S Corporations Current Developments  (Part II) — footnotes

⁴⁸See Lutrell, “S Corporation Returns, 2003,” IRS Statistics of Income Bulletin (June 2005), p. 2.

⁴⁹Audit No. 2004-30-030.

⁵⁰Colorado Gas Compression, Inc., 116 TC 1 (2004), rev’d, 366 F3d 863 (10th Cir. 2004); see Burton and Karlinsky, “S Corporations: Current Developments (Part II),” 36 The Tax Adviser 694 (November 2005).

⁵¹TD 9236 (12/20/05).

⁵²TD 9210 (7/11/05).

⁵³Coggin Automotive Corp., 115 TC 349 (2000), rev’d, 292 F3d 1326 (11th Cir. 2002).

⁵⁴Hubert Enterprises, Inc., 125 TC 72 (2005).

⁵⁵Timothy J. Miller, TC Memo 2006-125.

⁵⁶Donald Gilday, TC Memo 1982-242.

⁵⁷Sid Paul Ruckriegel, TC Memo 2006-78.

⁵⁸IRS Letter Ruling (TAM) 200619021 (2/7/06).

⁵⁹Fleming G. Brooks, TC Memo 2005-204.

⁶⁰Under Regs. Sec. 1.1367-2(a), shareholder advances not evidenced by separate written instruments and repayments are referred to as open-account debt and are treated as a single debt.

⁶¹IRS Letter Ruling 200551018 (12/23/05).

⁶²This ruling has generated a lot of commentary in the tax community as to why the transaction did not qualify as an acquisitive D reorganization, which occurs when the acquired corporation transfers its assets to the acquiring corporation in exchange for the latter’s stock or securities. The acquired corporation must distribute to its shareholders, pursuant to the plan of reorganization, stock, securities and any other property received from the acquiring corporation, as well as any of its assets it did not transfer to the acquiring corporation. Also, the acquired corporation’s shareholders must be in “control” of the acquiring corporation immediately after the transaction; according to Sec. 368(a)(2)(H), “control” is defined in Sec. 304(c) (i.e., ownership of stock with at least 50% of the combined voting power or 50% of the total value of all shares). Prior tax law has addressed the situation in which the acquiring corporation does not issue stock. The Service has ruled that the transaction will be treated as a D reorganization, even though no stock of the acquiring corporation is distributed to the selling corporation. Rev. Rul. 70-240, 1970-1 CB 81, states that an actual distribution of the acquiring corporation’s stock to the seller is not required, because it would be a “meaningless gesture.” In Letter Ruling 200551018, note 61 supra, B owned 50% of the target corporation and 90% of the acquiring corporation. The remaining 10% was held by C, who did not hold any interest in the target. The ruling reflects the IRS’s conclusion that this transaction is not a D reorganization, because there is no direct common ownership and no issuance or distribution of the acquiring corporation’s stock.

⁶³IRS Letter Ruling 200603017 (1/20/06).

⁶⁴Burnet v. Logan, 283 US 404 (1931).

⁶⁵Notice 2005-1, IRB 2005-2, 274.

⁶⁶REG-158080-04 (10/4/05); for a discussion, see Singer, “Deferred Compensation for Executives under Sec. 409A,” Part I, 37 The Tax Adviser 402 (July 2006); and Part II, 37 The Tax Adviser 476 (August 2006).

⁶⁷Prop. Regs. Sec. 1.409A-1(f)(2) enhances this rule, by stating that only the service provider need be an accrual-method taxpayer (i.e., the requirement under the notice that the service recipient be an accrual-method taxpayer was dropped).

⁶⁸See Health Insurance Covering S Corporation Shareholders, IRS Headliner, Volume 163 (May 15, 2006); see also Ziegler, Tax Clinic, “Health Insurance for S Corp. Shareholders,” 37 The Tax Adviser 587 (October 2006).

⁶⁹CCA 200524001 (6/17/05).

⁷⁰Rev. Rul. 61-146, 1961-2 CB 25.

⁷¹If the S corporation has BIG tax exposure, two gains would be recognized (if the shareholder had a lower basis in stock than the inside basis of the assets, a second gain would be recognized).

⁷²IRS Letter Ruling 200548021 (12/2/05).

⁷³IRS Letter Ruling 200622025 (6/2/06).

⁷⁴Rev. Rul. 64-250, 1964-2 CB 333.

⁷⁵Rev. Rul. 73-526, 1973-2 CB 404.

⁷⁶IRS Letter Rulings 200622035 (6/2/06) and 200618011 (5/5/06).

⁷⁷IRS Letter Rulings 200604016 (1/27/06) and 200622038 (6/2/06).

⁷⁸IRS Letter Rulings 200614023 (4/7/06) and 200608037 (2/24/06).

⁷⁹IRS Letter Ruling 200611002 (3/17/06).

⁸⁰Id.