Course Hero Logo

Analyzed cases that used fc on financial stakecontrol

Course Hero uses AI to attempt to automatically extract content from documents to surface to you and others so you can study better, e.g., in search results, to enrich docs, and more. This preview shows page 33 - 35 out of 104 pages.

analyzed cases that used f&c on financial stake/control factors to show howinconsistencies resulted from that standard and to avoid these inconsistencies, amechanical test must be applied. All non-creditor interest are prohibitedinterests.NotesTP had huge stakes as creditor and tiny stake as contractor.Revenue Ruling 59-119TP entered into redemption agreement where he would be paid over 8 yrs. All shares tobe held by escrow agent as security for instalment payments due. Upon default, TPwould notice escrow agent who then was authorized to sell shares in public/private sale,but in no event would TP be purchaser. TP entered into 2ndagreement to have his lawyerserve as BOD solely for purpose of protecting TP as creditor and only until corp. stillowed TP.Ruling determined that atty would serve as TP’s agent on the board and didn’tmatter that he was a limited director, this nomination would violate waiverconditionand redemption treated under 301. However, if atty not a director & simply attendedmtgs. solely to determine whether provisions of redemption agreement complied w/thenwill not violate 302(c)(2).Revenue Ruling 77-293TP owned all stock of corp. He wanted son to take over corp. when he retired so hegifted half the stock to son and had corp. redeem the other half. Ruling provides that302(c)(2)(B) does not apply when there is not tax avoidance purpose. Here, purpose ofgift was to give B complete ownership, not tax avoidance.Ruling holds thatdetermination of whether principal purpose is tax avoidance is made by analysis of allfacts and circumstances.iv.Ten yr. Look Forward Rule:IRS holds that 10 yr. look-forward rule violated ifSH becomes custodian under act or voting trustee of corp. stock. However, underRR 72-380, not violated if SH becomes executor of estate and can vote on stockheld by estate.RR 79-334allows appointment by will of SH to serve as trusteeof trust where he can vote on stock previously redeemed and 302(c)(2)(B) notviolated.v.Deferred Payment Redemptions (No Interest Requirement):Under 1.302-4(d) rights of redeemed SH must not be greater than necessary to enforce claim.Violation would occur (aka obligation treated as proprietary) if obligation issubordinatedto claims of general creditors;payments of principaldependoncorp. earnings; or ifinterest rate fluctuates w/corp.’s success. AcquiringPage 33 of 104
prop. other than stock as result of enforcement of rights as creditor is ok underthe regs.a.Dunn v. Comm’r: agreement provided for postponement of payments oncorp. note given in redemption if such payments violated financialrequirements in corp.’s franchise agreement w/GM. Ct. held postponementdid not require reclassification as equity, SH was a creditor.b.Estate of Lennard v. Comm’r:ct. found subordinated note, which was paid3 months after issuance, did not represent a proprietary interest in corp. IRSWill Not Rule: on notes w/payments beyond 15 yrs.

Upload your study docs or become a

Course Hero member to access this document

Upload your study docs or become a

Course Hero member to access this document

End of preview. Want to read all 104 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
Spring
Professor
F.Hill
Tags
TP

Newly uploaded documents

Show More

Newly uploaded documents

Show More

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture