Corporate Overview (Portfolio 750)

Tax Management Portfolio, Corporate Overview, No. 750-2nd, is designed to provide a general overview of the taxation of subchapter C corporations. Although the entire Code contains statutory provisions applicable to corporations, the bulk of the provisions pertaining solely to corporations reside in Subchapter C of the Internal Revenue Code. 

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Tax Management Portfolio, Corporate Overview, No. 750-2nd, is designed to provide a general overview of the taxation of subchapter C corporations. Although the entire Code contains statutory provisions applicable to corporations, the bulk of the provisions pertaining solely to corporations reside in Subchapter C of the Internal Revenue Code. Subchapter C consists of five effective parts containing the 300-series of Code sections: Part I, Distributions by corporations (§§301–307); Part II, Corporate liquidations (§§331–341); Part III, Corporate organizations and reorganizations (§§351–368); Part IV, Repealed; Part V, Carryovers (§§381–384); Part VI, Treatment of certain corporate interests as stock or indebtedness (§385); and Part VII, Repealed. Each Part pertains to one or more types of transactions involving the stock of a corporation, and focuses primarily on the separation of entity and owner for purposes of taxing business earnings. Consequently, they address the tax consequences of distributing income and property, and significant changes to the ownership of a business, whether that involves liquidating, reorganizing, or exchanging the business assets or stock for stock of another corporation.

In addition to the Subchapter C rules, this portfolio provides a brief overview of the taxation of a C corporation's ongoing operations. This includes the corporate income tax (§11 and related provisions); the alternative minimum tax (§§55–59); and the two penalty taxes: the accumulated earnings tax (§§531-537) and the personal holding company tax (§§541–547).
While Subchapter C applies to all corporations, certain other chapters and subchapters create special classes of corporations. At times, these additional rules serve merely as an overlay to the Subchapter C provisions. In other situations, these other provisions supersede or render inapplicable the Subchapter C rules. This portfolio limits its discussion to corporations not meeting the requirements of a special class of corporations and, therefore, discusses Subchapter C as it applies to a single, general corporation.

Information regarding the special treatment of corporations outside of the scope of this portfolio, and references to portfolios discussing them in greater detail, are as follows: (1) Affiliated Corporations (754 T.M., Consolidated Returns — Elections and Filings and 755 T.M., Consolidated Returns — Investment in Subsidiaries); (2) Multinational Corporations (Foreign Income Series of the BNA Tax Management Portfolios); (3) Pass-through Corporations (710 T.M., Partnerships — Conceptual Overview,et seq., 730 T.M., S Corporations: Formation and Termination, and 731 T.M., S Corporations: Operations); (4) Other Special Classes, such as insurance companies, regulated investment companies, tax-exempt organizations, and banking institutions; and (5) Multistate Corporations (783 T.M., State Taxation of Mergers and Acquisitions).

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James C. Warner, B.A., Grove City College (1971); J.D. (cum laude; law journal editor), The Ohio State University College of Law (1974); LL.M. in Taxation (1st in class) Georgetown University Law Center (1979); Attorney-Advisor, Interpretative Division, Office of Chief Counsel, Internal Revenue Service (1974–77); Attorney-Advisor, Judge William M. Drennen, U.S. Tax Court (1978–79); Partner and Associate, Lee, Toomey, and Kent (1979–1993); Adjunct Professor, Georgetown University Law Center (1992–1994); President, USA Tax Videos (1994–1996); author, Consolidated Returns Guide (CCH, 2003); Mergers & Acquisitions Segment Leader, Ernst & Young's Online Tax Advisor (1999–2004); Senior Director, Tax Research & Planning, Wal-Mart Stores, Inc. (2004–2008); Tax Research Director, Warner Tax Consulting LLC (2009–present).

Jeanne C. Blackmore, B.A. (liberal arts), St. John's College (1989); J.D., University of San Diego School of Law (1993); LL.M. in Taxation, New York University, (1994); member, California Bar Association (1994); KPMG, Mergers and Acquisitions Group, (1994–1997); Ernst & Young, EY National Office of the West, Mergers and Acquisitions Group (1997–1999); Mergers & Acquisitions Responder and Reviewer, Ernst & Young's Online Tax Advisor (1999–2004); Mergers & Acquisitions Segment Leader, Ernst & Young's Online Tax Advisor (2004–2009); Special Counsel, Gravel and Shea (2009–present).

Mary C. Walsh, B.A. (English), University of Massachusetts (cum laude); J.D., University of Connecticut School of Law (1991); LL.M. in Taxation, Boston University Law School (1992); M.S. (Accounting)/MBA, Northeastern University Graduate School of Professional Accounting (1995) (Beta Gamma Sigma Honor Society); Assistant District Attorney/Counsel to the Commissioner, Massachusetts Department of Revenue/Child Support Enforcement Division (1992–1994); Tax Associate, Reznick, Fedder & Silverman, CPAs (1995–1996); Tax Senior, Ernst & Young LLP (1996–1998); Tax Manager Recoton Corporation (2000–2001); Responder and Reviewer, Mergers & Acquisitions Segment, Ernst & Young's Online Tax Advisor (2001–2005). Adjunct Instructor, DeVry University and Keller Graduate School of Management (2006–2008); Adjunct Instructor, Rollins College (2007–2008); Adjunct Instructor, University of Central Florida (2008); Visiting Instructor, Florida Atlantic University (Fall 2008–present).

Anjanette T. Frias, B.A. (cum laude), Creighton University (1993); J.D., Emory University School of Law (1996); member, Tennessee Bar Association (1996–2002); co-author, “Consolidated Return Election Offers Tax Advantages — With Complexity,”Tax Strategies (Sept. 2001); Ernst & Young, LLP (1996–2001); Responder, Mergers & Acquisitions Segment, Ernst & Young's Online Tax Advisor (2001–2003).


Detailed Analysis

I. Organization of a C Corporation

Introductory Material

A. Elements of a Tax-Free Incorporation

1. Transfer of Property

a. Property Requirement

b. Transfer Requirement

2. Receipt of Solely Stock

3. Control Immediately After the Exchange

B. Basis

C. Liabilities

D. Investment Company Exception

E. Start-Up and Organizational Expenses

F. Records and Information Statements

II. C Corporation Operations

Introductory Material

A. Corporate Income Taxes Generally

B. Estimated Taxes

C. Alternative Minimum Tax

D. Penalty Taxes

1. Accumulated Earnings Tax

2. Personal Holding Company Tax

III. Multiple Corporations

A. Overview

B. Tax Advantages of Multiple Corporations

C. Limitations on Multiple Corporations

D. Apportionment Rules for Additional Tax and AMT Exemption

IV. Corporate Distributions

Introductory Material

A. Dividend Distributions

1. Generally

2. Distributions of Property

3. Corporate Shareholders

B. Redemptions

1. Redemptions Treated as Exchanges

2. Constructive Stock Ownership Rules

3. Tax Consequences of Redemptions Under § 302

4. Stock Transactions Between Related Parties and Miscellaneous Issues

C. Adjustments to Earnings and Profits

D. Constructive Distributions

V. Stock Dividends

Introductory Material

A. Generally

B. Exceptions

1. Distributions in Lieu of Money

2. Disproportionate Distributions

3. Distributions of Common and Preferred

4. Distributions on Preferred Stock

5. Distributions of Convertible Preferred

C. Stripped Preferred Stock

D. Section 306 Stock

VI. Complete Liquidations

A. Scope

B. Complete Liquidations Defined

C. General Rule

1. Treatment of Shareholders

2. Treatment of Liquidating Corporation

3. Plan Requirement

4. Filing Requirements

D. Subsidiary Liquidations

1. Nonrecognition Liquidations

2. Treatment of Corporate Distributee

3. Treatment of Minority Shareholders

4. Treatment of Liquidating Corporation

5. Filing Requirements

E. De Facto Liquidation

F. Miscellaneous Issues

VII. Taxable Sale of C Corporation Business

Introductory Material

A. Taxation of Disposition

B. Asset Sale

1. Generally

2. Tax Consequences to Selling Corporation

3. Tax Consequences to Buyer

4. Purchase Price Allocation

5. Section 197 Intangibles

C. Stock Sale

1. Generally

2. Tax Consequences to Selling Shareholders

3. Tax Consequences to Buyer

4. Section 338 Election

a. Section 338(g) Election

b. Section 338(h)(10) Election

c. Purchase Price Allocation Under § 338

d. Consistency Rules

e. Filing Requirements

f. Miscellaneous Issues

D. Reporting Requirements

VIII. Tax-Free Reorganizations

A. Statutory Requirements (Types of Reorganizations)

1. Asset Reorganizations

a. Statutory Merger (Type “A”)

b. Forward Subsidiary Merger (Hybrid Type “A” #1)

c. Assets Exchanged Solely for Voting Stock (Type “C”)

d. Reorganizations Involving Controlled Corporations (Type “D”)

2. Stock Reorganizations

a. Stock Exchanged Solely for Voting Stock (Type “B”)

b. Reverse Subsidiary Mergers (Hybrid Type “A” #2)

3. Recapitalizations (Type “E”)

4. Change in Name or Location (Type “F”)

5. Bankruptcy Reorganizations (Type “G”)

B. Nonstatutory Requirements

1. Business Purpose

2. Continuity of Interest (“COI”)

3. Continuity of Business Enterprise (“COBE”)

4. Plan of Reorganization

C. Treatment of Parties to a Reorganization and Target Shareholders and Security Holders

1. Party to a Reorganization

2. Treatment of Corporate Transferors

3. Treatment of Corporate Transferees

4. Treatment of Target Shareholders and Security Holders

D. Reporting Requirements

IX. Corporate Divisions

A. Generally

B. Section 355

1. Generally

2. Types of Divisions

3. Statutory Requirements

a. Stock or Securities Requirement

b. Active Business Requirement

c. Device Restriction

4. Nonstatutory Requirements

a. Business Purpose

b. Continuity of Proprietary Interest

c. Continuity of Business Enterprise

5. Administrative Guidance: Rev. Proc. 96-30

6. Tax Consequences

a. Generally

b. Failed § 355

c. Taxation of Distributing

(1) Disqualified Distributions

(2) Distribution in Connection with Acquisition

(3) Disqualified Investment Corporations

d. Recordkeeping and Reporting

C. Section 368(a)(1)(D)

X. Corporate Tax Attributes

A. Generally

B. Carryover of Attributes in Tax-Free Transactions

1. Tax-free Restructurings

2. Carryover Attributes

a. Net Operating Loss Carryovers

b. Earnings and Profits

c. Capital Loss Carryovers

d. Method of Accounting

e. Inventories

f. Method of Computing Depreciation

g. Installment Method

h. Amortization of Bond Discount or Premium

i. Recovery of Tax Benefit Items

j. Miscellaneous Attributes

C. Limitations on Use of Attributes

1. Section 382 and Changes in Ownership

a. Section 382 Generally

b. The Limitation

c. Ownership Change

d. The Testing Period

e. Stock

f. Five Percent Shareholders

g. Miscellaneous § 382 Provisions

h. Section 383

i. Section 384

2. Section 269

a. Generally

b. Transactions to Which § 269 Applies

c. Requisite Tax Avoidance Purpose

d. Partial Allowance

XI. Landmark Cases in Subchapter C Arena

Introductory Material

A. Continuity of Interest Doctrine

1. Helvering v. Minnesota Tea Co.

2. John A. Nelson Co. v. Helvering

3. LeTulle v. Scofield

4. Helvering v. Alabama Asphaltic Limestone Co.

5. Groman v. Comr.

B. General Utilities Doctrine and its Repeal

1. General Utilities & Operating Co. v. Helvering

2. Comr. v. Court Holding Co.

3. U.S. v. Cumberland Public Service Co.

C. Substance Over Form and Step Transaction Doctrines

1. Gregory v. Helvering

2. Esmark, Inc. v. Comr.

3. Waterman Steamship Corporation v. Comr.

4. Comr. v. Gordon

5. Kimball-Diamond Milling Company v. Comr.

6. King Enterprises, Inc. v. U.S.

D. Dealings in Corporate Stock and Securities

1. Helvering v. Horst

2. Bazley v. Comr.

3. Lessinger v. Comr.

4. Comr. v. Spaulding Bakeries, Inc.

E. Miscellaneous

1. Arrowsmith v. Comr.

2. Plantation Patterns, Inc. v. Comr.


Working Papers

Table of Worksheets

Worksheet 1 Digests of Landmark Tax Cases

Worksheet 2 Short Form Opinion Regarding Qualification as Tax-Free Reorganization

Worksheet 3 Opinion Regarding Upstream Merger and Asset Drop Down

Worksheet 4 Opinion Regarding Acquisition and Upstream Merger




Treasury Regulations:

Public Laws:

Legislative History:

IRS Rulings: