Alston & Bird Tax Blog

Mergers and Acquisitions - Domestic

Section 336(e) and S Corporations

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The regulations issued in 2013 putting Section 336(e) into effect allow a result like that of a Section 338(h)(10) election when the buyer is not a corporation. Like the Section 338(h)(10) election, the Section 336(e) election can be made by shareholders selling an S corporation, as well as when one corporation sells the stock of another corporation. Therefore, unlike Section 338(h)(10), a Section 336(e) election can be made in a case like this: Example 1: A and B each own 50 percent of the stock of S corporation. Partnership Private Equity Firm (PPEF) wants to buy the stock and have a Section [...]Read more

Internal Spinoffs

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LTR 201347005 is a straightforward ruling on multiple internal spin-offs of Controlled holding one of the two businesses of a domestic group. The spins only push Controlled up to two levels below the Parent, and do not appear to involve any unusual features. The stated reason for the spins is to allow the spun business to grow and avoid some regulatory burdens. The spinoffs had occurred before the ruling was issued. Why did this taxpayer go to the trouble to obtain these rulings? The only hint is the fact that the group previously experienced losses. An Investor previously bought common, preferred [...]Read more

Section 304 Games

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Since the repeal of the collapsible corporation rules, section 304 has been the most confusing corporate tax section in the domestic context. Its function is to convert a stock sale into a redemption for purposes of applying section 302 to determine whether the sale proceeds will be taxed as a dividend, or at least will be taxed under section 301 rather than section 1001. But to accomplish this goal, the section has employed numerous deemings and hypothetical transactions. Every 10-15 years, either Congress or Treasury decides that these fictions require another tweak, and somehow they never quite [...]Read more

REIT Conversions

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LTR 201314002 has caused quite a buzz in the investment community. Stock pickers want to know how far the envelope can be pushed on the definition of a real estate investment trust. The ruling seemed to allow it to be pushed fairly far, to include racks in buildings where computer servers are stored, called data centers. However, two companies in somewhat similar businesses recently filed information with the SEC indicating that the IRS was closely examining whether their real estate should receive REIT treatment. Facts A domestic consolidated group headed by a parent is now in the business of [...]Read more

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