The Federal Income Taxation of Corporations, Partnerships, Limited Liability Companies, and Their Owners 7th Edition

Description

Kwall’s The Federal Income Taxation of Corporations, Partnerships, Limited Liability Companies, and Their Owners 7th Edition by Jeffrey L. Kwall, ISBN-13: 978-1636594651

[PDF eBook eTextbook]

• Publisher: ‎ Foundation Press; 7th edition (October 19, 2022)
• Language: ‎ English
• ISBN-10: ‎ 1636594654
• ISBN-13: ‎ 978-1636594651

An up-to-date response to the trend toward teaching corporate tax and partnership tax in a consolidated course, the 7th edition incorporates the Inflation Reduction Act of 2022 and updates, expands, and clarifies the prior edition. The 7th edition continues to use a unique mix of cases and rulings focusing on tax issues in a business planning context. The creative, student-friendly structure includes many examples and problems. The material can be taught in either an integrated manner or entity-by-entity. The 7th edition includes many examples and problems.

Parts I-IV are designed for an intermediate three or four credit course on C Corporations, S Corporations, and partnerships. The material can be taught in either an integrated manner or entity-by-entity.

Parts V-VI are designed for an advanced, two or three credit course in asset and stock sales, corporate reorganizations, and spin-offs.

The casebook is also appropriate for a three or four credit intermediate corporate tax course by omitting the partnership chapters. The book is suitable for both the J.D. and LL.M levels.

Selected Changes to the 7th Edition Include:

– An explanation of the Inflation Reduction Act of 2022’s corporate alternative minimum tax.

– An explanation of the Inflation Reduction Act of 2022’s corporate excise tax on certain redemptions.

– An updated discussion of the limitation on the business interest deduction.

– The addition of a recent case illustrating pitfalls of a closing-of-the-books election.

– An updated discussion of the qualified business income deduction.

– The addition of a Form 2553 to highlight effective date issues of an S election.

– An augmented discussion of the relation of the Rickey case to IRC § 302(c)(2)(C).

– A new illustration of the qualified small business stock exclusion.

– A revision of material on the deductibility of partnership losses.

– An updated discussion of bonus depreciation.

Table of Contents:

TABLE OF CONTENTS

PREFACE TO THE SEVENTH EDITION ………………………………………………………….V

PREFACE TO THE FIRST EDITION……………………………………………………………. VII

TABLE OF CASES ……………………………………………………………………………….. XXIX

TABLE OF STATUTES ………………………………………………………………………… XXXIII

TABLE OF REGULATIONS ……………………………………………………………………. XLIII

TABLE OF I.R.S. RULINGS ………………………………………………………………….. XLIX

TABLE OF AUTHORITIES ………………………………………………………………………….LI

PART ONE. INTRODUCTION

Chapter 1. Perspective ………………………………………………………………………. 3

A. The Business as an Entity Under State Law ……………………………………. 3

B. The Business as a Taxpaying Entity—the C Corporation …………………. 6

C. The Business as a Tax Accounting Entity—the S Corporation and the

Partnership……………………………………………………………………………………. 9

D. The Uniform Taxation of All Business Income—Preview of the

Future? ……………………………………………………………………………………….. 10

Treasury Department Report Integration of the Individual and

Corporate Tax Systems ………………………………………………………….. 11

Notes …………………………………………………………………………………………… 13

PART TWO. OPERATIONS

Chapter 2. C Corporation Operations ……………………………………………..17

A. Corporate Income Tax ………………………………………………………………….. 19

1. Tax Rates ……………………………………………………………………………… 19

2. Scope of Corporate Gross Income ……………………………………………. 19

a. Inclusionary Aspects—Income from Services……………………. 19

Haag v. Commissioner ……………………………………………………. 19

Notes …………………………………………………………………………….. 24

b. Inclusionary Aspects—Gains from Property …………………….. 26

General Utilities & Operating Co. v. Helvering ………………… 27

Notes …………………………………………………………………………….. 30

c. Exclusionary Aspects—General ………………………………………. 31

Castner Garage, Limited v. Commissioner Universal Motor

Company v. Commissioner Island Securities, Limited,

A Dissolved Corporation v. Commissioner ………………… 31

Notes …………………………………………………………………………….. 34

d. Exclusionary Aspects—Corporate Specific ……………………….. 34

Notes …………………………………………………………………………….. 34

3. Scope of Corporate Deductions ……………………………………………….. 35

a. Reducing Double Taxation ………………………………………………. 36

Elliotts, Inc. v. Commissioner …………………………………………. 36

Notes …………………………………………………………………………….. 43

Fin Hay Realty Co. v. United States ………………………………… 45

Notes …………………………………………………………………………….. 50

Maxwell v. Commissioner Hi Life Products, Inc. v.

Commissioner …………………………………………………………. 53

Notes …………………………………………………………………………….. 57

b. Inhibiting Triple Taxation ………………………………………………. 57

Litton Industries, Inc. v. Commissioner …………………………… 58

Notes …………………………………………………………………………….. 61

Corporate Penalty Taxes ………………………………………………………………. 63

1. Accumulated Earnings Tax ……………………………………………………. 63

United States v. Donruss Co. …………………………………………………. 64

Snow Manufacturing Company v. Commissioner …………………….. 67

Notes ……………………………………………………………………………………. 74

2. Personal Holding Company Tax …………………………………………….. 77

Irving Berlin Music Corporation v. United States ……………………. 78

Darrow v. Commissioner ……………………………………………………….. 81

Notes ……………………………………………………………………………………. 84

Consequences of Operating Loss……………………………………………………. 86

Notes …………………………………………………………………………………………… 87

Distinguishing Corporation from Shareholders ……………………………… 87

Commissioner v. Bollinger ……………………………………………………………. 87

Note …………………………………………………………………………………………….. 92

Chapter 3. S Corporation Operations …………………………………………….. 95

A. Computation of Gross Income and Deductions ……………………………….. 95

Revenue Ruling 93–36 ………………………………………………………………….. 98

Notes …………………………………………………………………………………………… 99

B. Allocation to Shareholders ………………………………………………………….. 100

1. Shareholders Taxed When Income Earned ……………………………. 100

Knott v. Commissioner ………………………………………………………… 100

Notes ………………………………………………………………………………….. 101

2. Rigid Allocation Rule …………………………………………………………… 102

Notes ………………………………………………………………………………….. 105

Manfre v. May …………………………………………………………………….. 106

Notes ………………………………………………………………………………….. 109

C. Deduction for Qualified Business Income …………………………………….. 110

Notes …………………………………………………………………………………………. 114

D. Consequences of Operating Loss………………………………………………….. 114

Selfe v. United States …………………………………………………………………. 116

Estate of Leavitt v. Commissioner ……………………………………………….. 120

Notes …………………………………………………………………………………………. 125

Hitchins v. Commissioner …………………………………………………………… 128

Note …………………………………………………………………………………………… 131

E. Distinguishing S Corporation from C Corporation ………………………… 131

1. Small Business Corporation …………………………………………………. 132

a. Not More than 100 Shareholders …………………………………… 132

Revenue Ruling 94–43 ………………………………………………….. 132

Notes …………………………………………………………………………… 133

b. No Ineligible Shareholders ……………………………………………. 133

IRS Letter Ruling 9138025 ……………………………………………. 133

Notes …………………………………………………………………………… 134

Not More than One Class of Stock …………………………………. 136

Paige v. United States …………………………………………………… 136

Notes …………………………………………………………………………… 139

2. The Election ………………………………………………………………………… 142

Leather v. Commissioner ……………………………………………………… 143

Notes ………………………………………………………………………………….. 145

Transitional Problems ………………………………………………………………… 146

1. Built-In Gains ……………………………………………………………………… 147

2. Accumulated C Earnings ……………………………………………………… 150

Notes ………………………………………………………………………………….. 153

3. Net Operating Loss ……………………………………………………………… 154

Rosenberg v. Commissioner …………………………………………………. 154

Notes ………………………………………………………………………………….. 157

Chapter 4. Partnership Operations ……………………………………………….159

A. Computation of Gross Income and Deductions ……………………………… 159

B. Allocation to Partners …………………………………………………………………. 162

1. Partners Taxed When Income Earned …………………………………… 162

Burke v. Commissioner ………………………………………………………… 163

Notes ………………………………………………………………………………….. 164

2. Flexible Allocation Rule ……………………………………………………….. 165

a. Introduction to Economic Effect …………………………………….. 167

Orrisch v. Commissioner ………………………………………………. 168

Notes …………………………………………………………………………… 174

b. Introduction to Capital Accounts …………………………………… 174

Note …………………………………………………………………………….. 176

c. General Test for Economic Effect …………………………………… 176

d. Alternate Test for Economic Effect ………………………………… 178

e. Substantiality ………………………………………………………………. 180

(1) Transitory Allocations and Shifting Tax

Consequences ………………………………………………………… 180

Notes…………………………………………………………………….. 183

(2) General Restriction ……………………………………………….. 184

Note ……………………………………………………………………… 185

Partner’s Interest in Partnership …………………………………… 186

Note …………………………………………………………………………….. 186

C. Deduction for Qualified Business Income …………………………………….. 187

Notes …………………………………………………………………………………………. 191

D. Allowance of Allocated Deduction/Loss ………………………………………… 191

Notes …………………………………………………………………………………………. 197

Garcia v. Commissioner ………………………………………………………………. 200

Note …………………………………………………………………………………………… 203

E. Modifying an Allocation ………………………………………………………………. 204

Lipke v. Commissioner ……………………………………………………………….. 204

Notes …………………………………………………………………………………………. 207

F. Distinguishing Partnership from Proprietorship ………………………….. 208

Revenue Ruling 75–374 ………………………………………………………………. 208

Barron v. Commissioner ……………………………………………………………… 209

Notes …………………………………………………………………………………………. 211

Distinguishing Partnership from Taxpaying Entity ……………………… 212

1. Non-Publicly Traded Partnerships ……………………………………….. 212

Simplification of Entity Classification Rules …………………………. 213

Notes ………………………………………………………………………………….. 215

Revenue Ruling 99–5 …………………………………………………………… 216

Note ……………………………………………………………………………………. 217

2. Publicly Traded Partnerships ………………………………………………. 217

Notes ………………………………………………………………………………….. 218

PART THREE. DISTRIBUTIONS

Chapter 5. C Corporation Distributions ………………………………………..223

A. One-Side Distribution …………………………………………………………………. 223

1. Dividend to the Extent of Earnings & Profits ………………………… 223

a. Conceptualizing Earnings & Profits ………………………………. 224

Notes …………………………………………………………………………… 225

b. Quantifying Earnings & Profits …………………………………….. 225

Revenue Ruling 74–164 ………………………………………………… 225

Notes …………………………………………………………………………… 227

c. Qualified Dividend Income ……………………………………………. 230

Note …………………………………………………………………………….. 231

2. Camouflaged One-Side Distribution ……………………………………… 231

a. Loan or Distribution……………………………………………………… 232

Jaques v. Commissioner ……………………………………………….. 232

Notes …………………………………………………………………………… 235

b. Business or Personal Use of Corporate Property …………….. 237

Resenhoeft v. Commissioner …………………………………………. 237

Notes …………………………………………………………………………… 242

Boulware v. United States …………………………………………….. 242

Notes …………………………………………………………………………… 246

c. Discharge of Corporate or Personal Obligation……………….. 247

Sullivan v. United States ………………………………………………. 247

Note …………………………………………………………………………….. 248

Revenue Ruling 69–608 ………………………………………………… 248

Notes …………………………………………………………………………… 251

B. Redemption ……………………………………………………………………………….. 251

1. Distinguishing Sale from One-Side Distribution ……………………. 253

a. Not Essentially Equivalent to a Dividend ………………………. 253

United States v. Davis ………………………………………………….. 253

Notes …………………………………………………………………………… 257

Revenue Ruling 81–289 ………………………………………………… 257

Notes …………………………………………………………………………… 258

b. Attribution Rules………………………………………………………….. 259

c. Substantially Disproportionate Redemption …………………… 261

Revenue Ruling 87–88 ………………………………………………….. 261

Glacier State Electric Supply Company v.

Commissioner ……………………………………………………….. 263

Notes …………………………………………………………………………… 268

Complete Termination of Interest ………………………………….. 271

(1) Sale and/or Redemption …………………………………………. 271

Zenz v. Quinlivan ………………………………………………….. 271

Note ……………………………………………………………………… 273

Arnes v. United States …………………………………………… 273

Notes…………………………………………………………………….. 275

Arnes v. Commissioner ………………………………………….. 275

Notes…………………………………………………………………….. 279

(2) Attribution Issues ………………………………………………….. 280

Lynch v. Commissioner ………………………………………….. 281

Notes…………………………………………………………………….. 285

Rickey v. United States ………………………………………….. 287

Notes…………………………………………………………………….. 292

IRS Notice 2001–45 ……………………………………………….. 294

Notes…………………………………………………………………….. 296

e. Impact on Earnings & Profits ………………………………………… 296

Notes …………………………………………………………………………… 297

2. Sale to Related Corporation …………………………………………………. 298

Coyle v. United States …………………………………………………………. 299

Notes ………………………………………………………………………………….. 303

Liquidation ………………………………………………………………………………… 306

Note …………………………………………………………………………………………… 307

1. Taxable Liquidation …………………………………………………………….. 307

Rendina v. Commissioner …………………………………………………….. 308

Notes ………………………………………………………………………………….. 311

Ethel M. Schmidt v. Commissioner ………………………………………. 312

Notes ………………………………………………………………………………….. 316

Ford v. United States …………………………………………………………… 317

Note ……………………………………………………………………………………. 319

2. Subsidiary Liquidation ………………………………………………………… 319

George L. Riggs, Inc. v. Commissioner ………………………………….. 319

Revenue Ruling 70–106 ……………………………………………………….. 324

Notes ………………………………………………………………………………….. 325

Sale of C Corporation ………………………………………………………………….. 326

1. Death of Owner Before Sale—IRC § 1014 ……………………………… 328

2. Qualified Small Business Stock—I.R.C. § 1202 ……………………… 330

IRS Letter Ruling 202144026 ……………………………………………….. 330

Note ……………………………………………………………………………………. 333

Chapter 6. S Corporation Distributions ………………………………………..335

A. One-Side Distribution …………………………………………………………………. 335

1. No Accumulated Earnings & Profits ……………………………………… 336

Notes ………………………………………………………………………………….. 338

2. Accumulated Earnings & Profits ………………………………………….. 338

Notes ………………………………………………………………………………….. 340

3. Camouflaged One-Side Distribution ……………………………………… 341

David E. Watson, P.C. v. United States ………………………………… 341

Note ……………………………………………………………………………………. 344

Redemption ……………………………………………………………………………….. 344

Revenue Ruling 95–14 ………………………………………………………………… 345

Note …………………………………………………………………………………………… 349

Liquidation ………………………………………………………………………………… 349

Note …………………………………………………………………………………………… 350

Chapter 7. Partnership Distributions ……………………………………………351

A. Current Distribution …………………………………………………………………… 351

1. Distribution of Money ………………………………………………………….. 351

a. Actual Distribution ………………………………………………………. 351

Revenue Ruling 66–94 ………………………………………………….. 353

b. Reduction in Partnership Liabilities ……………………………… 354

(1) Change in Form of Partnership ………………………………. 355

Revenue Ruling 84–52 …………………………………………… 355

Note ……………………………………………………………………… 356

(2) Cancellation of Partnership Indebtedness……………….. 357

Revenue Ruling 94–4 …………………………………………….. 358

Note ……………………………………………………………………… 359

IRS Technical Advice Memorandum 9739002 ………….. 359

Note ……………………………………………………………………… 361

2. Distribution of Property, Other than Money ………………………….. 361

Notes ………………………………………………………………………………….. 362

3. Distribution of Marketable Securities …………………………………… 363

Partnership Distributions of Marketable Securities ………………. 364

B. Distribution in Liquidation of Partner’s Interest ………………………….. 366

1. General Rules ……………………………………………………………………… 366

2. Identifying the Taxable Event ……………………………………………… 367

Weiss v. Commissioner ………………………………………………………… 367

Notes ………………………………………………………………………………….. 371

3. Distinguishing Liquidation of Interest from Sale …………………… 371

Crenshaw v. United States …………………………………………………… 372

Notes ………………………………………………………………………………….. 375

4. Service Partnership …………………………………………………………….. 376

Tolmach v. Commissioner ……………………………………………………. 379

Notes ………………………………………………………………………………….. 385

5. Impact of § 751 Assets …………………………………………………………. 387

a. Sale of Interest …………………………………………………………….. 387

b. Liquidation of Interest ………………………………………………….. 388

Note …………………………………………………………………………….. 393

c. Disposition of Distributed Property ……………………………….. 394

6. Partnership Level Adjustments ……………………………………………. 394

Jones v. United States …………………………………………………………. 396

Notes ………………………………………………………………………………….. 400

C. Termination of Partnership ………………………………………………………… 402

Crawford v. Commissioner ………………………………………………………….. 402

Notes …………………………………………………………………………………………. 404

Revenue Ruling 99–6 ………………………………………………………………….. 405

Note …………………………………………………………………………………………… 407

PART FOUR. CONTRIBUTIONS

Former Regulation on Exchanges ……………………………………………………….. 409

Notes ………………………………………………………………………………………………… 410

Chapter 8. C Corporation Contributions ………………………………………411

A. Transfer of Property for Stock……………………………………………………… 411

1. Deferral of Gain or Loss ……………………………………………………….. 412

Kamborian v. Commissioner ………………………………………………… 412

Notes ………………………………………………………………………………….. 418

Intermountain Lumber Company v. Commissioner ……………….. 419

Notes ………………………………………………………………………………….. 423

James v. Commissioner Talbot v. Commissioner……………………. 423

Notes ………………………………………………………………………………….. 426

2. Basis as Gain/Loss Preservation Mechanism ………………………… 426

3. Assignment of Income ………………………………………………………….. 428

Revenue Ruling 80–198 ……………………………………………………….. 428

Notes ………………………………………………………………………………….. 431

B. Transfer of Property for Other Consideration ………………………………. 431

1. Receipt of Property in Addition to Stock ……………………………….. 432

Revenue Ruling 68–55 …………………………………………………………. 433

Note ……………………………………………………………………………………. 435

2. Relief from Liabilities ………………………………………………………….. 435

Lessinger v. Commissioner …………………………………………………… 437

Peracchi v. Commissioner…………………………………………………….. 442

Notes ………………………………………………………………………………….. 444

Revenue Ruling 95–74 …………………………………………………………. 446

Note ……………………………………………………………………………………. 449

C. Contribution to Capital ………………………………………………………………. 449

Commissioner v. Fink …………………………………………………………………. 449

Note …………………………………………………………………………………………… 453

Chapter 9. S Corporation Contributions ……………………………………….455

A. Transfer of Property for Stock……………………………………………………… 455

1. Deferral of Gain or Loss ……………………………………………………….. 455

Notes ………………………………………………………………………………….. 455

2. Basis as Gain/Loss Preservation Mechanism ………………………… 456

3. Assignment of Income ………………………………………………………….. 457

4. Characterization Issues ……………………………………………………….. 458

B. Transfer of Property for Other Consideration ………………………………. 459

Chap