 117 a. Active Conduct 117 b. Separate Affiliated Group 117 c. Five-Year Requirement 118 d. Trade or Business Acquired Indirectly 118 e. Division and Expansion of an Existing Trade or Business 119 4. Distribution of All the Stocks and Securities 119 D. Boot 120 1. From the Perspective of the Shareholder 120 a. Recognizing Gain and Loss 120 b. Characterizing Gain 120 c. Basis 121 2. From the Perspective of the Corporation 121 E. Divisions in the Nature of Sale 121 1. Section 355(d) 122 2. Section 355(e) 124 Chapter 16 Reorganizations 128 A. Overview 128 B. Non-Statutory (“Common Law”) Requirements 128 1. Continuity of Proprietary Interest (COPI) 129 2. Continuity of Business Enterprise (COBE) 129 3. Business Purpose 129 C. Reorganizations, From A to G 130 D. “A” Reorganizations 130 1. Definition 130 2. Divisive Mergers 130 3. Tax Consequences of an “A” Reorganization 131 E. “B” Reorganizations 131 1. Definition 131 2. “Solely for. . .Voting Stock” 132 3. Creeping “B” Reorganizations 132 4. Tax Consequences of “B” Reorganizations 133 F. “C” Reorganizations 133 1. Definition 133 2. “Substantially All” 134 3. “Solely for. . .Voting Stock” 134 a. Assumption of Liabilities 135 b. Other Boot 135 4. Liquidation of the Target Corporation 135 5. Tax Consequences of a Type “C” Reorganization 136 G. Triangular Reorganizations and Drop-Downs 136 1. Drop-Downs 137 2. Triangular Reorganizations: General 138 3. Triangular B Reorganizations 138 a. Qualifying as a Triangular B Reorganization 138 b. Tax Consequences of a Triangular B Reorganization 138 4. Triangular C Reorganizations 139 a. Qualifying as a Triangular C Reorganization 139 b. Tax Consequences of a Triangular C Reorganization 139 5. Forward Triangular Mergers 140 a. Qualifying as a Forward Triangular Merger 140 b. Tax Consequences of a Forward Triangular Merger 141 6. Reverse Triangular Merger 141 a. Qualifying as a Reverse Triangular Merger 141 b. Tax Consequences of a Reverse Triangular Merger 142 H. Other Reorganizations 143 1. Acquisitive “D” Reorganizations 143 2. Type “E” Reorganizations 143 3. Type “F” Reorganizations 144 4. Type “G” Reorganizations 144 I. Tax Consequences of Boot 145 1. From the Perspective of T’s Shareholders 145 a. Recognition of Gain 145 b. Characterization of Gain 145 c. Effect of Boot on Basis 146 2. From the Perspective of T 146 a. Exchange of Property in the Reorganization 146 b. Disposition of Property Following the Exchange 146 3. From the Perspective of P 147 Chapter 17 Carryover of Tax Attributes 150 A. Introduction 150 B. Tax Attributes 151 C. Which Corporation Inherits the Tax Attributes? 151 D. Blending the Tax Attributes of the Target and Acquiring Corporations 152 1. Earnings and Profits 152 a. In General 152 b. Year of Liquidation or Reorganization 153 2. Net Operating Losses 153 Chapter 18 Restrictions on Use of Tax Attributes 155 A. Introduction 155 1. Corporate Identity and Trafficking in Tax Attributes 155 B. Section 382: Net Operating Losses 155 1. Ownership Change 156 2. Consequences of an Ownership Change 156 a. Eliminating the NOL: Continuity of Business Enterprise 156 b. Section 382 Limitation: Deferring Deduction of the NOL 157 c. Section 382 Limitation: Anti-Stuffing Rules 158 d. Section 382 Limitation: Built-In Gains and Losses 159 C. Section 383 160 1. Net Built-In Capital Losses 160 2. Credits 160 D. Section 269 161 E. Section 384 161 Chapter 19 Final Words 163