Category Archives: Consolidated Returns

The Worthless Subsidiary Problem

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LPCiminelli Interests, Inc. v. United States, 110 AFTR 2d 2012-6631 (W.D. N.Y. 2012) ruled that a consolidated group did not have to amend its returns to assert that a subsidiary became worthless before the year the IRS claimed it was worthless. This ruling confirms the general rule that taxpayers have no obligation to amend a previously filed return. It also illustrates the pitfalls of dealing with broken subsidiaries, and the wisdom of sometimes doing nothing. Facts. The common parent of the group owned a subsidiary that went out of business several years before the 2004 year for which the IRS [...]Read more

Excess Loss Account Avoided

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LPCiminelli Interests Inc. v. United States (W.D.N.Y. Nov. 13, 2012) ruled for the taxpayer on an IRS assertion of excess loss account liability. The facts involve a common situation of delay in writing off a worthless consolidated subsidiary that might produce discharge of indebtedness liability and/or recognition of an excess loss account. Facts: The taxpayer owned a subsidiary that was formed to do construction in a particular area. The subsidiary ran up a lot of debts, ceased operations and in 2004, was reported on the consolidated return as abandoned and removed from the consolidated group. [...]Read more

CERT Regulation Proposed

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Twenty-three years after it was enacted in 1989, the Treasury issued proposed regulations interpreting section 172(h), the corporate equity reduction transaction (CERT) loss carryback disallowance rule dating from the heyday of the leveraged buyouts. Most of us have tried to remember this rule as one aimed at preventing carrying back a loss generated by large interest deductions, and obtaining a refund, when the loan causing the interest deductions was incurred to make a large equity purchase—hence a “corporate equity reduction.” If that were all section 172(h) was aimed at it [...]Read more

Avoiding the Section 338 Consistency Rules

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LTRS 201213013 and 201214012 are the same ruling, evidently issued to a buyer and a seller, in the common scenario where the seller consolidated group wants to sell subsidiary stock and the buyer wants to buy assets and obtain a cost basis; both taxpayers got what they wanted, including placing the target corporation into the buying consolidated group, without having a qualified stock purchase and thereby avoiding the consistency rules. Facts. Seller and Buyer are both privately owned domestic consolidated groups. Seller has a domestic subsidiary, Seller 2, which holds the stock of Seller’s [...]Read more

Spinoff Can Use Corporate Name

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LTR 201203004 rules favorably on a spinoff of Controlled to public shareholders in which Controlled will be allowed to use in its corporate name the trade name of Distributing, which will be licensed to Controlled by Distributing. This appears to be the first time that a section 355 ruling has explicitly allowed such a close continuing connection between two corporations that split up for the business purpose of conducting separately Businesses A and B. Facts: Distributing is a domestic public corporation that conducts Businesses A and B. For the usual “fit and focus” reasons it desires [...]Read more

Reorganization and Consolidated Rulings Issued

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The usual Friday release of a large number of letter rulings by the IRS included several rulings of interest on reorganizations and consolidated return issues. Bankruptcy Reorganization: LTR 201208036 addresses the use of qualified settlement funds, disputed ownership funds and liquidating trusts (all referred to as trusts) to hold both some of the assets of the debtor and the securities of Newco, the corporation into which the debtor was reorganized. This debtor evidently was brought down in part by environmental liabilities. It is not clear what assets the debtor transferred to Newco in exchange [...]Read more

NC Tax Appeals to Change

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Senate Bill 781. The procedural change is part of a major overhaul of North Carolina administrative law in a bill that the Governor vetoed. The General Assembly overrode the veto on July 25, 2011. Other parts of the bill make it harder for North Carolina to adopt regulations particularly under state and federal environmental laws and under the 2010 federal healthcare act, and in general. Administrative Law and the DOR. The General Statutes set up procedures for the adoption of administrative rules (called regulations at the federal level) and for contested cases involving agencies. Originally the [...]Read more

NC Forced Corporate Combinations

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Session Law 2011-390 “effective 1/1/2012” generally repealed the sections of the corporate tax laws on which the Secretary has relied up to now for forced combinations and replaced them with a new regime. It appeared that the new regime would apply to tax years beginning on or after 1/1/2012 and that the old regime would apply to tax years beginning before that date, regardless of when an assessment was proposed. That approach should have suited the Secretary very well, because he has been very successful in forcing combinations under the existing regime. However, the Secretary evidently [...]Read more

Reincorporation and the Economic Substance Doctrine?

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Unwanted Assets. Normally, achieving this restructuring would require Sub to distribute the business assets to Parent, which could create deferred intercompany gain that would be triggered into income if either the business or Sub left the group. This is not different from the gain that Parent would recognize after the actual transaction if it sells the distributed business. However, if it sells Sub after this transaction treated as an upstream reorganization, it will not recognize its gain in the retained business, and that may be the plan. Indeed, the Chief Counsel delayed release of this ruling [...]Read more

Section 336(e) Alternative

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The ruling treated an intra group sale of stock as if it were a qualified stock purchase, with the result that the assets in the sold corporaiton received a basis step up when the sold corporation was distributed to the shareholders and the original holding company was sold to a REIT that wanted the real estate assets of the original group.