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Vol 12, Num 3 l September 2015

Technology and Intellectual Property

► In This Issue:

When Are Former Shareholders Treated as Transferees for Federal Tax Deficiencies or Underpayments?

ABI

Marta Alfonso
MBAF CPAs, LLC
New York

ABI

Nicholas Vigliotti
MBAF CPAs, LLC
New York


26 U.S.C. § 6901 and Internal Revenue Code § 6901 enable the IRS Commissioner to collect deficient or underpaid corporate income taxes from a transferee of property. In the recently decided case of Slone v. Commissioner, the appeals court was asked to decide whether the tax court had made an appropriate decision by holding that Slone Broadcasting Co.’s shareholders did not have transferee liability for underpaid income taxes arising from a purchase transaction. In applying the two-pronged test in Comm’r v. Stern for designating transferee liability, the Court ultimately remanded the case back to the tax court for further factual findings to support its decision. The Court found that the tax court failed to make specific findings regarding the Slone purchase transaction’s economic substance, and therefore did not properly analyze whether the Commissioner had failed to meet the two prongs under the Stern test.

The facts of the Slone case were as follows: In July 2001, Slone sold substantially all of its assets to Citadel Broadcasting Co. for $45 million. Before the Citadel asset sale closed, Fortrend International LLC requested to merge with Slone and engage in the asset-recovery business. Slone shareholders’ due diligence regarding Fortrend did not reveal any irregularities, yet Fortrend refused to disclose its proprietary methods that it used to reduce shareholders’ tax liabilities. Fortrend represented that the tax-reduction methods they used did not require disclosure nor registration with the IRS as tax-avoidance transactions.
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Taxes, Bankruptcy and Comic Books: Tax Court Holds that Consolidated Group of Marvel Comics Subsidiaries Must Reduce Group’s Collective NOLs to Reflect COD Income Received

ABI

Jeffrey M. Sklarz
Green & Sklarz LLC
New Haven, Conn.

ABI

Nicholas W. Quesenberry
Green & Sklarz LLC
New Haven, Conn.


One of the most attractive benefits of a bankruptcy filing is the potential discharge of indebtedness. However, the bankruptcy discharge may have significant tax consequences for the debtor. Generally, a taxpayer must include, in its gross income, any amount of debt that is discharged, or cancelled, other than by payment.[ Such income is often referred to as “cancellation of debt” income, or “COD income.” The general rule is subject to exceptions, one of which is that the taxpayer may exclude COD income from its gross income, to the extent that the discharge occurs in a bankruptcy case.

A taxpayer who avails itself of the bankruptcy exclusion to COD recognition must also reduce certain tax attributes to reflect the amount of income excluded. Unless the taxpayer elects otherwise, the first tax attribute to be reduced is “[a]ny net operating loss [NOL] for the taxable year of the discharge, and any net operating loss carryover to such taxable year.” Other attributes are reduced in the order delineated in IRC § 108(a)(2). If there is any COD income left after reduction of all attributes, then the excess is permanently excluded from the taxpayer’s gross income.

The attribute-reduction rules become difficult to apply in cases involving affiliated corporate taxpayers who elect to file consolidated tax returns. An affiliated group that elects to file a consolidated return is generally treated as one taxpayer for federal tax purposes, although some items must necessarily be computed at the separate-entity level in order for the consolidated-return regime to function properly.
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Kurt Summers, the City of Chicago's Treasurer, to Speak at this Year's Professional Development Program!

ABI announces program and fantastic keynote for this year's Mid-Level Professional Development Program. Kurt Summers, City of Chicago Treasurer and head of the City and Board of Education Pension Funds, will join us on Wednesday, October 28th, to give the Keynote Presentation. Session topics include oil and gas restructurings, coal mining, and more. Register by September 30th and save $50 with coupon code PDPSAVE50 at check out. Register today.

Pre-Petition Planning... webinar 9.23.15

 

20th Views from the Bench - Georgetown Law Center 10/09/15

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