A look at corporate taxation
- General utilities doctrine.
- Arkansas Best Corp v. CIR 485 US 212
- Background and discussion.
- Arkansas Best concedes that the Bank stock falls within the unembellished definition of capital asset.
- Corn Products v. CIR 350 US 46.
- Background and discussion.
- Changes, issues and significant developments.
As any business withdraws and employs reduction of all or parts of its assets to cash or cash equivalents to its shareholders, the last step that is usually undertaken is the complete liquidation of the corporation and this denotes the end of the corporation's life as well as the cessation of the business itself as controlled by the corporation. On the occasional basis, different reasons arise rather than the impetus desire to halt any business operation thus, the liquidation of the corporation is in itself the lifeblood of any business corporation to continue its operation. Meanwhile, there are two levels of corporate liquidation and these are the shareholder level and the corporate level. On the shareholder level, in exchange for all the corporate assets, a sale of all outstanding corporate stock held by shareholders is employed and this can be considered as a complete liquidation and. With this, a capital gain treatment is received by a shareholder on the difference between the amount received by the shareholder in the distribution and the cost or other basis of the stock.
[...] Quintessentially, petitioner disputed that ?property held by the taxpayer? (whether or not associated or related with his trade or business) does not embrace property that is obtained and held for a business purpose. In the petitioner's standpoint, an asset's standing as ?property? consequently turns on the impetus behind its acquirement. Conversely, this motive test, is not only nowhere cited in 1221, but it is also expressly in conflict with the phraseology ?whether or not connected with his trade or business.? The wide-ranging definition then of the term capital asset unambiguously makes immaterial any consideration of the property's connection or association with the taxpayer's business, while petitioner's rule would make this element dispositive. [...]
[...] Moreover, this additional flexibility came at the cost of more onerous substantiation requirements though recently, the Service has revisited its section 355 rulings process in an effort to streamline it and instead proposing or completing the distribution of a controlled corporation's stock is being carried out for one or more corporate business purposes, the Service plans to shift its resources to providing published guidance on legal questions involving these requirements. In addition to this, is the application of the step-transaction doctrine to multi-step transactions that include section 355 distribution? [...]