Fairleigh Dickinson University s1

FAIRLEIGH DICKINSON UNIVERSITY Tax 6622 ADVANCED CORPORATE TAX I Fall Saturday Program (September-November 2010) Course Syllabus

Instructor: Marshall P. Bartlett Tel. 973 993-5974 Fax 973 993-8082 FDU Tel. 973 443-8843 E-Mail: [email protected]

Robert Wellbrock Tel. 908 822-9465 Fax 908 822 2449

NAB Room 211

Objective: To provide the student with an in depth understanding of the Federal income tax law with respect to the basic rules governing the relationship and taxation of corporations and their shareholders

Overview: This course provides an in-depth analysis and interpretation of the Federal tax laws as they affect transactions between corporations and their shareholders. The course begins with an analysis of the tax law governing the formation of a corporation and continues with capitalizing the corporation, making distributions from the corporation and the liquidation of the corporation. The law will be studied by a review of significant court cases and Revenue Rulings, which interpret the rules set out in the Internal Revenue Code and Regulations. In addition, emphasis will be given to a practical application of the law with study problems and examples.

Required Materials:  Bittker and Eustice, Federal Income Taxation of Corporations and Shareholders (Warren, Gorham & Lamont, Seventh Edition, Student Edition) with 2006 Supplement to Student Edition  Study Problems for Federal Income Taxation of Corporations and Shareholders  Current copy of the Internal Revenue Code of 1986

Suggested Materials:  Current copy of Income Tax Regulations

Assignments: We will cover material in chapters 1 to 10 of the text, with only a brief mention for Chapter 7. Also, there will be reading assignments of Code, Regulations, Rev Ruls and court cases. Some of these will be provided as hand outs. Students are responsible for completing the study problems for each chapter in the Study Problems book.

Class Participation: In class we will attempt to cover the assigned materials and problems. Accordingly, it is expected that you will be familiar with all of the material assigned in the text, Code, Regulations, Rev Ruls and court cases and be able to discuss them in class. We anticipate

64846 1 that you will be prepared and will participate in class discussions. Class participation will be considered in the final grade.

Class meetings: Classes will meet on Saturday mornings from 8:30 to 12:15 in NAB 211 beginning on September 11.

Attendance: Attendance is mandatory because there are only 10 classes. More than 2 absences will be considered in the final grade.

Grading: Your grade will be based on an in-class Mid Term exam covering the first half of the course and a Final exam covering the second half of the course. The mid-term will count 30%, the final 60% and class participation 10%.

Office Hours: We are available before and after class as well as by phone or e-mail as listed above.

Related Courses: Advanced Corporate Tax II, which starts in mid-November, and Consolidated Returns which starts in the spring of 2011.

GOALS:

1) Understand the definition of a corporation and how its tax consequences differ from other entities; 2) Learn about considerations relevant to choice of entity; 3) Learn basic rules for tax-free incorporation under Section 351; 4) Understand the characteristics of debt vs. equity and the tax consequences of each; 5) Study rules applicable to distributions of money and other property including dividends and transfers of appreciated property; 6) Understand rules relating to redemptions of stock under Sections 302 and 303; 7) Study liquidations under both Sections 331 and 332; 8) Attain detailed knowledge of Part I and Part II of Subchapter C (Sections 301-346) of the Code; 9) Supplement study of Code and Regulations with practical problems involving current business situations; 10) Sharpen tax analytical skills.

MATERIAL TO BE COVERED

Sept.11: Overview. Administrative matters.

Introduction. Discussion of different types of entities. Defining a corporation

Reading Assignment:

B& E Chapters 1 & 2 Regs. 7701-1,-2, and –3 Study Problems for Lesson 1 and Lesson 2

Sept. 18: Use of Debt in the Capital Structure of a Corporation

Debt vs. Equity The Section 385 Saga

64846 2 Reading Assignment:  B&E Chapter 4 (skim tax accounting sections)  Code: Sections 163(a), 163(e), 163(f), 165(g), 166, 385, skim 171, 249, 267 (a) – (c), 1244, 108 (a)-(b)  Regulations: 1.61-12, 1.163-13, 1.163-13, 1.165-5, 1.166-5, 1.1244(a)-1 Handouts  Cases: Bauer, Slappey Drive Industrial Park, Generes, Fin Hay Realty

Study Problems Chapter 4

Choice of Debt vs. Equity Characteristics of Debt (385, Slappey Drive, Fin Hay Realty) Debt/Equity Ratio (Bauer) Income Tax Differences Debt vs. Equity Loss on Investment (166, Generes)

Sept 18: Organization of a Corporation

Reading Assignment:  B&E: Chapter 3.01 – 3.18  Code: Sections 351, 357, 358, 362, 368(c)(1), 453, 1001, 1012, 1223, 1031, 1032,  Regulations: 1.351-1, 1.351-2, 1.351-3, 1.357-1, 1.357-2, 1.358-1, 1.358-2, 1.351-3, 1.362-1, 1.362-2 Cases and Rulings:  Rev Ruls: 79-70, 76-454, 80-198, 68-55, 95-74, 03-51  Cases: Intermountain Lumber, Lessinger, Peracchi, American Bantam Car Study problems Chapter 3A

Requirements for non-recognition of gain under 351  Transfer of Property and Services (Rev Rul 76-454)  Issued for Stock  Control Immediately after the exchange (Rev Rul 79-70, Intermountain Lumber, American Bantam Car)

Sept. 25: Organization of a Corporation (continued)

Treatment of Boot (Rev Rul 68-55) Basis of Property to Transferee (362, Corporation) Basis of Shares to Transferor (358, Shareholder) Assumption of Liabilities (357, Rev Rul 95-74, Lessinger, Peracchi) Incorporation of going business: Hempt Bros. VUS Collateral Issues: Contributions to capital; intentional avaoidance of Section 351; organizational expenses

Study Problems Chapter 3B

Oct 2: The Corporation Income tax Read B & E Chapter 5

Oct. 2 and Oct. 9: Dividends

64846 3 Reading Assignment:  B&E Chapter 8  Code: Sections 301, 305, 306, 307, 311, 312(a)(f)(k)(n), 316(a), 317  Regulations: 1.301-1, 1.305-1, 1.305-2, 1.305-3, 1.305-4, 1.306-1, 1.306-2, 1.306-3, 1.307-1, 1.307-2, 1.312-6, 1.316-1(a), 1.316-2,skim 1.305-5 Handouts  Rev Ruls: 62-131, 68-296, 74-164, 83-42  Cases: Alterman Foods, Prunier

Study problems Chapter 8

Dividends: In General (301, 316, RR 68-296) Earnings & Profits (312) Distributions of Cash (301) Effect on Earnings & Profits (RR 62-131, 74-134)

Oct 9: Dividends (continued)

Property Distributions (311, 317) Liabilities (336) Basis of Property (301) Constructive Distributions (Alterman Foods, Prunier) Distributions of Corporate Obligations (305, 306, 307, RR 83-42) Stock Dividends (305) Sec 306 Stock Constructive Distributions: Nicholls, North Buse Co., Rev. Rul. 69-630

Oct. 16: Midterm exam

Brief discussion of dividends received deduction, extraordinary dividends and basis reduction; debt financed portfolio stock, and Section 301 (e)

Oct. 23: Redemptions

Reading Assignment:  B&E Chapter 9  Code: Sections 302, 303, 318, 304  Regulations: 1.302-1, 1.302-2, 1.302-3, 1.302-4, 1.318-1, 1.318-2, 1.318-3, 1.318-4, Light read 1.304-1, 1.304-2, 1.304-3. Cases and Rulings:  Rev Ruls 69-608, 77-426, 78-401, 81-289, 85-14, 85-19, 85-106, 89-57, 89-64  Rev Ruls 77-218, 75-512.  Cases: Davis, Cerone, Bleily, Lynch, Bialo.

Study problems Chapters 6 & 7

Taxation of Redemptions Constructive Ownership of Stock (Sec 318, RR 89-64, Cerone) Substantially Disproportionate Redemptions (RR 81-289, 85-14) Complete Termination of a Shareholder’s Interest (RR 85-19, Bleily)

64846 4 Waiver of Family Attribution (Lynch)

Oct 23: Redemptions (continued)

Redemptions Not Essentially Equivalent to a Dividend (Davis, 77-426, 78-401, 85-106, 77-218, 75-512) Redemptions Tested at the Corporate Level – Partial Liquidations (302(b)(4) Constructive Dividend in Buy- Sell Agreement (RR 69-608, Bialo) Consequences to Distributing Corporation Redemptions Through Related Corporations (304, RR 89-57) Redemptions to Pay Death Taxes (303)

Oct. 30: Liquidations

Reading Assignment:  B&E Chapter 10.01-10.41, skim 10.42-10.44,  Code: Sections 331, 332, 334, 336, 337, 338, 346, 381, 1060  Regulations: 1.331-1, 1.332-1, 1.332-2, 1.332-3, 1.332-3, 1.332-4, 1.332-4, 1.332-5, 1.332-7 Handouts:  Rev Ruls: 59-296, 68-348, 68-359, 70-141, 74-598, 79-10, 80-283, 84-2, 85-48, 79-10  Cases: Carter, Zimmerman, Arrowsmith  Note that Section 341 has been repealed

Study Problems Chapter 10

Complete Liquidations Under Section 331 Liquidation Requirements (1.332-2) Shareholder Gain/Loss on Distributions (331, 1.331-1, RR’s 68-348, 85-48, 79-10, Carter, Arrowsmith) Open vs. Closed Liquidation Basis of Property Received (334) Corporation Gain/Loss (336, RR 80-283) Liquidation/Reincorporation (1.331-1, RR 84-2)

Oct 30: Liquidations (continued)

Liquidation of a Subsidiary Liquidation Requirements (332, RR 68-359, 70-141, 74-598, Zimmerman ) Shareholder Gain/Loss on Distributions (332, RR 59-296 Basis of Property Received (334) Corporation Gain/Loss (337) Carryover of Attributes (381)

Taxable Acquisitions Assets vs. Stock (1060) Sec 338 Election

64846 5 Nov. 6 : Introduction to Subchapter S Corporations

Reading Assignment: 1) B & E Chapter 6: 6.01 to 6.06 2) Code Sections 1361, 1362, 1363, 1366, 1367, 1368 3) Regs. 1.1361-1 (a)-(g), 1.1361-2

Requirements for Subchapter S election (1361) Election (1362) Tax Effect on Corporation (1363) Shareholder’s Taxable Income (1366) Shareholder’s Basis in Corporation (1367) Distributions (1368)

Nov. 13: Final Exam

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