The following were originally printed in the Weekly Report, part of the BNA Tax and Accounting Center.

Volume 27 Number 19
Monday, May 12, 2008

IRS Denies Safe Harbor to Some Transfers in §368 Restructurings

The IRS issues final regulations (T.D. 9396) that amend previous guidance (T.D. 9361) on transfers of assets or stock following a tax-free reorganization. In general, the final rules deny safe harbor protection in cases where transfers are made to former shareholders in consideration for proprietary interests in the acquired or surviving corporation. The IRS explains that such transactions fail to satisfy the continuity of interest requirement as well as certain statutory limitations on permissible consideration.

Final Rules Issued on Assumption of Liabilities Under §358(h)

Final regulations (T.D. 9397) issued by the IRS address the assumption of liabilities under §358(h), retaining a provision intended to prevent abusive basis transactions. The IRS says it is removing temporary rules issued in May 2005 and finalizing unchanged the proposed rules that it issued at the same time. The 2005 rules address an abusive transaction in which property is transferred to a corporation in exchange for both stock and the corporation's assumption of certain obligations of the transferor.

Reverse Subsidiary Merger, Target Liquidation Not Reorganization

The IRS, in Rev. Rul. 2008-25, says that a transaction whereby the stock of a target corporation is acquired in a taxable reverse subsidiary merger followed by the liquidation of the target does not qualify as a reorganization under §368(a). The IRS treats the two steps as a qualified stock purchase by the acquiring corporation of the stock of the target and a complete liquidation of a controlled subsidiary under §332.

FOCUS: Comments on the Application of §263A to Sales-Based Royalties

The author of this week's Focus writes regarding forthcoming guidance from the IRS under §263A on the treatment of post-production costs, such as sales-based royalties. The author makes a number of technical arguments, and raises policy concerns, to suggest that the regulations under §263A should not require capitalization of sales-based royalty payments.

Web Solutions

This issue of the Weekly Report includes Web Solutions, exploring the research and technical aspects of the BNA Tax and Accounting Center, a resource providing analysis of critical issues, practice aids, and full text of the Code, regulations, IRS documents, and cases. BNA Tax and Accounting Center includes the U.S. Income Portfolio Series; the Estates, Gifts, and Trusts Portfolio Series; the Foreign Income Portfolio Series; and Tax Practice Series. For information, call 800-223-7270.