Corporate Spin-off Tax Law

Synopsis

Sorting out the tax implications related to corporate spin-offs can be a headache. How and when you break off components from a company can determine the liabilities of shareholders and the corporation alike. Corporate Spin-off Tax Law attempts to cut through the endless variables and explain the pertinent sections of the tax code to help lawyers create better splits.



Outline

I. Spin-offs Under Section 355
        A. Spin-off History
        B. Reform Proposals
        C. Guiding Principles for Change
        D. Preserving Shareholder Taxation
        E. Corporate Taxation
II. “Active Trade or Business” Test
        A. Legislative Changes
        B. Legislative Changes, Continued
        C. "Active Trade or Business" Rule
                1. Using an Existing Company
                2. Creating a New Company
                3. Creating a New Company, Continued
        D. Proposed Changes
        E. Proposed Changes, Continued
        F. Attributing Shareholder Activities to the Corporation
        G. Attributing Shareholder Activities to the Corporation, Continued
        H. Controlling Sections Regarding Employment
        I. Business Expansions and Changes
        J. Hot Stock
        K. Hot Stocks, Continued
III. Formation of Capital Structure
        A. Structuring Example
        B. Transferring Controlled Securities
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The Penn State Dickinson School of Law

Founded in 1834 by Judge John Reed, The Dickinson School of Law is the oldest law school in Pennsylvania and the fifth oldest in the nation. Throughout its history, the law school has trained distinguished graduates who have gone on to become leaders of the bar, of the judiciary, of government, and of business. These alumni include the first secretary of the U.S. Department of Homeland Security, five governors, three U.S. senators, and more than 100 federal, state and county judges and countless prominent lawyers and civic leaders. In 2000, the law school merged with Penn State, one of the country’s premier research universities, and stepped into a new era of legal excellence.

Penn State Dickinson School of Law Center for the Study of Mergers and Acquisitions

The center, headed by Samuel C. Thompson Jr., former director of the UCLA Center for the Study of Mergers and Acquisitions, examines corporate, securities, tax, antitrust, and other legal and economic issues that arise in mergers and acquisitions. An important part of the center’s mission is to sponsor continuing legal education programs addressing these issues.

The Association of the Bar of the City of New York

The years following the Civil War were tumultuous ones for New York City, offering many opportunities to the dishonest. Unsavory politicians and errant members of the bench and bar were among those who took advantage of those troubled times. In December 1869, a letter was circulated among some of the city’s lawyers addressing those improprieties. It called for the creation of a new bar association to “sustain the profession in its proper position in the community, and thereby enable it ... to promote the interests of the public ....” More than 200 lawyers responded by signing a declaration of organization and in 1870 The Association of the Bar of the City of New York was born. The young organization quickly made its presence felt. Among its first activities was a campaign to defeat corrupt politicians and judges at the polls and to establish standards of conduct for those in the legal profession.

The association continues to work at political, legal and social reform, and maintaining high ethical standards for the legal profession. The association also continues to implement innovative means by which the disadvantaged may be helped. Much of this work is accomplished through the Association's more than 160 committees, each charged to consider a specific area of law or the profession.

The association has grown to more than 23,000 members. To serve them, the association strives to move ahead in many areas. The library is the largest member-funded law library in the country, and provides members with a “gateway” to online services, including free use of LexisNexis and WestLaw, while continuing to provide more traditional library services. The Small Law Firm Center, Career Management Program and other benefits are constantly evolving to serve members’ needs. More than 150 continuing legal education programs are presented annually.

The public good remains one of the association’s highest priorities. The Legal Referral Service, jointly sponsored by the association and the New York County Lawyers’ Association, provides an array of services directly aimed at serving the needs of the public. The City Bar Justice Center identifies the most pressing legal concerns of New York’s neediest and uses novel approaches to address them, often involving community participation.

 





Speakers / Authors:

Photo of Eric Solomon

Eric Solomon
Ernst & Young LLP

Eric Solomon is the Director of Ernst & Young LLP’s National Tax Department in Washington, D.C. He has more than 30 years of tax experience in private practice and government service.

Mr. Solomon served as Assistant Secretary for Tax Policy at the U.S. Treasury Department from December 2006 to January 2009. In this role, he headed the Office of Tax Policy, which serves as the primary advisor to the Treasury Secretary on legal and economic matters relating to domestic and international taxation.

Mr. Solomon joined the Office of Tax Policy in 1999. He served as Senior Advisor for Policy, Deputy Assistant Secretary (Tax Policy) and Deputy Assistant Secretary (Regulatory Affairs) prior to his 2006 confirmation as Assistant Secretary.

From 1996 to 1999, Mr. Solomon was a principal in Ernst & Young LLP’s National Tax Mergers and Acquisitions group in Washington, D.C. Previously, he was Assistant Chief Counsel (Corporate) at the Internal Revenue Service, heading the IRS legal division responsible for all corporate tax issues. He began his career with law firms in New York City and was a partner at Drinker Biddle & Reath in Philadelphia.

Mr. Solomon received his A.B. from Princeton University (Phi Beta Kappa), his J.D. from the University of Virginia and his LL.M. in taxation from New York University. He is an adjunct professor of law at Georgetown University Law Center, where he teaches a course in corporate taxation.

Photo of Michael L. Schler

Michael Schler
Cravath, Swaine & Moore LLP

Michael L. Schler is a tax partner in the New York City law firm of Cravath, Swaine & Moore LLP. He practices in the areas of mergers & acquisitions, corporate tax, consolidated returns, financial products, and asset-backed securitization. He joined the firm in 1974 and was elected a partner in 1982.

Mr. Schler has long been active in the New York State Bar Association Tax Section. He was chair from 1994 to 1995, and has been a member of the Executive Committee since 1985. Mr. Schler is a trustee and vice president of the American Tax Policy Institute. He is also the chair of the New York Tax Forum. He is a member of the American College of Tax Counsel. He has been a consultant to the American Law Institute Federal Income Tax Project on Integration of the Individual and Corporate Income Taxes, and to the Institute’s Project on Taxation of Private Business Enterprises. Mr. Schler is the author of numerous published articles, including recent articles on consolidated returns, spin-offs, section 1032, and the dividend exclusion.

Prior to joining Cravath, Mr. Schler was a clerk for the Honorable Max Rosenn of the U.S. Court of Appeals for the Third Circuit. He graduated magna cum laude from Harvard University with an A.B. in 1970, and earned his J.D. from Yale Law School in 1973. He also earned an LL.M. in taxation from New York University in 1979.

Photo of Peter C. Canellos

Peter Canellos
Wachtell, Lipton, Rosen & Katz

Peter C. Canellos is of counsel at the law firm of Wachtell, Lipton, Rosen & Katz in New York City. He is a graduate of Columbia University (A.B. 1964, summa cum laude, and LL.B., 1967, magna cum laude). At Columbia Law School, he served as editor-in-chief of the Law Review. After graduation from law school, Mr. Canellos clerked for Judge Charles D. Breitel of the New York Court of Appeals and was a Fulbright Scholar at the University of Amsterdam, the Netherlands. Mr. Canellos has served as chairman of the New York State Bar Association Tax Section and is a frequent writer and lecturer on tax matters.

Photo of Rose L. Williams

Rose Williams
Ernst & Young LLP

Rose L. Williams is a partner at Ernst & Young LLP, where she is a member of the Mergers & Acquisitions Group of the National Tax Department in Washington, D.C.

Ms. Williams served in the Office of Tax Policy at the U.S. Department of Treasury from 1995 to 1997. From 1987 to 1995, she worked at the Internal Revenue Service in the corporate tax division of the Office of Chief Counsel. While at the Office of Tax Policy, Ms. Williams was a principal drafter of the proposed regulations regarding continuity of interest and continuity of business enterprise.

In addition, she participated in the deliberations concerning the corporate tax provisions included in the Taxpayer Relief Act of 1997. While at the Internal Revenue Service, Ms. Williams was the principal drafter of the regulations under section 358 dealing with the basis consequences of triangular reorganizations. She participated in other guidance projects regarding tax-free reorganizations, spin-offs and consolidated returns.

Ms. Williams is a Vice Chair Law Improvement, American Bar Association Corporate Tax Committee. She is also an adjunct professor of law at Georgetown University, where she teaches courses in corporate reorganizations and tax planning in corporate acquisitions and dispositions.

Ms. Williams received her B.S. from the University of Wisconsin, Oshkosh and her J.D. from the University of Nebraska.

Photo of Thomas F. Wessel

Thomas Wessel
KPMG LLP

Thomas F. Wessel is a partner in the Washington D.C. office of KPMG LLP. He advises clients on all aspects of corporate taxation, with a particular emphasis on mergers and acquisitions, restructuring transactions, debt and equity offerings and consolidated returns, international tax, taxation of financial instruments, partnership taxation, and tax accounting.

Prior to joining KPMG in 2000, Mr. Wessel was a partner with McKee Nelson, Ernst & Young LLP. Before that, he was the lead merger and acquisition tax partner in the Washington, D.C. office of King & Spalding, which he joined in 1991. From 1990 to 1991, Mr. Wessel was special counsel to the chief counsel for the Internal Revenue Service, where he served as the principal legal advisor to the chief counsel on the development of regulations, rulings, and designated tax litigation.

Mr. Wessel served as associated tax legislative counsel and an attorney advisor in the U.S. Treasury Department’s Office of Tax Legislative Counsel from 1985 to 1990. There, he had primary responsibility for developing corporate tax legislation and regulatory guidance. From 1980 to 1982, he clerked for the Honorable Jacob Mishler of the U.S. District Court for the Eastern District of New York.

In 1985, Mr. Wessel earned an LL.M. in taxation from the New York University School of Law. He earned his J.D., cum laude, in 1980 from New York University School of Law, where he served on the New York University Law Review and was a member of the Order of the Coif. Mr. Wessel graduated magna cum laude from the University of Pennsylvania’s Wharton School in 1976 with a B.S.E., and was elected to Beta Alpha Phi.

Photo of William D. Alexander

William Alexander
Internal Revenue Service

William D. Alexander is the Associate Chief Counsel (Corporate) at the Internal Revenue Service. He has been with the IRS Office of Chief Counsel (Corporate) since 1990. Prior to joining the IRS, he was associated with Simpson Thacher & Bartlett in New York. He has a bachelor’s degree from Cornell University, a law degree from Columbia Law School, and an LL.M. in taxation from New York University School of Law.

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Details

Course Code : 776250
Length : 1hr 18min
Recorded Date : 4/23/2008
Format Type : Video

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