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.
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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. For 2000-2003, the return reported it as inactive.
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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.”
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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 foreign subsidiaries in two lines of business, directly or indirectly. Seller wants to sell Seller 2. Buyer is a domestic group that wants to buy Seller 2’s assets in one l line of business, principally the foreign business.
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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 to separate the two businesses by spinning off the Business B group to the public shareholders. Preliminary steps include the following:
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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 for securities, but the debtor also transferred plant and equipment to one trust, other assets to another trust and Newco securities to two other trusts.
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For contested cases appealing proposed decisions of the NCDOR on tax disputes to the NC Office of Administrative Appeals filed on or after January 1, 2012, a new set of rules will apply. The principal change is that the decision of the ALJ will be final, subject only to an appeal to the Superior Court on the record. The General Assembly has eliminated the power of the DOR to revise the ALJ’s decision. Since 2008 the DOR has used this power to change both the outcomes and the reasonings of the ALJ’s decisions.
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The NCDOR has posted on its website a Notice stating the Secretary’s view of the effective dates in the recently enacted statute that changes the way the Secretary will force combinations of corporate taxpayers after 2011. For prior coverage see this blog’s post on June 20, 2011.
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Just released LTR 201127004 is like LTR 200952032, but they are near the only ones that treat an intragroup liquidation/reincorporation as a section 368(a)(1)(C) reorganization. Here is the transaction:
· Parent owns Sub, which owns two businesses.
· Parent wants to hold one business directly, leaving the other business in Sub.
· Parent causes Sub to turn into a disregarded LLC, distribute one of the businesses to Parent and then Sub “reincorporates.”
· As a result, Parent owns the distributed business directly and owns the Sub/corporation, which still owns its other business.
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LTR 201126003 shows an alternate way to obtain the benefits of the yet-to-be-effective section 336(e) election for the distribution of stock of a subsidiary to shareholders.
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On June 18, 2011 the General Assembly ratified and sent to the Governor House Bill 619 concerning corporate combined income tax returns.
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The North Carolina Senate Finance Committee used House Bill 619 as a vehicle for a proposed committee substitute bill on forced combination.
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