THE UNIVERSITY OF TOLEDO COLLEGE OF LAW Professor James E. Tierney Office: Law Center Room 2008C 419/530-2879 e-mail: James.Tierney@utoledo.edu SYLLABUS – BUSINESS ENTERPRISE TAX FALL 2011 I. REQUIRED MATERIALS: A. Lind, Schwarz, Lathrope & Rosenberg, Fundamentals of Business Enterprise Taxation – Cases and Materials – Fourth Edition (Foundation Press 20)(“Casebook”); B. Lyons and Repetti , Partnership Income Taxation – Fourth Edition (Foundation Press) (“Lyons”); and C. Federal Income Tax -- Code and Regulations -- Selected Sections – (Commerce Clearing House) 2011-2012 edition or equivalent) (“Statutory Supplement”). II. COURSE SUBJECT MATTER – ASSIGNMENTS FOR FIRST PART OF THE COURSE This course will examine the Federal income taxation of corporations and their shareholders and partnerships and partners. We will begin by considering Subchapter C of the Internal Revenue Code (sections 301 et seq.). The general approach of this series of provisions, governing the taxation of corporations and their shareholders, is to recognize both the corporation and its shareholders as separate taxable persons; hence, the so-called current “double” level of tax incurred when doing business in the corporate form. From there, we will briefly consider the provisions of Subchapter S (sections 1361 et seq.), an elective series of provisions allowing corporations to be treated as pass- through entities. Ordinarily, under this regime, the corporate entity is not taxed; instead, there is a single level of tax imposed at the shareholder level. Finally, we will examine the provisions of Subchapter K, governing the taxation of partners and partnerships. The partnership tax model is similar to the “single level of tax” model of subchapter S, but with a number of complexities not raised by that model The following is an outline and reading list for the first part of our course, dealing with the taxation of corporations and shareholders (i.e., Subchapter C and Subchapter S). 2 I will provide you with a list of assignments dealing with partnership taxation later in the semester. I may modify and supplement the following list from time to time, and will apprise you of any such modifications in class. Please note the following guidelines in preparing class assignments: 1. Page numbers indicated in the assignments below refer to the pages of the Casebook (Lind, Schwarz, et al). You should always read the pertinent provisions of the Internal Revenue Code ("Code") and Income Tax Regulations ("Regs.") referred to in the casebook and contained in the assigned statutory supplement, even though they are not expressly mentioned in the reading list below. 2. The casebook includes a number of problems, which we will frequently use as a focus of our class discussion. Therefore, unless indicated otherwise below or in class, you should study, attempt to resolve, and be prepared to discuss each problem in class. 3. The American Bar Association, the College of Law and I require regular and punctual class attendance. At the beginning of each class meeting, I will circulate an attendance sheet for you to sign. It is your responsibility to ensure that you have signed the sheet. I WILL WITHDRAW YOU FROM THIS COURSE IF YOU ARE ABSENT FOR MORE THAN 3 CLASS PERIODS. The foregoing should not be interpreted to mean that you are encouraged or entitled to miss any class periods. The material for this course is demanding and challenging and class attendance is essential to your understanding of it. I also expect you to be prepared for each class meeting. I reserve the right to consider your attendance, participation, and preparation positively or negatively, together with your examination grade, in determining your final grade for the course. NOTE: IT IS AN HONOR CODE VIOLATION FOR A STUDENT TO MISREPRESENT THE STUDENT’S ATTENDANCE OR THE ATTENDANCE OF ANOTHER STUDENT. Chapter 10: The C Corporation as a Separate Taxable Entity (read pp. 396-418) A. The Corporate Income Tax B. The Corporate Alternative Minimum Tax C. Anti-Avoidance Penalty Taxes 1. Accumulated Earnings Tax 2. Personal Holding Company Tax D. Tax Shelters E. Affiliated Corporations F. Recognition of the Corporate Entity G. Integration Alternative (skim pp. 418-429) 3 Chapter 11: Formation of a Corporation A. Introduction to Section 351 (read pp. 430-434) B. Requirements for Nonrecognition Under Sec. 351 (read pp. 434-444) 1. Control Immediately After the Exchange 2. Transfers of Property and Services 3. Solely for “Stock” C. Treatment of Boot (read pp. 445-453) 1. In General 2. Timing of Section 351 Gain D. Assumption of Liabilities: (read pp. 453-473) E. Incorporation of a Going Business (skim pp. 473-483) F. Capital Structure of a Corporation (read pp. 483-486; omit remainder of section) 1. Introduction 2. Debt vs. Equity: 3. Character of Loss on Corporate Investment G. Collateral Issues (skim pp. 504-507) 1. Contributions to Capital 2. Intentional Avoidance of Section 351 3. Organizational Expenses Chapter 12: Nonliquidating Distributions (Read pp. 508-534; skim 534-555) A. Dividends: In General B. Earnings and Profits (E&P) C. Distributions of Cash D. Distributions of Property: 1. Corporate Consequences 2. Shareholder Consequences 3. Distribution of Corporation’s Own Obligations E. Constructive Distributions F. Intercorporate Dividends (Dividends Received Deduction and Related Limitations) G. Bootstrap Acquisitions Chapter 13: Redemptions and Partial Liquidations (read entire chapter (pp. 556-637) EXCEPT skim Lynch case at pp. 566-573; skim pp. 575-586; omit problem 2 at p. 595- and omit Problem 2 at p. 635). A. Introduction B. Constructive Stock Ownership C. Redemptions Tested at Shareholder Level 4 1. Substantially Disproportionate Redemptions 2. Complete Termination of Interest 3. Redemptions Not Essentially Equivalent to a Dividend D. Redemptions Tested at the Corporate Level: Partial Liquidations E. Corporate Level Consequences 1. Use of Appreciated Property in Redemptions 2. E & P Effects 3. Stock Reacquisition Expenses F. Planning Techniques 1. Bootstrap Sales 2. Buy Sell Agreements G. Redemptions through Related Corporations – Section 304 H. Redemptions to Pay Death Taxes – Section 303 Chapter 14: Stock Dividends and Section 306 Stock (read pp. 638-649; skim pp. 649- 656; read I.R.C. section 306 and prepare problem 1 at p. 655) A. Introduction B. Taxation of Stock Dividends under Section 305 C. Section 306 Stock 1. The Preferred Stock Bailout 2. Operation of Section 306 Chapter 15: Complete Liquidations (read entire chapter (i.e., pp. 657-687) A. Introduction B. Complete Liquidations under Section 331 1. Shareholder Consequences 2. Liquidating Corporation's Consequences C. Liquidation of a Subsidiary 1. Shareholder Consequences 2. Liquidating Subsidiary’s Consequences Chapter 16: Taxable Corporate Acquisitions (read entire chapter pp. 688-716, EXCEPT skim I.R.C. section 338 and pp. 700-706). A. Introduction B. Asset Acquisitions 1. Tax Consequences 2. Allocation of Purchase Price C. Stock Acquisitions 1. Background 2. Operation of Section 338 5 3. Acquisition of Stock of a Subsidiary D. Comparison of Methods E. Treatment of Acquisition Expenses Chapter 17: Tax-Free Corporate Reorganizations (no casebook assignment; read and prepare handout for class discussion (to be provided)) A. Introduction 1. Historical Background 2. Overview of Reorganizations B. Acquisitive Reorganizations 1. Type A: Statutory Mergers and Consolidations 2. Type B: Acquisitions of Stock Solely for Voting Stock 3. Type C: Acquisition of Assets for Voting Stock 4. Triangular Reorganizations 5. Tax Treatment of Parties to an Acquisitive Reorganization Chapter 18: Corporate Divisions (no casebook assignment; read and prepare handout for class discussion (to be provided)) A. Introduction 1. Types of Corporate Divisions 2. Non-tax Considerations 3. Historical Background of Section 355 4. Overview of Section 355 B. The Active Trade of Business Requirement C. Judicial and Statutory Limitations 1. Business Purpose 2. Continuity of Interest 3. The "Device" Limitation D. Tax Consequences to Parties 1. Introduction 2. Consequences to Distributees 3. Consequences to Distributing and Controlled Corporations 4. Consequences to Failed Divisions Chapter 20: The S Corporation (assignment from casebook to be announced) A, Introduction B. Eligibility C. Election, Revocation, Termination D. Treatment of Shareholders E. Distributions 6 F. Taxation of the Corporation G. Coordination with Subchapter C H. Compensation Issues This syllabus will be supplemented with assignments from the Lyons text for the second part of the course (relating to the taxation of partners and partnerships) later in the semester.
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