LTRs 20122014, 20122015, 20122016, and 20122017, are identical rulings showing how the “control immediately after” requirement of section 351 really doesn’t mean that. They also show how to resolve the classic problem of a Bigco Corp. acquiring the corner grocery store tax free for Bigco stock, despite the fact that the grocery owners do not control Bigco and the grocery was not incorporated.
Facts: Three individuals owned LLC, a partnership. Bigco wanted to acquire LLC for Bigco stock in a tax free exchange. We know that the individuals could not incorporate the LLC and reorganize it into Bigco. Rev. Rul. 70-140, 1970-1 C.B. 73. Assuming LLC is smaller than Bigco, we know that the individuals could not acquire 80% control of Bigco by directly exchanging LLC for Bigco stock, so a direct section 351 exchange is not possible. How about an indirect section 351 exchange?
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On April 25, 2012 the Supreme Court ruled that the overstatement of the basis of property sold, resulting in a substantial understatement of gain, is not an omission from gross income, and so the three year and not the six year statute of limitations applied to the taxpayer’s assessment, meaning the assessment came too late. United States v. Home Concrete & Supply, LLP, 2012 U.S. LEXIS 3274, affirming, 634 F.3d 249 (4th Cir. 2011).
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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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Salman Ranch LLC (partnership) won a refund action for the 1999 year on a Son of Boss transaction in which an allegedly overstated basis facilitated a huge loss. Salman Ranch II, 573 F. 3d 1362 (Fed. Cir. 2009).
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In Canal Corp. v. Commissioner, 135 T.C. No. 9 (Aug. 5, 2010) the Tax Court ruled that a corporation in effect "sold" the business of its subsidiary when the subsidiary contributed the business assets to a partnership with another company that effectively wanted to "buy" the assets, and which effectively assumed complete liability for partnership borrowing used to pay cash to taxpayer amounting to a substantial part of the value of the contributed assets. More importantly, the court upheld a $36M penalty by ruling that taxpayer could not rely on a legal opinion, largely because of the large fee ($800,000) charged for the opinion.
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