Practical advice on current issues.
When an ownership change occurs, the annual limitation is calculated under Sec. 382(b)(1) as the value of the old loss corporation multiplied by the applicable long-term tax-exempt rate. Value is generally determined as the value of the corporation's stock immediately before the date of the ownership change. Therefore, if an issuance of shares triggers an ownership change, the value infused by that issuance is not taken into account in calculating the Sec. 382 limitation. An exception to this general rule is provided in Sec. 382(e)(2), which requires value to reflect any redemption or corporate contraction that takes place in connection with an ownership change. Therefore, where an ownership change is triggered by a redemption, the limitation is based on the value of the loss corporation after the redemption has occurred.
The application of Sec. 382(e)(2) may not always be clear. Corporate contraction language was added to Sec. 382(e)(2) as part of the Technical and Miscellaneous Revenue Act of 1988, RL. 100-647, which expanded the scope of Sec. 382(e)(2) to apply to a reduction in value to loss corporations undergoing one or more events that in substance have the effect of a redemption. The Joint Committee report describes the additional language as applying to acquisitions in which "aggregate corporate value is directly or indirectly reduced or burdened by debt to provide funds to the old shareholders" (Staff of the Joint Committee on Taxation, Description of the Technical Corrections Act of'1988 (H.R. 4333 and S. 2238) (JCS-10-88), p. 44 (March 31,1988)). One such transaction is a purchase where the acquirer uses third-party debt to fund a portion of the consideration and thereafter pays it off with funds of the target, sometimes referred to as a "bootstrap" acquisition. This may include scenarios where the debt is "pushed down" to the books of the target by the acquirer. It may also include situations where the target's operations are the source of repayment for the debt despite the actual liability being booked on a separate entity, for example, a new holding company.
Example 1: P, a partnership, wishes to acquire T, a corporation with NOL carryovers. To acquire T, P forms S, a merger subsidiary, by contributing cash of $50 and debt of $50 in exchange for shares of S. S is then merged with and into T with T surviving, with shareholders of T receiving $100 of consideration in exchange for their shares of T As a result of the merger, T is owned 100% by P and is determined to have undergone an ownership change within the meaning of Sec. 382. Subsequent to its acquisition, the operations of T pay down the outstanding $50 of debt that became a liability of T as a result of its merger with S. This transaction appears to be a redemption in part for federal tax purposes (see Rev. Rul. 78-250).
Example 2: P, a partnership, wishes to acquire T, a corporation with NOL carryovers. To acquire T, P forms a holding company, H, by contributing $50 of cash and $50 of debt in exchange for shares of H. H then purchases all the shares of T solely for $100 of cash consideration. As a result of the purchase of shares, T is owned 100% by H and is determined to have undergone an ownership change within the meaning of Sec. 382. Subsequent to the acquisition, H and T file a consolidated federal tax return. H has no other subsidiaries and holds no assets other than its investment in T. The debt used in acquiring the shares of T remains on the books of H.
In both Examples 1 and 2, corporate value is burdened by debt incurred to provide a portion of the proceeds to selling shareholders. In Example 1, the debt is a direct obligation of T, the target, as a result of its merger with S. In Example 2, although the debt resides at H, the operations of T appear to be the primary means of paying off the liability. Both Examples 1 and 2 appear to be corporate contractions within the meaning of Sec. 382(e)(2). Therefore, in both scenarios, the initial value of the loss corporation T as of the ownership change date should be reduced from $100 to $50, accounting for the redeemed value. In contrast, a contraction does not appear to occur where the acquiring entity has other business lines and/or subsidiaries that are able to repay debt incurred in the acquisition. Changing the facts of Example 2, where H also owns S1 and S2, operating subsidiaries with revenue sufficient to pay down the $50 of debt held at H, a contraction does not appear to occur within the meaning of Sec. 382(e) (2) (see Letter Ruling 200406027).
The language of Sec. 382(e)(2) states it applies to redemptions and contractions that occur "in connection with an ownership change." Therefore, the portion of the transaction involving a redemption or contraction does not need to occur before or simultaneous with the ownership change date, as long as it occurs "in connection with" the ownership change. This appears to broaden the scope of the limitation to transfers, such as loans or distributions, made from the loss corporation following an ownership change (see Field Service Advice 200140049).
Further, the application of Sec. 382(e)(2) will not necessarily apply parallel to the determination of share basis, specifically, under the consolidated return regulations. To illustrate, in Example 2, P would appear to take an initial basis in H of $50, the amount of the cash contributed. However, H appears to take an initial basis in T of $100, although it may have an acquired value of $50 for Sec. 382 purposes. There is no equivalent provision within the consolidated return regulations such that the basis of T shares held by H would be reduced without H actually contributing the $50 liability to T, with the exception that basis would be reduced when and if T made a distribution to H under Regs. Sec. 1.1502-32(b)(2)(iv).
Corporations undergoing a Sec. 382 ownership change should devote attention to understanding the substance of the transactions causing the change. A review of the sources of funds and plans for the repayment of debt is important in understanding whether Sec. 382(e)(2) applies, even where the structure does not appear to be a redemption. Where a redemption or corporate contraction does occur, the corporation's value must be reduced in calculating the Sec. 382 limitation.
From Kevin Ainsworth, CPA, J.D., Boston
Minimizing gain in a dividend-equivalent redemption
This item presents a potential opportunity to minimize the tax impact of a distribution by a closely held corporation that is not made out of the corporation's earnings and profits (E&P). In general, Sec. 301 provides that corporate distributions are treated as (1) dividends to the extent of the corporation's current or accumulated E&P; (2) return of capital to the extent of the shareholder's tax basis in the shares; and (3) gain from the sale or exchange of the shares to the extent that it exceeds the shareholder's adjusted basis in the shares. The application of this provision is fairly straightforward where a share-holder owns a single block of shares. However, if a shareholder owns multiple blocks of shares with differing tax bases, the application of Sec. 301 is more complex. The following example illustrates this complexity.
Example: Corporation A makes a distribution of $200 and has $0 of E&P. The fair market value of the stock is $1 per share, and it is owned 100% by B with the following tax bases: 100 shares with zero basis in block 1; 100 shares with a $100 basis in block 2; and 200 shares with a $400 basis in block 3.
Tax treatment of a regular distribution
Prop. Regs. Sec. 1.301-2(a), issued in 2009 (REG-143686-07), provides that corporate distributions are treated as proportionally made with respect to each share of stock and that Sec. 301 is applied on a per-share basis. While this regulation will not become effective until it is issued in final form, it follows the decision in Johnson, 435 F.2d 1257 (4th Cir. 1971), which established precedent for the recovery of tax basis in a Sec. 301 distribution.
Applying this to the above example, B cannot offset the $200 distribution against his $500 aggregate basis in the shares. Instead B is treated as receiving $50 with respect to block 1, $50 with respect to block 2, and $100 with respect to block 3. This would result in capital gain of $50 (since block 1 has zero basis) and a reduction of basis in block 2 from $100 to $50 and a reduction in basis for block 3 from $400 to $300.
Share redemption vs. regular distribution
What if, instead of making a $200 regular distribution, Corporation A redeems B's block 3 shares for $200? Since B would continue to own 100% of Corporation A following the redemption, Sec. 302(d) would apply, and the redemption would be treated as a distribution to which Sec. 301 applies (and not as a sale or exchange of the block 3 shares). As Corporation A has no E&P, under Sec. 301(c), the proceeds are first applied to reduce B's stock basis, and any excess is treated as gain from the sale or exchange of shares. Once again, the issue is how to apply B's stock basis in this scenario.
A June 2006 report by the New York State Bar Association Tax Section (Report on Basis Recovery in a Dividend Equivalent Redemption, Rep't No. 1112 (June 13, 2006)) identified five alternative methods for recovering basis in a Sec. 302(d) stock redemption. The application of each method, using the above example, is described below.
All-shares method: This method is adopted in Prop. Regs. Sec. 1.302-5 issued in 2009; however, as the provision will not become effective until adopted in final form, it is not currently binding on taxpayers. First, in the above example, the amount distributed is allocated proportionally among all of the shares (similar to the approach in the Johnson case), resulting in $50 of gain on the block 1 shares, a $50 reduction of basis in the block 2 shares, and a $100 reduction of basis in the block 3 shares. Since the block 3 shares have been redeemed, the remaining $300 of tax basis in those shares is proportionally allocated $150 to the block 1 shares (resulting in a final basis of $150) and $150 to the block 2 shares (resulting in a final basis of $200).
Nonredeemed-shares method: This method is based on the legislative history of Sec. 1059 (requiring a reduction of stock basis for the nontaxed portion of an extraordinary dividend). Under this method, the basis of the redeemed shares is first allocated proportionally to the nonredeemed shares, and then the amount distributed is allocated proportionally among all of the nonredeemed shares. Applying this method to the example, the $400 basis in the block 3 shares is proportionally allocated $200 to the block 1 shares (resulting in a tax basis of $200) and $200 to the block 2 shares (resulting in a tax basis of $300). The $200 of redemption proceeds is then allocated $100 to the block 1 shares (resulting in $0 gain and a reduction in basis from $200 to $100) and $100 to the block 2 shares (resulting in $0 gain and a reduction in basis from $300 to $200).
Redeemed-shares method: Under this method, only basis in the redeemed shares can be applied to offset the distribution amount. Applying this method to the example, by opting to redeem the block 3 shares, B can offset the $200 distribution against the $400 basis in the block 3 shares, resulting in no gain recognition and $200 of remaining basis to be reallocated between the block 1 and block 2 shares. B's block 1 basis would increase from $0 to $100, and the block 2 basis would increase from $100 to $200.
Recapitalization method: Under this method, Corporation A is first treated as recapitalizing its shares from 400 shares to 200 shares, and the basis in B's three blocks is preserved. B is then treated as receiving $50 for his block 1 shares, resulting in $50 of gain; $50 for his block 2 shares, reducing his basis in block 2 from $100 to $50; and $100 for his block 3 shares, reducing his basis in block 3 from $400 to $300. This method is similar to the all-shares method and results in a similar amount of gain recognition.
Aggregate-basis method: Under this method, the aggregate tax basis of both the redeemed and nonredeemed shares would be available to offset the redemption proceeds before any gain would be recognized. The remaining aggregate basis would then be proportionally reallocated to the nonredeemed shares. In the example, B's aggregate basis of $500 would be reduced to $300 and would be allocated $150 each to block 1 and block 2.
Several routes to a tax-efficient redemption
Pending the issuance of final regulations under Sec. 302, shareholders of closely held corporations have the opportunity to redeem high-basis shares in a tax-efficient manner by adopting one of the alternative approaches to recovering tax basis. As illustrated in the example above, adopting the nonredeemed-shares, redeemed-shares, or aggregate-basis method should generally result in no gain recognition, while the all-shares or recapitalization method would result in some recognition of gain. While there is no certainty that the IRS will accept any of the favorable approaches, they provide taxpayers with an opportunity to structure a tax-efficient redemption.
From Stuart Kwestel, J.D., L.L.M., Woodbridge, N.J.
Estates, Trusts & Gifts
Sale of a residence in a QPRT
A qualified personal residence trust (QPRT) is a statutory estate freeze technique that generally has a grantor making a gift of a remainder interest in a personal residence (often to children) while retaining an interest in the home for a term of years (Sec. 2702; Regs. Sec. 25.2702-5(c)). The gift to the QPRT is a completed gift for federal gift tax purposes. Further, if the grantor survives the QPRT term, the property is not included in the grantor's estate for federal estate tax purposes.
Treasury regulations set forth several requirements for a trust to qualify as a QPRT. Among those requirements, the trust is generally prohibited from holding any asset other than the principal or one other residence to be used or held for use by the grantor, or an undivided fractional interest in either (Regs. Sees. 25.2702-5(b)(l) and (c)(2)(i)). What then happens if the residence is sold during the QPRT term?
Sale of residence and reinvestment of all of the proceeds in a new residence
Despite the requirement that the QPRT must hold a residence, QPRT status will not necessarily be terminated if the residence is sold during the QPRT term. In fact, Regs. Sec. 25.2702-5(c)(7)(ii) provides that a QPRT may continue as such and hold the proceeds from the sale of the residence until the earliest of: (1) two years after the date of sale; (2) the QPRT term ends; or (3) the QPRT acquires a new residence. The trust agreement must permit the trust to hold sale proceeds (Regs. Sec. 25.2702-5(c) (7)(ii)). If the trust agreement does not, the trust will cease to be a QPRT even if the proceeds are otherwise held in compliance with the regulations.
If the QPRT reinvests all of the proceeds from the sale of the house by purchasing a new residence of equal or greater value and does so before the earlier of (1) two years from the date of sale or (2) the date the QPRT term ends, the trust's QPRT status will continue. The replacement residence must meet the same requirements as the original residence. That is, the replacement residence must be used or held for use as the primary or one other residence of the grantor (Regs. Sees. 25.2702-5(b)(l) and (c)(2)(i)).
Because a QPRT usually qualifies as a grantor trust under Sees. 677 and 673, the grantor may exclude up to $250,000 ($500,000 if married filing jointly) of gain on the sale of a principal residence in the QPRT, provided the requirements of Sec. 121 are met--including that the residence was used as the grantor's principal residence for at least two of the preceding five years.
Sale of residence and reinvestment of some, but not all, of the proceeds in a new residence
Of course, the replacement residence does not always have a value equal to or greater than the sales proceeds. Often, a grantor looks to downsize and purchases a smaller home, leaving the QPRT with a replacement residence and excess cash. Here, the QPRT status will continue for the replacement residence, but the excess cash will not qualify as an eligible QPRT asset. Within 30 days following the date in which some or all of the trust loses its QPRT status, the trust agreement must provide for, or give the trustee the discretion to choose between, one of the following options:
* The nonqualifying assets (here, the excess cash) are distributed outright to the grantor; or
* The nonqualifying assets are segregated, and that portion of the trust is converted to a grantor retained annuity trust (GRAT) for the remainder of the QPRT term (Regs. Sec. 25.2702-5(c)(8)(i)).
For those QPRTs where the grantor is also serving as trustee and the trust agreement requires the distribution of the excess cash outright to the grantor, the initial gift of the remainder interest will be an incomplete gift (Regs. Sec. 25.2511-2). Further, all of the excess cash will be brought back into the grantor's estate for federal estate tax purposes. On the other hand, a conversion to a GRAT will at most lead to only some of the excess cash going back into the grantor's estate. Consequently, only the second option is sometimes drafted into the QPRT document. In fact, the IRS's sample QPRT form includes the GRAT conversion as the sole option for the trustee following the termination of QPRT status for some or all of the trust's assets (Rev. Proc. 2003-42).
The GRAT conversion requirements are set forth in Regs. Sec. 25.2702-5(c) (8)(ii). Of particular note is the annuity start date. The grantor's right to receive the annuity begins on the date the original residence was sold, known as the "cessation date." Recall that sale proceeds may be retained by the QPRT for up to two years before needing to be reinvested, distributed outright, or converted to a GRAT. This timing difference may lead to an accrual of annuity payments deferred during the time between the date the residence is sold and the date the QPRT status ceases for the excess cash. Any deferred annuity payments must bear interest during the deferral period at a rate not less than the Sec. 7520 rate (Regs. Sec. 25.2702-5(c) (8)(ii)(B) and Rev. Proc. 2003-42). If permitted by the trust agreement, the trustee may reduce the aggregate deferred annuity payments by the amount of any income actually distributed to the grantor during the deferral period (Regs. Sec. 25.2702-5(c)(8)(ii)(B)).
While the mechanics of a GRAT annuity calculation are beyond the scope of this item, note that the annuity calculation for a partial conversion of the QPRT is simply the annuity calculation for a full conversion of the QPRT to a GRAT (discussed below), multiplied by the ratio of the non-QPRT assets to the total value of all assets in the trust.
Sale of residence and no reinvestment of the proceeds in a new residence
The sale of the residence without any reinvestment of the proceeds in a new residence will cause the QPRT status to terminate as to all of the assets. The complete termination works much the same as described above for a partial termination--the QPRT assets must be distributed in total to the grantor, or the entire QPRT must be converted to a GRAT. This, of course, defeats the QPRT's intention of removing the trust assets from the grantor's estate. Timing is a significant factor in reducing the negative impact of a sale of the residence during the QPRT term--a sale at the beginning of the QPRT term will cause a longer annuity stream to the grantor, and subsequently more assets going back to the grantor's estate, than would a sale at the end of the QPRT term.
While a QPRT can be a valuable estate freeze technique, to maximize the intended benefits, grantors should be committed to retaining the residence for the duration of their retained interest or reinvesting all of the sale proceeds in a replacement residence.
From Traci Kratish Pumo, CPA, J.D., LL.M., West Palm Beach, Fla.
Foreign Income & Taxpayers
How a border tax could affect a company's transfer pricing
A new administration in the White House and renewed consideration of U.S. corporate tax reform may not have taxpayers thinking about transfer pricing. And yet, the consideration of a border tax adjustment on goods imported into the United States may persuade multinational businesses, particularly manufacturers, distributors, and retailers, to reevaluate their intercompany supply chain--which has U.S. and international transfer-pricing implications.
For example, automobile giants such as Fiat Chrysler, Ford, and Toyota have announced billion-dollar plans to build plants or grow their existing operations in the United States. Retailers such as Target and Walmart and other companies that rely on imported goods and materials in their supply chain have suggested that a border tax adjustment could increase their costs to the point of eroding profit margins. The proposed border tax adjustment comes on the heels of the Organisation for Economic Co-operation and Development's (OECD's) base erosion and profit shifting (BEPS) guidelines and a global movement for transfer-pricing reform, and adds yet another layer to the global discussion of keeping taxable profits (and losses) where value is created.
Serious discussion of a border tax adjustment began last year with A Better Way: A Pro-Growth Tax Code for All Americans (Better Way Plan), the House Republicans' proposal for tax reform, released in June 2016. The Better Way Plan proposes many changes related to corporate taxation, including: (1) lowering the corporate tax rate from 35% to 20%; (2) taxing businesses on activity conducted in the United States and not on world-wide income (also known as a territorial system); and (3) establishing a border adjustment, where deductions are limited by the costs of imported inputs for goods and services sold in the United States.
The proposed reforms are intended to lower the corporate tax rate significantly and allow businesses to not pay taxes on profits earned overseas, even when those profits are brought back to the United States (currently, profits earned by U.S. companies overseas are taxed only when they are repatriated to the United States). The potential limitation on deductions associated with imports means that companies that purchase their goods from outside of the United States would pay higher taxes related to those activities (fewer deductions would increase the income base to which taxes are applied). On the other hand, companies that receive their goods from U.S. suppliers can deduct a greater portion of those costs from their taxable income. These U.S.-sourcing companies would then have the advantage over those that import, in that even when they pay higher costs of goods sold, the U.S.-sourcing companies could possibly pay less in taxes and earn an overall greater net income than companies that import their goods sold.
Because of the many possible effects on the pricing of goods and services coming into and going out of the United States, it is unclear how beneficial a border tax adjustment would be and which companies would benefit. Despite the ambiguity, it is already clear that companies will be looking at this issue closely. Like large automotive companies, multinational businesses may make changes to their value chain as a result of the passage of a U.S. border tax adjustment. In such a scenario, these businesses will look toward transfer-pricing experts who can help with pricing objectives and policies that are supportable and defensible in harmonization with the new tax objectives--import pricing and greater integration of U.S. operations.
Value chain and BEPS
As taxpayers with global operations may well know, the OECD released 15 action items on preventing BEPS in October 2015. Those action items are a product of the increasing emphasis by global tax authorities on tax-avoidance strategies to move profits from high-tax jurisdictions to low- or no-tax jurisdictions. Four of these action items provide guidance related to transfer pricing. The IRS also released regulations for a country-by-country reporting form that is in line with BEPS, adding to the robust transfer-pricing regulations that are already in place. The main underlying idea for all of these regulations and guidelines is that profits (or losses) must follow functions and risks. An entity that performs high-value-adding activities or undertakes significant risks for its corporate group should earn the profits (or bear the losses) associated with those functions and risks.
The proposed border tax adjustment thus comes into play with its potential to encourage businesses to make changes to their value chain and relocate their operations and investments. Furthermore, these companies' suppliers may follow suit to avoid the tax, to keep their operations close to their customers and to promote cost efficiencies.
In deciding whether to move operations in a post-BEPS world, a company should take a comprehensive approach to transfer pricing through value-chain analyses that take into account the function and risk profile of the entire organization, to ensure that key value drivers are properly aligned within the organization. If there are changes to companies' value chains in terms of where functions are performed or risks are assumed, these companies must ensure that the profits (or losses) of each entity follow suit. Specifically, these entities will need to earn or pay the arm's-length price for any intercompany exchange of goods or services.
In addition, both the U.S. transfer-pricing regulations under Sec. 482 and the OECD Transfer Pricing Guidelines on transfer-pricing documentation require that companies provide an explanation of their group's value chain in transfer-pricing documentation. Therefore, not only is it important for a business to conduct value-chain analyses before making operational changes, but also these changes should be followed by proper documentation that is transparent and complies with U.S. and foreign transfer-pricing laws. Transfer-pricing professionals can assist with each of these issues, whether they arise from a border tax adjustment or from operating one's business post-BEPS.
From Jordan Nieusma, McLean, Va.; Sean Caren, CPA, New York City; and Kerry Myford, Chicago
Gains & Losses
Tax Court upholds non-safe-harbor reverse like-kind exchange
The Tax Court's decision in Estate of Bartell, 147 T.C. No. 5 (2016), alleviates some of the uncertainty that taxpayers and practitioners face when structuring a reverse like-kind exchange intended to qualify for nonrecognition treatment under Sec. 1031.
The Bartell case
In its decision, the Tax Court rejected the IRS's position that a third-party "exchange facilitator" the taxpayer engaged to take legal title to the replacement property was required to assume the benefits and burdens of ownership of the property to facilitate a valid Sec. 1031 exchange. Moreover, the Tax Court held that existing case law did not limit the time a third-party exchange facilitator may hold title to the replacement property before the exchange must occur.
The Bartell Drug Co., a family-owned S corporation operating drug stores in Washington state, entered into a sales agreement to acquire property in Lynnwood, Wash. The sale agreement expressly stated that Bartell intended to enter into a Sec. 1031 exchange. Bartell held appreciated property in Everett, Wash., that it wanted to transfer in a nonrecognition transaction under Sec. 1031 for the Lynnwood replacement property, on which a new store was to be constructed for use in Bartell's business.
To execute the transaction, in April 2000, Bartell transferred its rights under the contract for sale of the Everett property to Section 1031 Services Inc., a company in the business of providing exchange accommodation services, which formed a special-purpose limited liability company treated as a disregarded entity for federal income tax purposes (the exchange facilitator) to effect the Sec. 1031 exchange. The exchange facilitator was formed to acquire and hold title to the Lynnwood property during the construction period. The exchange facilitator also acted as the borrower on a construction loan guaranteed by Bartell and initiated construction on the Lynnwood property based on specifications and contractors approved by Bartell, but was otherwise contractually insulated from responsibility concerning the Lynnwood property.
When construction was nearing completion in June 2001, Bartell leased the Lynnwood property from the exchange facilitator. The sale of the Everett property closed in September 2001, and the exchange facilitator transferred title to the Lynnwood property to Bartell in December 2001, which completed the exchange.
The IRS, upon examination of Bartell's 2001 tax return, disallowed deferral under Sec. 1031 of approximately $2.8 million of gain realized in the transaction, arguing that no exchange occurred in December 2001 because Bartell held the burdens and benefits of ownership prior to the transfer (i.e., the ability to benefit from appreciation in the property's value, risk of loss, and taxes and liabilities arising from the property). The issue before the Tax Court was whether a person who takes title to replacement property for the purpose of effecting a Sec. 1031 exchange must assume the benefits and burdens of ownership in that property to satisfy the exchange requirement.
Generally, taxpayers must recognize gain or loss on the sale or other disposition of property pursuant to Secs. 61(a)(3) and 1001. Sec. 1031 provides an exception, permitting taxpayers to defer the recognition of gain or loss on the exchange of property held for productive use in a trade or business or for investment if the property is exchanged in a reciprocal transfer between owners "solely for property of like kind."The term "like kind" refers to the property's nature and character rather than its grade or quality. Thus, real property held for productive use in a trade or business is generally considered of like kind as other real property held for such purposes. If all or part of the replacement property is not of like kind, gain will be recognized to the extent of the consideration attributable thereto. Therefore, to fully defer gain realized on the disposition of the relinquished property, the taxpayer must acquire like-kind replacement property of equal or greater value. A successful like-kind exchange defers federal and state income taxes on the taxable gain until the replacement property is sold. Nonrecognition of gain treatment under Sec. 1031 is based on the rationale that there is no material change in the taxpayer's economic position, as the replacement property is essentially a continuation of the taxpayer's investment in the relinquished property.
Over time, practical application of the like-kind exchange provision of Sec. 1031 brought an expansion from direct two-party exchanges to "deferred exchanges" and "reverse exchanges." In a deferred exchange, the replacement property is received after the transfer of the relinquished property, typically with involvement of a third-party exchange facilitator.
Sec. 1031(a)(3) and Regs. Sec. 1.1031(k)-1 impose two primary limitations on deferred exchanges, enacted in response to the decision in Starker, 602 F.2d 1341 (9th Cir. 1979), which first allowed nonsimultaneous exchanges. First, the replacement property must be identified within 45 days after the date of transfer of the relinquished property, and, second, the identified property must be received before the earlier of (1) 180 days after the transfer of the relinquished property or (2) the tax return due date for the tax year in which the relinquished property is transferred (Regs. Sec. 1.1031(k)-1(b)). These rules, however, do not address reverse exchanges.
In a reverse exchange, the taxpayer receives the replacement property before the transfer of the relinquished property. Taxpayers have used so-called parking transactions or "built-to-suit" transactions to facilitate reverse exchanges, whereby replacement property is "parked" with an exchange facilitator that holds title to the replacement property, usually until improvements to the property are completed to allow for an exchange "solely for property of like kind." This type of transaction was at issue in Bartell. To date, the statute and regulations do not address reverse exchanges; however, a safe harbor for these transactions was established in Rev. Proc. 2000-37.
Safe harbor in Rev. Proc. 2000-37
Rev. Proc. 2000-37 provides a safe harbor for accomplishing reverse and built-to-suit exchanges effective on or after Sept. 15, 2000. The revenue procedure provides that the treatment of the exchange facilitator as the owner of the property for purposes of Sec. 1031 will not be challenged if the property is held in a qualified exchange accommodation arrangement (QEAA). A QEAA exists if the requirements in the revenue procedure are met, which include that the parties have a written agreement stipulating that (1) the exchange facilitator is holding the property for the benefit of the taxpayer for purposes of a Sec. 1031 exchange and (2) the facilitator is treated as the beneficial owner of the property for all federal income tax purposes. Both parties must report the federal income tax attributes of the property on their income tax returns in a manner consistent with this agreement.
In addition, the time limitations of Regs. Sec. 1.1031(k)-1(b) must be met, i.e., the replacement property must be identified within 45 days and exchanged for the relinquished property no later than 180 days from the transfer of title to the exchange facilitator. Moreover, the combined period that the relinquished property and the replacement property are held in a QEAA must not exceed 180 days. However, the revenue procedure expressly states that parking transactions can be accomplished outside the safe harbor and that no inference is intended with respect to the federal income tax treatment of parking transactions that do not satisfy the safe harbor. The IRS reiterated in Rev. Proc. 2004-51 that it continues to study these transactions.
The Tax Court's opinion in Bartell
The Tax Court noted that Rev. Proc. 2000-37 did not apply in this case, as Bartell undertook the exchange prior to its effective date. In any event, Bartell would not have met the safe-harbor requirements because the exchange facilitator held title for approximately 17 months, far beyond the 180-day QEAA period. The Tax Court highlighted that an exchange can be structured to qualify under Sec. 1031 as a "non-safe harbor" reverse exchange based upon existing case law, which has permitted taxpayers great latitude in structuring like-kind exchanges.
Citing previous decisions in Biggs, 69 T.C. 905 (1978), aff'd, 632 F.2d 1171 (5th Cir. 1980), and Alderson, 317 F.2d 790 (9th Cir. 1963), the Tax Court held that where a Sec. 1031 exchange is contemplated from the outset and a third-party exchange facilitator (rather than the taxpayer) takes title to the replacement property before the exchange, the exchange facilitator need not assume the benefits and burdens of ownership. The court distinguished this result from its decision in DeCleene, 115 T.C. 457 (2000), where a taxpayer was held to have merely engaged in an exchange with himself because, rather than using a third-party exchange facilitator, the taxpayer made an outright purchase of the replacement property (unimproved land) prior to the exchange, then conveyed tide to a third party for the period during which improvements were constructed, followed by the reconveyance of the improved property to the taxpayer to complete an exchange for other property owned by the taxpayer.
According to the Tax Court, DeCleene did not address the circumstances where a third-party exchange facilitator is used from the outset in a reverse exchange. As for the 17-month period during which the exchange facilitator in Bartell held the replacement property, the Tax Court reiterated that Rev. Proc. 2000-37 did not apply and noted that the 45- and 180-day periods in which a taxpayer must identify the replacement property and receive it as prescribed in Sec. 1031(a)(3) begin to run on "the date on which the taxpayer transfers the property relinquished in the exchange" and were thus satisfied in the Bartell transaction. The Tax Court further noted that case law provides no specific time limits and held that Bartell's reverse exchange should qualify for nonrecognition treatment pursuant to Sec. 1031.
Bartell arguably signifies one of the most important like-kind exchange developments in the past decade, particularly for contemplated exchanges where construction needs to be made on the replacement property. The Tax Court affirmed that Rev. Proc. 2000-37 only establishes a safe harbor and does not place restraints on parking arrangements that do not satisfy its conditions. Thus, the decision could be good news for taxpayers who wish to build or modify replacement property in a reverse exchange, as it is typically difficult to complete property construction within the 180-day safe-harbor time frame.
It is noteworthy that the IRS did not appeal the Tax Court's holding, likely because the decision cited taxpayer-favorable precedent in the Ninth Circuit, which would have heard the case on appeal. However, given that the IRS continues to study parking arrangements, it is possible that congressional action could be sought similar to the limitations enacted in Sec. 1031(a)(3) and Regs. Sec. 1.1031(k)-1 in the wake of Starker. In addition, while not explicitly addressed by the Tax Court, the principles of equity were in Bartell's favor: Rev. Proc. 2000-37 had not been published, and the taxpayer had structured the reverse exchange carefully and in accordance with established legal precedent at the time. Therefore, taxpayers and advisers should exercise caution and structure reverse exchanges in close alignment with the facts of the taxpayer-favorable case law cited in Bartell.
From Laura Michaels, CPA, and Patricia Brandstetter, J.D., LL.M., Melville, N.Y.
IRS targets 'micro-captive transactions' as transactions of interest
On Nov. 1, 2016, the IRS issued Notice 2016-66, in which it identified a particular transaction involving captive insurance companies ("micro-captive transaction") that it believes has a potential for tax avoidance or evasion. In issuing this notice, Treasury and the IRS continue their scrutiny of captive insurance transactions that they deem to be abusive. They expressed concern regarding the use of the micro-captive transaction as an attempt to create deductions for a policyholder that would not be treated as income to the captive insurance company due to the ability to elect under Sec. 831(b) to tax certain small captive insurance companies on their investment income only (i.e., the premium income would not be subject to federal income tax). Many taxpayers have attempted to use such Sec. 831(b) captives as estate planning techniques.
As described in the notice, in these micro-captive transactions: a taxpayer attempts to reduce the aggregate taxable income of the taxpayer, related persons, or both, using contracts that the parties treat as insurance contracts and a related company that the parties treat as a captive insurance company. Each entity that the parties treat as an insured entity under the contracts claims deductions for premiums for insurance coverage. The related company that the parties treat as a captive insurance company elects pursuant to [Sec.] 831(b) to be taxed only on investment income and therefore excludes the payments directly or indirectly received under the contracts from its taxable income.
According to the notice, "the manner in which the contracts are interpreted, administered, and applied is inconsistent with arm's-length transactions and sound business practices."
Designation of certain micro-captive transactions as 'transactions of interest'
With Notice 2016-66, Treasury and the IRS acknowledge that related parties may use captive insurance companies that make elections under Sec. 831(b) "for risk management purposes that do not involve tax avoidance." However, they also believe that there are cases in which taxpayers are using such arrangements to improperly claim the tax benefits. Therefore, Treasury and the IRS decided to identify certain transactions described in the notice (and transactions substantially similar to these transactions) as transactions of interest for purposes of Regs. Sec. 1.6011-4(b)(6) and Secs. 6111 and 6112.
Section 2.01 of Notice 2016-66 identifies the following as transactions of interest:
(a) A, a person, directly or indirectly owns an interest in an entity (or entities) ("Insured") conducting a trade or business;
(b) An entity (or entities) directly or indirectly owned by A, Insured, or persons related to A or Insured ("Captive") enters into a contract (or contracts) (the "Contracts") with Insured that Captive and Insured treat as insurance, or reinsures risks that Insured has initially insured with an intermediary, Company C;
(c) Captive makes an election under [Sec.] 831(b) to be taxed only on taxable investment income;
(d) A, Insured, or one or more persons related (within the meaning of [Sec.] 267(b) or 707(b)) to A or Insured directly or indirectly own at least 20 percent of the voting power or value of the outstanding stock of Captive; and
(e) One or both of the following apply:
(1) the amount of the liabilities incurred by Captive for insured losses and claim administration expenses during the Computation Period... is less than 70 percent of the following:
(A) premiums earned by Captive during the Computation Period, less
(B) policyholder dividends paid by Captive during the Computation Period; or
(2) Captive has at any time during the Computation Period directly or indirectly made available as financing or otherwise conveyed or agreed to make available or convey to A, Insured, or a person related (within the meaning of [Sec.] 267(b) or 707(b)) to A or Insured (collectively, the "Recipient") in a transaction that did not result in taxable income or gain to Recipient, any portion of the payments under the Contract, such as through a guarantee, a loan, or other transfer of Captive's capital.
The notice defines the computation period as the captive insurance company's five most recent tax years, or if it has been in existence for less than five tax years, the entire period of its existence. If the captive insurance company has existed for less than five tax years but is a successor to one or more captive insurance companies "created or availed of in connection with a transaction described in the notice," these entities' tax years are treated as tax years of the captive insurance company. For these purposes, a short tax year is treated as a tax year.
Implications for insurers
Transactions that are the same as, or substantially similar to, the transaction described in Section 2.01 of Notice 2016-66 are identified as "transactions of interest" for purposes of Regs. Sec. 1.6011-4(b)(6) and Secs. 6111 and 6112, effective Nov. 1, 2016. Persons entering into these transactions on or after Nov. 2, 2006, must disclose the transaction as described in Regs. Sec. 1.6011-4. Material advisers who make a tax statement on or after Nov. 2, 2006, with respect to transactions entered into on or after Nov. 2, 2006, have disclosure and list maintenance obligations of their own under Secs. 6111 and 6112.
In addition to being classified as transactions of interest, transactions that are the same as, or substantially similar to, the transaction described in Section 2.01 of Notice 2016-66 may also be subject to the requirements of Sec. 6011, 6111, or 6112, or the regulations there-under. In the notice, the IRS says that when it and Treasury have "gathered enough information regarding potentially abusive" Sec. 831(b) arrangements, they may take further action, which could include "removing the transaction from the transactions of interest category in published guidance, designating the transaction as a listed transaction, or providing a new category of reportable transaction." In the meantime, the IRS says it may challenge a position taken as part of a transaction that is the same as, or substantially similar to, the transaction described in Section 2.01 of Notice 2016-66 under other provisions of the Code or judicial doctrines such as sham transaction, substance over form, or economic substance.
For insurers, the first step will be determining if this designation will affect their businesses. Because of the issuance of Notice 2016-66, taxpayers (and material advisers) affected by the designation of the micro-captive transaction as a transaction of interest will need to meet the significant disclosure requirements by May 1, 2017, to avoid penalties. The original deadline for the disclosures was set for Jan. 30, 2017, but was extended to May 1, 2017, by Notice 2017-8.
In addition, Notice 2017-8 extended the 90-day period provided in Regs. Sec. 1.6011-4(e)(2)(i) to 180 days. That regulation requires taxpayers that have participated in a transaction that becomes a listed transaction or transaction of interest after their tax return is filed but before the end of the assessment limitation period for any year the taxpayer participated in the transaction to file a disclosure within 90 days after the date the transaction became a listed transaction or transaction of interest. The disclosures, which are made on Form 8886, Reportable Transaction Disclosure Statement, must identify and describe the transaction in sufficient detail for the IRS to be able to understand the tax structure of the transaction and identify all parties involved in it.
From Marc Rockower, J.D., LL.M., New York City
Partners & Partnerships
Election to group activities for purposes of passive activity loss rules
In its decision in Hardy, T.C. Memo. 2017-16, the Tax Court held that a taxpayer had not elected to group two activities together under the passive activity loss rules simply by treating both activities as nonpassive. Notably, as the Tax Court pointed out, the IRS and the taxpayer each took tax positions more commonly argued by the opposing side, as the taxpayer, a surgeon, sought to be treated as a passive investor in a surgery center in which he performed surgeries.
Under Sec. 469, the deduction of losses from a passive activity is limited to the amount of passive income from all passive activities, until there is a fully taxable disposition of the taxpayer's entire interest in the activity. A passive activity loss is generally the excess of the aggregate losses from all passive activities for the tax year over the aggregate income from all passive activities for that year. When a taxpayer's passive activity loss deduction is disallowed, it is treated as a deduction for the next tax year and can be carried forward indefinitely.
In general, a passive activity is any trade or business in which the taxpayer does not materially participate. Temp. Regs. Sec. 1.469-5T provides seven general tests to determine whether an individual can classify participation as material. The application of the seven tests was not discussed in this case.
Sec. 469 does not define the term "activity" and a separation of activities based on separate legal entities is not required. Regs. Sec. 1.469-4(c)(1) provides for a grouping of legal entities if their activities constitute an appropriate economic unit for the measurement of gain or loss.
Regs. Sec. 1.469-4(c)(2) provides a facts-and-circumstances test for determining whether a grouping of activities results in an appropriate economic unit. Therefore, whether activities constitute an appropriate economic unit under this test and may be treated as a single activity depends on all the relevant facts and circumstances. A taxpayer may use any reasonable method of applying the relevant facts and circumstances in grouping activities. The factors given the greatest weight in the regulation are (1) similarities and differences in types of trades or businesses; (2) the extent of common control; (3) the extent of common ownership; (4) geographical location; or (5) interdependencies between or among the activities.
Regs. Sec. 1.469-4(e) provides that once a taxpayer has grouped activities, the taxpayer cannot regroup those activities unless "it is determined that a taxpayer's original grouping was clearly inappropriate or a material change in the facts and circumstances has occurred that renders the original grouping clearly inappropriate."
Facts in Hardy
The taxpayers in Hardy, Stephen Hardy and Angela Hardy, were married during tax years 2008 through 2010, the years at issue. Hardy, a plastic surgeon based in Missoula, Mont., specialized in pediatric reconstructive surgery. Hardy conducted his medical practice through Northwest Plastic Surgery Associates (PSA), a single-member professional limited liability company (LLC) of which Angela Hardy was the COO.
Hardy performed minor surgeries at his office and more complex procedures at two local hospitals. He explained to his patients the options for selecting a location for their surgery, and the practice manager provided a cost estimate for different locations. While his patients ultimately decided where to undergo surgery, availability of operating rooms at the local hospitals was limited.
Hardy's services generally required three fee components: (1) a fee paid to PSA for his surgical services; (2) a fee for an anesthesiologist's services; and (3) a fee paid directly to the surgical facility.
Because of the difficulty in scheduling operating rooms in the two local hospitals, Hardy considered opening his own surgery center. However, he eventually decided not to open his own surgery center and instead became a member of the already existing Missoula Bone & Joint Surgery Center LLC (MBJ).
MBJ, an LLC treated as a partnership for federal income tax purposes, had been formed by a group of physicians to operate a surgical center. MBJ's facility was equipped for doctors to perform simple procedures that require local or general anesthesia without an overnight stay, and provided patients with a cost-efficient alternative to having procedures performed at a hospital.
MBJ was professionally managed, self-sufficient, and independent of PSA. Patients were directly billed by MBJ for facility fees. The LLC provided each member a cash distribution representing his or her share of the earnings less expenses. The LLC paid distributions to each member regardless of the number of procedures they performed at MBJ. Physicians performing procedures at MBJ were not paid any direct compensation. MBJ engaged a third-party accounting firm to prepare Schedules K-1 (Form 1065, U.S. Return of Partnership Income) for its members.
In 2006, Hardy purchased a 12.5% interest in MBJ. The following year, PSA built an office next to the MBJ facility. Hardy never managed MBJ, nor did he have any day-to-day responsibilities there. Although he met with the other members quarterly, he did not have any influence on management decisions, including decisions on hiring or firing employees. He performed surgeries on patients at MBJ strictly on Mondays, while performing surgeries at two other area hospitals on alternating Tuesdays. On the other days of the week, Hardy performed surgeries at his medical practice. He performed approximately 20% of all his procedures at MBJ.
Reporting income and losses
On their 2006 and 2007 joint tax returns, the Hardys' tax preparer reported their MBJ income as nonpassive, based on the Schedule K-1 from the LLC, and paid self-employment tax on the income. However, starting with the 2008 tax year, after learning Hardy was not involved in the management of MBJ, the tax preparer concluded that the MBJ income should be classified as passive. Thus, for the 2008 through 2010 tax years, the Hardys' tax returns reported their MBJ income as passive, allowing Hardy to use current and carried over suspended passive activity losses from other passive activities to offset the MBJ income.
For all tax years 2006 through 2010, the Hardys' individual income tax return did not include any statement electing to group the MBJ activity with the activity of PSA.
Tax Court opinion
The IRS asserted that the Hardys had made an election to group the activities of MBJ and PSA, because they had classified income from both sources as nonpassive in 2006 and 2007. However, the Tax Court disagreed, citing Regs. Sec. 1.469-4(e). The IRS was not able to produce any evidence to support a grouping of the taxpayer's ownership interest. The court found that the mere fact that income from two sources was reported as nonpassive was insufficient to conclude that the activities were grouped for purposes of Sec. 469.
The IRS also cited Regs. Sec. 1.469-4(f)(1), which gives the IRS the authority to regroup a taxpayer's activities if any of the activities resulting from the taxpayer's grouping are not an appropriate economic unit and a principal purpose of the taxpayer's grouping is to circumvent the underlying purposes of Sec. 469.
The IRS stated that Hardy's facts and circumstances were almost identical to those described in the example in Regs. Sec. 1.469-4(f)(2). The example concludes that a business activity of acquiring and operating X-ray machines should be grouped with a doctor's medical practice. However, the taxpayer successfully differentiated his ownership interest in MBJ, a rental surgical facility, as a separate economic unit from PSA, an active medical practice. In addition, Hardy's acquisition of his interest in MBJ was driven by a valid business purpose, i.e., Hardy's intent to find additional facilities in which to perform procedures; thus, the court concluded that Hardy did not become a member of MBJ for the purpose of artificially creating income from a passive activity.
Passive vs. nonpassive: Self-employment tax considerations
The tax preparer's initial classification of MBJ income as nonpassive was based on the Schedule K-1 Hardy received, which reported the income as "net earnings from self-employment" under Sec. 1402. However, later, after investigating the nature of Hardy's involvement in the day-to-day operations of MBJ, the preparer concluded that the activity could properly be classified as passive and began treating the income from MBJ as passive.
Under Sec. 1402(a), a taxpayer generally includes in self-employment income his or her distributive share (whether or not distributed) of income or loss described in Sec. 702(a)(8) from any trade or business carried on by a partnership of which he is a member. Sec. 1402(a)(13) provides an exception to permit the exclusion of the distributive share of any item of income or loss of a limited partner, other than guaranteed payments to that partner for services actually rendered to or on behalf of the partnership, to the extent that those payments are established to be in the nature of remuneration for those services. This exception was enacted before limited liability entities taxed as partnerships were contemplated, and the term "limited partner" is undefined by the Code for these purposes.
While the IRS argued that the performance of medical procedures at the facilities of MBJ tainted Hardy's classification as a limited partner, the court disagreed, citing Renkemeyer, Campbell & Weaver, LLP, 136 T.C. 137 (2011), which established criteria to determine whether a partner/member's involvement exceeds that of a limited partner. In Renkemeyer, the Tax Court held that attorney-partners in a law firm operating as a limited liability partnership were subject to self-employment tax on their income from the partnership because the income they derived from the firm was for legal services the partners provided to the firm.
In Hardy, the Tax Court affirmed the possibility that an LLC member may be treated as a passive investor who should not be subject to self-employment tax. The court noted that Hardy received a distribution from MBJ based on the net taxable results from the operations of the facility, independent of fees collected by PSA for the services he provided at the MBJ facility. Hardy had no management or day-to-day responsibilities at the facility, and his share of the MBJ income was not tied to surgeries that he performed but was related to the fees that patients paid for the use of the facility. Thus, the court concluded that Hardy was an investor in MBJ and held that the income he received from MBJ qualified for the exception from self-employment tax under Sec. 1402(a)(13).
K-1 classification not always controlling
The Tax Court's decision in Hardy provides some insight into how the court will interpret the Sec. 469 regulations and when the IRS has authority to change or regroup activities. Moreover, this decision in favor of the taxpayer reminds practitioners to maintain professional skepticism about the proper characterization of passive income or losses when receiving documents used in connection with the preparation of income tax returns.
From Eric Mauner, CPA, Melville, N.Y.
Sec. 743(b) adjustment complications in multitier partnerships
Sec. 743(b) provides that in the case of a sale or exchange of a partnership interest for which a Sec. 754 election is in place, a partnership shall adjust the basis of partnership property. The purpose of the adjustment is to eliminate the difference between inside basis of the partnership property and the outside basis of the partnership interest for the transferee partner. The basis adjustment is allocated among the partnership's assets in a manner that has the effect of reducing the difference between the property's fair market value (FMV) and its tax basis.
To illustrate these concepts, suppose A is a member of partnership PRS in which the partners have equal interests in capital and profits. The partnership has made an election under Sec. 754, relating to the optional adjustment to the basis of partnership property. A sells its interest to T for $22,000. The tax basis and FMV of PRS's assets attributable to A's interest are summarized in the table "A's Share of PRS's Assets."
Following the rules above, T's total basis step-up is $7,000, the difference between T's purchase price of $22,000 and A's share of the tax basis of PRS's assets of $15,000. The $7,000 step-up is then assigned to the assets based on their relative appreciation. Depreciable assets have total appreciation of $2,000, and the interest in partnership DEF has appreciation of $5,000. The $2,000 appreciation would be assigned to each depreciable asset based on relative appreciation and then depreciated under the applicable rules. The $5,000 applicable to DEF raises two questions:
1. How is a basis adjustment allocated when an upper-tier partnership (UTP) owns an interest in a lowertier partnership (LTP)? (PRS is the UTP and DEF is the LTP in this example.)
2. What are the implications of the UTP and/or the LTP either making or fairing to make a Sec. 754 election?
Sec. 743(b) adjustments in a multitier partnership structure
Rev. Rul. 87-115 (which clarifies and amplifies Rev. Rul. 78-2) provides guidance on the allocation of Sec. 743(b) adjustments in the context of a tiered-partnership structure. Specifically, Rev. Rul. 87-115 addresses the impact of a sale of an interest in a UTP that owns an interest in an LTP in three distinct situations:
1. Both the UTP and the LTP have made an election under Sec. 754;
2. Only the UTP has made an election under Sec. 754; and
3. Only the LTP has made an election under Sec. 754.
Situation 1: Both the UTP and the LTP have made valid Sec. 754 elections: Rev. Rul. 87-115 provides that the making of a Sec. 754 election by the UTP manifests an intent to be treated as an aggregate for purposes of Secs. 754 and 743. Consequently, the sale of an interest in the UTP should be viewed as a sale of interests in all assets held by the UTP, including the LTP. The deemed sale of an interest in the LTP triggers the application of Sec. 743(b) to the LTP. Since the LTP has a Sec. 754 election in place, it must adjust the basis in its assets by following the rules outlined above. Within the LTP the deemed sales price is equal to the new partner's share of the UTP's basis in the LTP, including the new basis adjustment. The LTP must then also follow the rules of Regs. Sec. 1.755-1(b) to allocate its basis adjustment among its property. This adjustment must be segregated and allocated only to the UTP and the new partner within the UTP.
Situation 2: Only the UTP has made a valid Sec. 754 election: Rev. Rul. 87-115 provides that when the UTP has made a valid Sec. 754 election but the LTP has not, only the UTP will be able to make the basis adjustment under Sec. 743(b). The UTP would calculate a basis adjustment for its interest in the LTP, but the lack of a Sec. 754 election by the LTP precludes making Sec. 743(b) adjustments at the LTP level.
Situation 3: Only the LTP has made a valid Sec. 754 election: Rev. Rul. 87-115 provides that by not making a Sec. 754 election, the UTP manifests an intent to be treated as an entity for purposes of Secs. 754 and 743. Thus, the sale of an interest in the UTP will not trigger a Sec. 743(b) adjustment within either the UTP or the LTP.
Sec. 743(b) adjustments are complex calculations, and multitier partnership structures only exacerbate that complexity. Rev. Rul. 87-115 does not provide a de minimis threshold, so if both the UTP and the LTP have valid Sec. 754 elections, the basis adjustments are mandatory at both levels. Generally, making the election at both levels is favorable since it maximizes the ability to recover basis more quickly than in the absence of the election. Inasmuch as Sec. 743(d) requires negative basis adjustments even without a Sec. 754 election, in certain circumstances, the downside risk of the election is limited. While the revenue ruling only explicitly addresses a two-partnership structure, the rules should presumably still apply if an LTP also owned another LTP. It is conceivable to have a near-infinite chain of Sec. 743(b) adjustments if every partnership in the chain has made a Sec. 754 election.
A UTP that is a minority owner or a nonmanagement member of the LTP may have difficulty determining whether the LTP has made a Sec. 754 election. If the UTP can get the LTP to make the Sec. 754 election, it may still be difficult to cause the LTP to properly allocate and track the pushed-down basis adjustment. How does a basis adjustment get pushed down if there is insufficient information to track it to the LTP's assets? Unfortunately, the adjustment would only be booked down to the lowest level for which balance sheet detail is available.
Even if the UTP is a majority owner of the LTP, getting the LTP to dedicate the time and resources necessary may be a struggle. While the adjustment is included in the LTP's return, it is triggered by a transaction between the UTP's owners. Thus, it may be challenging to get the LTP to perform the complex and detailed analysis necessary to properly allocate the basis adjustment when it benefits only one owner of the UTP.
The timing of preparing the returns is another administrative complexity. Since the LTP needs information on the deemed sale to complete its return and the UTP needs the Schedule K-1 (Form 1065) from the LTP to complete its own return, communication between the entities is crucial. If the LTP is not informed of the triggering transaction in a timely manner, it may prepare an inaccurate tax return.
When the LTP does have all the information necessary to prepare an accurate return, the reporting is still more involved than would be the case for a single-level Sec. 743(b) adjustment. Absent a multitier structure, deductions or income items attributable to a basis adjustment on the LTP would generally require an allocation to the UTP, reported via Schedule K-1. In a multitier structure, the adjustment on the LTP requires not only an allocation to the UTP but to a specific partner of the UTP. Additional footnote disclosure will be necessary on the UTP's Schedule K-1 to ensure allocation to the correct partner within the UTP. If the LTP has multiple Sec. 743(b) adjustments allocable to the UTP, this disclosure can become even more complex. Consequently, it is important to maintain a continual segregation of the amounts attributable to each individual transaction related to the UTP.
When Situation 1 applies, two planning options are available, given that the adjustments are mandatory. The first option is to revoke the Sec. 754 election with the IRS's consent, but presumably the IRS will require a compelling justification, which will likely be difficult to establish. The second option would be to trigger a technical termination of the partnership (Sec. 708(b)(1)(B)). This may or may not be feasible depending on the nature of the transaction. Furthermore, the technical termination would cause a number of ancillary complications that could very well outweigh the benefits of terminating an unwanted Sec. 754 election.
When Situation 2 applies (Sec. 754 election on the UTP but not on the LTP), Rev. Rul. 87-115 explicitly provides that the UTP's Sec. 754 election makes it appropriate for purposes of Secs. 754 and 743 to treat the sale of an interest in the UTP as a sale of the UTP's interest in the LTP. This means that even if the LTP has not made a Sec. 754 election, a qualifying transaction in the UTP creates the option to make the election. If the LTP makes the election, the two partnerships would be governed by Situation 1 for that tax year and all subsequent tax years.
When Situation 3 applies, there is a qualifying transaction in the UTP, and the Sec. 754 election is available. If the UTP makes the election, the partnerships would be governed by Situation 1 for that tax year and all subsequent years.
Before making the Sec. 754 election at either entity, it is vital to consider the relationship between the entities, the benefit of the basis adjustments at each level, and the administrative costs of maintaining and tracking the adjustments.
From Thomas A. Orr, CPA, Anchorage, Alaska, and Jeffrey N. Bilsky, CPA, Atlanta
Losses disallowed where S corp. not indebted to shareholder
In Hargis, T.C. Memo. 2016-232, the Tax Court held that an S corporation shareholder could not claim losses from several wholly owned S corporations due to insufficient basis. The shareholder's participation as a co-maker or guarantor of his S corporations' borrowings did not increase his basis because the indebtedness didn't run directly to him.
Sec. 1366(d)(1) provides that the amount of losses and deductions an S corporation shareholder may deduct in any tax year may not exceed the sum of the shareholder's adjusted basis in the stock of the S corporation plus the adjusted basis of "any indebtedness of the S corporation to the shareholder." Losses not allowed due to insufficient basis may be carried forward indefinitely (Sec. 1366(d)(2)).
Basis is increased where S corporation shareholders make a direct loan to an S corporation using their own funds or funds for which they are directly liable, including their borrowings from a related party, so long as a genuine indebtedness is created (see, e.g., Oren, T.C. Memo. 2002-172, aff'd, 357 F.3d 854 (8th Cir. 2004), and Yates,T.C. Memo. 2001-280).
Basis is not established where shareholders are only contingently liable by way of their status as a co-borrower, co-maker, or guarantor of an S corporation's debt to a third party (see, e.g., Estate of Leavitt, 90 T.C. 206 (1988), aff'd, 875 F.2d 420 (4th Cir. 1989)). In Leavitt, the Tax Court disagreed with a decision by the Eleventh Circuit in Selfe, 778 F.2d 769 (11th Cir. 1985).
The Eleventh Circuit in Selfe reversed a district court decision (Selfe, No. CV 84-P-0952-S (N.D. Ala. 11/27/84)) that had granted summary judgment for the IRS by relying primarily on Brown, 706 F.2d 755 (6th Cir. 1983), which held that S corporation shareholders could increase their basis as guarantors only when they are called upon to pay the corporation's debt.
In Selfe, the taxpayer had pledged personal assets to induce a bank to advance her personal loans that she in turn loaned to her S corporation. At the bank's request, her personal loans were subsequently converted to corporate loans. In connection with the loan conversion, the taxpayer executed a loan guaranty to the bank. Despite the taxpayer's being only a guarantor of the S corporation's debts to the bank, the court accepted her argument based upon Plantation Patterns, Inc., 462 F.2d 712 (5th Cir.), cert, denied, 409 U.S. 1076 (1972), that the loan from the bank should be viewed, in substance, as a loan from her, allowing her to deduct losses from the S corporation. Interestingly, the IRS had successfully argued in a C corporation setting in Plantation Patterns that "substance and not form determines proper tax treatment for a transaction" and that "the guarantee was in reality a contribution to capital"--the polar opposite of its argument in Selfe.
Regulations issued in 2014, subsequent to the tax years under consideration in Hargis, specifically provide that shareholders do not establish basis in an S corporation by merely guaranteeing a loan of an S corporation or otherwise acting as a surety for the loan. Only when shareholders make a payment toward a genuine debt of the S corporation for which they have acted as a guarantor is their basis increased, and then only to the extent of that payment (Regs. Sec. 1.1366-2(a)(2)(ii)).
Although the Tax Court addressed several issues in the Hargis case, this item focuses on whether the taxpayer had established basis to enable him to deduct losses from his several S corporations.
For 2007 through 2010, Bobby Hargis was the sole shareholder of several S corporations that operated nursing homes. Hargis and certain affiliated entities employed a business strategy of acquiring distressed nursing homes and restoring them to profitability. During those four years, several of the S corporations reported losses that Hargis deducted on his personal income tax returns. To fund the operating losses, the companies borrowed funds from various sources including several limited liability companies (LLCs) in which his wife held an interest, other operating companies Hargis owned, and banks and other commercial lenders. For all of the LLC and intercompany loans and some of the commercial loans, Hargis signed as a co-borrower or guarantor in his individual capacity.
The lenders advanced the loan proceeds directly to the respective operating companies. As payments became due, the operating companies made them to the lenders. Hargis, although being a co-maker on the indebtedness of the corporations, never incurred any personal outlays to satisfy the corporate debt.
Upon examination, the IRS determined that Hargis's status as a co-borrower or guarantor of the S corporations' debt did not constitute basis to permit deducting the losses for 2007 and 2008.
Hargis argued that under Arkansas state law, a co-borrower is considered "directly liable" and has the same liability "as if the loan were made to the borrower individually." Consequently, he argued, his status as a co-borrower should be viewed as an indebtedness of the operating companies to him since he put his own funds at risk, albeit a contingent risk. The court did not agree, citing several of its earlier decisions, each of which was affirmed by a circuit court on appeal, and held that a shareholder's potential for liability absent an economic outlay was insufficient to establish basis (Estate of Leavitt, 90 T.C. 206 (1988), aff'd, 875 F.2d 420 (4th Cir. 1989); Underwood, 63 T.C. 468 (1975), aff'd, 535 F.2d 309 (5th Cir. 1976); Perry, 47 T.C. 159 (1966), aff'd, 392 F.2d 458 (8th Cir 1968); and Estate of Bean, T.C. Memo. 2000-355, aff'd, 268 F.3d 553 (8th Cir. 2001)).
Lastly, Hargis argued that his facts and circumstances were akin to those of the taxpayer in Selfe, who prevailed in her argument that a co-maker or guarantor of a corporation's loan from a third party should be treated as a basis-increasing investment by an S corporation shareholder in situations where "the lender looks to the shareholder as the primary obligor."
Unfortunately for Hargis, the court was not persuaded, noting that he had not pledged any of his personal assets to the lender and had presented no evidence that any of the lenders looked to him as the primary obligor on the various corporate obligations. Further, unlike the facts presented in Selfe, the lenders did not advance any of the loan proceeds borrowed by the operating companies to Hargis individually.
In holding against Hargis, the court concluded that the case was distinguishable from Selfe's "narrow exception to the general rule that the indebtedness of the S corporation must run directly to the shareholder" to increase the shareholder's basis (emphasis in original). The court noted that the lending transactions could have been structured as back-to-back loans had the lenders wanted Hargis to be the primary obligor. Although penalties were not discussed in the opinion, the Tax Court has upheld the imposition of accuracy-related penalties in some similar cases where the court found that loans did not create shareholder basis in an S corporation for a taxpayer so the taxpayer had insufficient basis to deduct losses passed through from the S corporation (see, e.g., Suisman, T.C. Memo. 1989-629).
Expected losses call for careful basis tracking
For S corporations anticipating taxable losses, planning is required to ensure that the shareholders have adequate basis in their stock or through direct shareholder-to-S corporation loans. An S corporation loan from a third party for which a shareholder is merely a co-maker, co-borrower, or guarantor is not viewed as the equivalent of a qualifying direct shareholder loan, thus risking disallowance of losses and potentially subjecting the shareholder to Sec. 6662 accuracy-related penalties.
From Mark D. Puckett, CPA/PFS, Memphis, Tenn.
State & Local Taxes
Potential state tax consequences of the final and temporary Sec. 385 regs
Based on how states conform (or not) to IRS regulations for purposes of state income tax, the recently issued regulations under Sec. 385 could have material consequences for state corporate income tax (and possibly other state and local taxes), even if an exception applies for federal tax purposes. The IRS issued final and temporary regulations (T.D. 9790) on Oct. 13, 2016.
What follows is a high-level overview of certain provisions in the regulations that could have state corporate income tax consequences. It is important to understand that the regulations consist of a number of complex provisions and exceptions, including ordering, transition, and operating rules.
Highlights of the Sec. 385 regulations
In general, the regulations, in certain situations, reclassify intercompany financing arrangements as stock, not debt, and thereby recharacterize any corresponding interest payments as nondeductible distributions for federal income tax purposes. The regulations will apply to debt instruments issued by a "covered member" (defined to include only a domestic U.S. corporation) to another member of the covered member's "expanded group." An expanded group generally means a group of related U.S. and non-U.S. corporations that satisfy an 80% vote or value test, as long as the common parent is not an S corporation, a real estate investment trust, or a regulated investment company. The regulations currently do not apply to foreign (non-U.S.) issuers of intercompany debt instruments, including a controlled foreign corporation.
Under Regs. Sec. 1.385-2, a debt instrument issued by a covered member to another member of the expanded group generally will have to satisfy contemporaneous documentation requirements for it to be treated as debt and not as stock, subject to certain exceptions. One such exception is for an "intercompany obligation," as defined in Regs. Sec. 1.1502-13(g)(2)(ii), or to intercompany debt issued by one member of a federal consolidated group to another member, but only for the period during which both parties are members of the same consolidated group.
The recast rules under Regs. Sec. 1.385-3 and Temp. Regs. Sec. 1.385-3T treat the following intercompany debt instruments as stock, and not debt, regardless of satisfying the documentation requirements and the federal debt or equity case law: (1) a debt instrument issued by a distribution from the covered member to another member of the expanded group; (2) a debt instrument issued by a covered member to another member of the expanded group to acquire another expanded group member's stock (a Sec. 304 transaction); and (3) a debt instrument issued by a covered member to another member of the expanded group to acquire another expanded group member's assets. Certain exceptions may apply.
A funding rule under Regs. Sec. 1.385-3(b)(3) treats an intercompany debt instrument as stock if it is issued by a covered member to another member of the expanded group in exchange for property and it is used to fund certain distributions or acquisitions of stock or assets. A per se funding rule applies if the issuance of the debt instrument occurs 36 months before or 36 months after the distribution or acquisition. As with the recast rules, certain exceptions may apply.
Under Regs. Sec. 1.385-3(b)(4), there is also an anti-abuse rule aimed at transactions with a "principal purpose of avoiding the purposes of" Regs. Sec. 1.385-3 or Temp. Regs. Sec. 1.385-3T. For example, the addition of a co-obligor on an intercompany debt instrument may come within the anti-abuse rule.
The regulations contain three exceptions that could have state corporate income tax consequences. First, a "one corporation" exception operates to exclude debt issued between members of a federal consolidated return group from the recast and funding rules. Next, certain "qualified short-term debt instruments" issued as part of cash-pooling and similar arrangements that satisfy a number of specific requirements are also excluded from the recast and funding rules, although the documentation requirements may still apply. Last, the aggregate amount of intercompany debt instruments issued by a covered member that are treated as stock under the recast and funding rules is reduced by an "expanded group earnings account" of the covered member.
The regulations are effective Oct. 21, 2016, the publication date, and apply to tax years ending on or after Jan. 19, 2017 (the date 90 days after the new regulations were published in the Federal Register). However, the documentation requirements of the regulations do not apply to debt instruments issued (or deemed issued) before Jan. 1, 2018. Nonetheless, several transition rules and grandfather rules also need to be considered.
The potential state tax consequences
Almost every state that has a corporate income tax begins the calculation of state taxable income with federal taxable income, either before or after federal net operating losses and special deductions. The state will then apply addition and subtraction modifications to federal taxable income related to various items of federal income, gain, loss, and deductions. A state may conform to the Internal Revenue Code as of a specific date (or as in effect) or on a moving date basis (or as amended), or may only conform to specifically adopted Code sections. A state may or may not explicitly include Treasury regulations as part of its conformity with the Code. The method of a state's conformity to the Code is an important consideration, as a threshold matter, when considering whether and how a state conforms to the regulations.
More importantly, and especially for separate return states (but also for some unitary combined reporting states), whether a state conforms to the federal consolidated return rules is critical. For example, a number of separate return states specifically provide that an affiliate of a federal consolidated group filing a separate state return must determine its federal taxable income starting point as if the affiliate had filed a separate federal return. As discussed above, the "one corporation" exception does not apply if a federal consolidated return is not filed or if a covered member is not an affiliated member of a federal consolidated return group. As a result, if a state adopts or conforms to the regulations, but is an "as if" state, the "one corporation" exception may apply for federal tax purposes but may not for state corporate income tax purposes.
Likewise, the documentation requirements of the regulations do not apply to an intercompany obligation, as defined in Regs. Sec. 1.1502-13(g)(2)(ii) (or, based on the "one corporation" exception, intercompany debt issued by one member of the federal consolidated return group to another member). As a result, if a state does conform to the Sec. 385 regulations but not to the federal consolidated return regulations, taxpayers may be in a situation where they do not have to follow the documentation requirements for federal tax purposes but will have to apply them for state tax purposes.
Moreover, the "expanded group earnings account" that reduces the aggregate intercompany debt of a covered member subject to recast as stock may be limited in application in these separate return and other states. For a separate return state (and certain unitary combined reporting states, such as California), if they conform to the regulations, the current and accumulated earnings eligible to reduce intercompany debt subject to recast may have to be calculated on a separate entity basis.
The exclusion of S corporations from the regulations may have to be reconsidered for certain state purposes. For example, some tax jurisdictions, such as Tennessee, do not conform to the federal income tax treatment of S corporations (including qualified subchapter S subsidiaries) as passthrough entities (or disregarded entities). Tennessee requires an S corporation to determine net earnings "as if" it was a C corporation for federal tax purposes. It is unclear whether Tennessee or a similar state, if it conforms to the regulations, would exclude an S corporation from its application of the regulations.
Should a state independently apply the regulations to recast intercompany debt as stock, the covered member payer's interest expense deduction is disallowed for state income tax purposes. Application of the regulations by a state could subject a much broader array of intercompany debt arrangements to deduction disallowance than do even a state's existing related-party interest expense "add-back" statutes. Recasting the payment of principal and interest as dividends could have consequences for both the payer and the recipient of the recast dividend, including for the sales factor of a state's apportionment formula, depending upon whether and how dividends and interest are included in, and sourced to, the state's sales factor. For example, as more states adopt market-based sourcing and apply it to interest and/or dividends, it is possible that a state's market-based sourcing regulations, or provisions applicable to "methods of reasonable approximation," could result in the sourcing of interest receipts recast as dividends to the payer's state of commercial domicile or some other "reasonable approximation" of the source of the dividends receipts.
If a state recasts intercompany debt as stock by conforming to the regulations, the recast could also have net worth franchise tax implications. See, e.g., National Grid Holdings, Inc., No. 14-P-1662 (Mass. App. Ct. 6/8/16) (effect of recast of intercompany debt under federal and state common law on the nonincome measure of the Massachusetts excise tax).
State tax consequences must be evaluated
Affiliated groups of corporations, as well as passthrough entity structures operating in certain states, with intercompany debt financing in place, need to evaluate the potential state corporate income and franchise tax consequences of the regulations, even if those regulations do not apply to them for federal income tax purposes.
From Scott D. Smith, J.D., LL.M., Nashville, Tenn., and Jenni Regimbal, CPA, Spokane, Wash.
IRS extends waiver to ease transition to file certain tangible property regs. method changes
The IRS on Dec. 20, 2016, released Notice 2017-6 to extend specific eligibility rule waivers by an additional year for taxpayers seeking to file an automatic consent change in accounting method to comply with the tangible property regulations under Secs. 162(a) and 263(a) as well as certain automatic method changes related to the disposition regulations under Sec. 168. The waivers now extend to any tax year beginning before Jan. 1, 2017, and may provide welcome relief to taxpayers that remain in the process of transitioning their historical methods over to the new methods required under the regulations.
In general, the automatic change procedures contain a rule that precludes a taxpayer from filing an automatic Form 3115, Application for Change in Accounting Method, to change the treatment of the same item more than once within a five-year period. Another rule precludes a taxpayer from filing an automatic method change if the year of change is the taxpayer's final year of its trade or business.
Before the issuance of Notice 2017-6, taxpayers could file certain automatic method changes to implement the regulations with the prior five-year same-item eligibility rule or the final year of the trade or business eligibility rule waived for any tax year beginning before Jan. 1, 2016. To ease taxpayers' transition to the regulations, Notice 2017-6 provides an additional one-year extension of the eligibility rule waivers to reduce the administrative burden that would otherwise result from requiring taxpayers to file advance consent (or nonautomatic) method change(s) to comply with the regulations.
The final tangible property regulations were issued in 2013 and addressed a variety of issues, including the treatment of costs to acquire, produce, repair, or improve tangible property under Regs. Secs. 1.162-3, 1.162-4, 1.168(i)-1, 1.168(i)-7, 1.168(i)-8, 1.263(a)-1, 1.263(a)-2, and 1.263(a)-3 (T.D. 9636). Subsequently in 2014, the IRS and Treasury published final regulations addressing the depreciation and disposition of property under Regs. Secs. 1.168(i)-1, 1.168(i)-7, and 1.168(i)-8 (T.D. 9689). Generally, these regulations were effective for tax years beginning on or after Jan. 1, 2014. As a result of these regulations, many taxpayers filed at least one Form 3115 to change their historical tax accounting methods to comply with the new standards for their 2014 or 2015 tax year.
Currently, the applicable guidance for filing a Form 3115 is provided in Rev. Proc. 2015-13, which sets forth procedures for taxpayers to make method changes under the automatic consent provisions as well as advance consent provisions. Automatic consent method changes typically are easier to implement from an administrative and procedural standpoint and do not require a separate filing fee. To qualify for the automatic consent procedures, taxpayers must (1) confirm that the specific method change they seek to make is listed as an automatic change under Rev. Proc. 2016-29 (which presently includes numerous changes related to the regulations), and (2) ensure that they are eligible to make an automatic change by reviewing the various eligibility rules set forth under Section 5 of Rev. Proc. 2015-13.
Specific eligibility rule waivers under Notice 2017-6
Given the broad scope of the regulations and the numerous administrative considerations associated with implementing the regulations, many taxpayers today continue to file method changes for their current tax year to comply with the new rules and standards. In certain instances, taxpayers that previously filed a method change for their 2014 or 2015 tax year may be in the position of having to file a subsequent change for the 2016 year to refine or modify the same item (e.g., a unit of property) addressed in the previously filed method change.
As noted above, the eligibility rule provided in Section 5.01(1)(f) of Rev. Proc. 2015-13 generally precludes taxpayers that have filed a method change in the prior five tax years (including the tax year of change) for a specific item from filing another method change for the same item under the automatic consent procedures. However, Notice 2017-6 waives this specific eligibility rule for any tax year beginning before Jan. 1, 2017, thereby allowing taxpayers who previously filed a method change for the same item in the prior years to make the subsequent method change under the automatic procedures. The waiver applies for the method changes described under the following sections of Rev. Proc. 2016-29:
* Section 6.14, relating to a change from a permissible to another permissible method of accounting for depreciation of MACRS property (automatic change No. 200);
* Section 6.15, relating to a change in method of accounting for dispositions of a building or structural component (automatic change No. 205);
* Section 6.16, relating to a change in method of accounting for dispositions of tangible depreciable assets (automatic change No. 206);
* Section 6.17, relating to a change in method of accounting for dispositions of tangible depreciable assets in a general asset account (automatic change No. 207); and
* Section 11.08, relating to changes in methods of accounting for tangible property under the final tangible property regulations (automatic changes No. 184 through No. 193).
The notice also extends the waiver for the eligibility rule under Section 5.01(1)(d) of Rev. Proc. 2015-13 for changes made under Section 11.08 of Rev. Proc. 2016-29. This particular eligibility rule generally precludes taxpayers in the final year of their trade or business from filing an automatic method change. Thus, the waiver of this rule will allow any taxpayer seeking to file automatic changes No. 184 through No. 193 in the final year of its trade or business to do so, provided that the final year of the trade or business begins before Jan. 1, 2017.
As discussed above, Notice 2017-6 may be helpful to taxpayers that filed method changes to comply with the regulations within the past five years and need to make a subsequent method change relating to the same item for tax years beginning on or after Jan. 1, 2016. Particular situations that may require filing a subsequent method change include taxpayers that filed a method change in prior years but failed to properly or fully implement the new method. For instance, assume that a taxpayer filed a Form 3115 for its 2014 tax year to change from capitalizing all costs properly deductible as repair expenditures under Secs. 162 and 263(a) to deducting those costs in the year incurred.
Then, assume that the taxpayer, while in the process of preparing its 2016 return, discovers some capitalized costs that should have been deducted as part of the method change but were inadvertently missed. If the taxpayer intended to include all properly deductible repair costs in the original Form 3115 and described the item being changed to include all those costs, the IRS may consider the capitalized costs to be part of the same item for which the taxpayer filed the previous method change, even if the tax treatment of those costs differs from the remaining items included in the change. Thus, if the taxpayer desires to deduct the remaining capitalized costs, it must file another method change for the 2016 tax year to change to the correct method of deducting the amounts in the year incurred. In this fact pattern, a taxpayer may now file this second automatic Form 3115 specifically addressing the treatment of certain repair costs under the automatic change procedures, rather than being required to file a nonautomatic Form 3115.
Additionally, Notice 2017-6 provides a transition rule for any nonautomatic method changes filed before Dec. 20, 2016, requesting consent for any of the changes in methods of accounting covered by the notice. If the method change is pending with the IRS National Office, a taxpayer may choose to make the change under the automatic consent procedures in Rev. Proc. 2015-13.
From Connie Cheng, CPA, Los Angeles
Kevin Anderson is a partner, National Tax Office, with BDO USA LLP in Washington.
A's share of PRS's assets Tax basis FMV Cash $ 2,500 $ 2,500 Depreciable assets 5,000 7,000 Interest in partnership DEF 7,500 12,500 Total $15,000 $22,000
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|Title Annotation:||in tax law|
|Author:||Anderson, Kevin D.|
|Publication:||The Tax Adviser|
|Date:||May 1, 2017|
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