This article summarizes selected U.S. federal income tax developments during 2008 affecting corporations, including those filing consolidated returns.
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TOPICS
C Corporation Income Taxation
Lenders Allowed Nonrecognition Treatment for Certain Securities Loans Terminated Due to Bankruptcy
Rev. Proc. 2008-63 permits securities lenders continued nonrecognition treatment under Sec. 1058(a) for certain securities loans terminated due to the bankruptcy of the securities borrower, provided the lender applies the collateral to the purchase of identical securities within 30 days of the default.
IRS Provides Guidance on Pre-Ownership Change Capital Contributions
Sec. 382 provides limitations on the amount of a pre-ownership change loss that a taxpayer can use to reduce post-change taxable income. Sec. 383 limits the use of pre-change credits and capital losses using the ownership change rules found in Sec. 382.
Temp. Regs. Allow Deemed Election to Expense Startup, Organizational Costs
Effective July 8, 2008, the IRS issued new temporary regulations to amend the rules under Secs. 195, 248, and 709 regarding elections to deduct startup expenditures and organizational expenditures of corporations and partnerships (T.D. 9411).
IRS Issues Guidance on Energy Credit
The IRS issued Notice 2008-68 to provide taxpayers with guidance on the computation and availability of the energy credit.
IRS Provides Liquidity Assistance, Relief
In response to the liquidity crisis, the IRS temporarily expanded the short-term financing exception to Sec. 956, which will permit corporations to access cash from their controlled foreign corporations (CFCs) without having an income inclusion for U.S. tax purposes.
Certain Debt Obligations Not Subject to AHYDO Restrictions
As a result of the recent deteriorating market conditions for debt obligations, the IRS has indicated that it will not regard specific debt obligations as applicable high-yield discount obligations (AHYDO) for purposes of Secs. 163(e)(5) and 163(i).
Debt Modifications for Employees: Does Sarbanes-Oxley Nullify Rev. Rul. 2004-37?
This item discusses the prohibition on loans and loan modifications in SOX and the tax consequences of loan modifications in Rev. Rul. 2004-37.
Guidance Expected on Fannie Mae/Freddie Mac Takeovers
The IRS has announced that it will provide guidance on the application of Sec. 382 to the government’s takeover of lenders Fannie Mae and Freddie Mac (Notice 2008-76).
Transactions Between Private Equity Fund–Owned Portfolio Corporations: An Update
Editor: Frank J. O’Connell Jr., CPA, Esq. In today’s private equity environment, two common transactions between fund-owned portfolio corporations present challenging tax considerations: (1) asset sales between fund-owned portfolio corporations and (2) the acquisition by a fund-owned portfolio corporation of another portfolio corporation’s debt. (These were reviewed in Keller, “Transactions
IRS Clarifies Application of the Step-Transaction Doctrine
Editor: Frank J. O’Connell Jr., CPA, Esq. On May 8, 2008, the IRS issued Rev. Rul. 2008-25 to clarify the application of the step-transaction doctrine to situations in which an acquiring corporation (P) acquires a target corporation (T) by means of a reverse subsidiary merger followed immediately by a liquidation
IRS Increases Scrutiny of Performance-Based Plans Under Sec. 162(m)
Editor: Frank J. O’Connell Jr., CPA, Esq. Sec. 162(m) governs the deductibility of certain excessive employee compensation. In recent months the IRS has issued Rev. Rul. 2008-13 and Rev. Rul. 2008-32, providing for additional clarification related to certain components of the performance-based compensation rules contained within Sec. 162(m)(4)(C) and Regs.
Corporate Cancellation of Debt Relief
Editor: Frank J. O’Connell Jr., CPA, Esq. The recent economic downturn coupled with the tightening of the credit market has forced many financially distressed corporations to renegotiate the terms of their maturing debt obligations. As little as 12 months ago, these companies would have been able to refinance their maturing
Alternative Simplified Method for Claiming the Research Credit
Editor: Frank J. O’Connell Jr., CPA, Esq. On June 17, 2008, the IRS issued final and temporary regulations (T.D. 9401, Temp. Regs. Secs. 1.41-6T(j), 1.41-8T(b)(5), and 1.41-9T(d)) relating to the alternative simplified credit (ASC) method of computing the research and experimentation credit under Sec. 41(c)(5). The ASC was enacted in
Letter Ruling Reaffirms Favorable Treatment for Sale of Charter
Editor: Frank J. O’Connell Jr., CPA, Esq. Disposing of a valuable corporate charter is not as simple as a straight sale of the asset and can have unintended tax consequences if not properly structured. Corporations in certain regulated industries such as insurance or banking may have to jump through some
IRS Issues Final “Killer B” Regs.
The IRS issued regulations to shut down cross-border triangular reorganizations, popularly known as “Killer B” transactions
Hot Stock and the Active Trade or Business Regs.
An otherwise tax-free distribution that satisfies the active trade or business requirement of Sec. 355 for a tax-free separation may trigger tax under the “hot stock” rule of Sec. 355(a)(3)(B).
IRS Intensifies Focus on Worker Classification
As the IRS intensifies its scrutiny of worker classification, businesses may want to take a fresh look at how their policies, procedures, and documentation around engaging independent contractors might withstand IRS review.
The “Substantially All” Requirement: A Momentary Concept
New final regulations, generally applicable to transactions occurring on or after October 25, 2007, significantly expand the range of permissible post-reorganization transfers.
The Economic Stimulus Act of 2008
The tax benefits the Economic Stimulus Act provides affect both individuals and businesses. The legislation’s purpose is to increase consumer and business spending in an effort to stimulate the economy.
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