Daily Tax Update - April 19, 2005

Proposed Regulations Appropriately Tailor Definitions of "Successor" and "Predecessor" to the Purposes Behind Section 355(e):
In an article published today in Tax Analysts, Who Proceeds and Who Succeeds: New Anti-Morris Trust Proposed Regulations, 2005 TNT 74-52, the authors Lisa Zarlenga and Kevin Spencer of Steptoe & Johnson LLP discuss recently proposed regulations that define "predecessor" and "successor" for section 355(e) purposes. On November 22, 2004, the Treasury Department issued the long-awaited definitions for these terms. Although at first blush the proposed regulations are seemingly complex, they are appropriately tailored to respect the purposes behind section 355(e).

  • The definition of "successor" adopts the more traditional approach, defining it with reference to section 381 transactions. However, the proposed regulation adopt a unique definition of "predecessor" that is designed to identify transactions in which there is a separation of the predecessor’s assets, which is consistent with the purposes of section 355(e).
  • The proposed regulations also contain a taxpayer friendly gain-limitation rule which softens the effect of section 355(e) when the gain inherent in the separated assets of the acquired entity is small in relation to the overall gain inherent in the stock of the controlled corporation.
  • The article can be accessed here.  
  • For additional information contact Lisa M. Zarlenga via email or Kevin Spencer via email.

FINANCE COMMITTEE HIGHWAY REAUTHORIZATION BILL CONTAINS SEVERAL REVENUE OFFSETS: Today, the Senate Finance Committee approved the "Highway Reauthorization and Excise Tax Simplification Act of 2005." The bill contains several revenue offsets including a provision which require corporate CEOs to certify in a tax return, under penalties of perjury, "that the corporation has in place processes and procedures to ensure that the return complies with the Internal Revenue Code and that the CEO was provided reasonable assurance of the accuracy of all material aspects of the return.

  • A description of the offsets can be accessed here

TAX BILLS INTRODUCED APRIL 18:

  • H.R. 1676 sponsored by Rep. Darlene Hooley (D-OR) would provide for the disclosure to State and local law enforcement agencies of the identity of individuals claiming tax benefits through the improper use of Social Security numbers of other individuals.
  • S. 824 sponsored by Sen. Conrad Burns (R-MT) would provide a tax credit to primary health providers who establish practices in health professional shortage areas.
  • S. 832 sponsored by Sen. Jeff Bingaman (D-MN) would provide taxpayer protection and assistance.
  • S. 835 sponsored by Sen. Larry Craig (R-ID) would allow a nonrefundable tax credit for elder care expenses.

INTERNAL REVENUE SERVICE - CIRCULAR 230 DISCLOSURE:
As provided for in Treasury regulations, advice (if any) relating to federal taxes that is contained in this communication (including attachments) is not intended or written to be used, and cannot be used, for the purpose of (1) avoiding penalties under the Internal Revenue Code or (2) promoting, marketing or recommending to another party any plan or arrangement addressed herein.

STEPTOE & JOHNSON LLP - TAX PRACTICE
Steptoe & Johnson LLP has one of the largest and most diverse law firm tax practices in the country. The practice covers the entire spectrum of federal taxation, including representation of businesses before the Congress, Treasury and the national office of the IRS; transactional planning for domestic and multinational corporations; complex audit and controversy work for corporations and other business interests contesting IRS adjustments; litigation before the Tax Court, Court of Federal Claims, district courts, courts of appeals and the Supreme Court. The firm's tax practice also encompasses all aspects of employee benefits (ERISA), executive compensation, tax-exempt organizations and charitable giving.  Steptoe has an extensive state and local tax practice, representing an array of business clients on complex sales and use tax, corporate income tax and property tax matters, both advising those clients and handling audits, administrative appeals, and litigation for them.  Read  more information on Steptoe's tax practice