Category Archives: Accounting

Limiting Capitalization

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LTR 201319009 seems to be an odd ruling, because the taxpayer sought a ruling that it had to capitalize certain costs of an acquisition through use of a double dummy structure. However, the taxpayer actually was limiting its capitalization by obtaining a ruling that a section 351 exchange with boot was a “covered transaction” for purposes of Reg. Section 1.263(a)-5(b). Facts. Company 1 wanted to acquire Company 2. Company 1 created Parent. Parent created two mergersubs. One mergersub merged into Company 1 for Parent stock. The other mergersub merged into Company 2 for Parent stock [...]Read more

Section 305(b)(2) Warrants

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LTR 201213011 rules that a domestic corporation can generate a section 301 distribution to its shareholder(s), possibly for the purpose of creating capital gain, possibly to allow use of an expiring capital loss of the shareholder. Sec. 1212(a). The ruling is unusual both for its brevity and for dealing with section 305, which does not attract many letter rulings. Facts. Taxpayer had outstanding common stock and at least two and possibly three classes of preferred stock: (1) cumulative preferred stock with dividends in arrears, (2) preferred stock convertible into common, and (3) other preferred [...]Read more

Unrepatriated Foreign Earnings

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Interest of the SEC in foreign earnings repatriation and its tax impact is not new. At least as early as 2008 the SEC inquired of Sun Hydraulics Corporation how it could project that it would or would not repatriate income and what the tax effect would be.   The SEC’s concerns include (1) risk of future tax liabilities upon repatriation, (2) lack of liquidity due to the tax penalty that inhibits repatriation, and (3) the compounding of the lack of liquidity when borrowing is required to supply for domestic use the cash that is being held off shore.   The SEC’s concern seems [...]Read more