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Full-Text Articles in Tax Law
Repairing Inside Basis Adjustments, Karen C. Burke
Repairing Inside Basis Adjustments, Karen C. Burke
Karen Burke
Optional basis adjustments under Subchapter K have come under increased scrutiny as a result of tax shelter abuses involving partnerships. Recent legislation requires mandatory adjustments under sections 734(b) and 743(b) upon certain distributions of partnership property and transfers of partnership interests. These amendments were targeted at situations in which the failure to make such adjustments potentially gave rise to duplication of losses. While preventing loss duplication may be particularly urgent, these anti-tax-shelter measures represent a retreat from broader proposals calling for mandatory section 734(b) adjustments for both current and liquidating distributions. In a recent article, Professor Abrams criticizes the common …
Contributions, Distributions, And Assumption Of Liabilities: Confronting Economic Reality, Karen C. Burke
Contributions, Distributions, And Assumption Of Liabilities: Confronting Economic Reality, Karen C. Burke
Karen Burke
To combat a relatively arcane international tax-shelter abuse, Congress recently amended Code sections 357 and 362 governing contributions of encumbered property to a corporation. This Article offers a critical assessment of the recent amendments to the liability assumption rules of section 357 and corresponding basis provisions of section 362. Part I explores the divergence between the former liability assumption rules and the "economic benefit" doctrine of the section 1001 regulations. Part II focuses on the technical definition of assumption of recourse and nonrecourse liabilities under amended section 357(d). Part III examines the corollary basis provisions of section 362, as modified …
Exculpatory Liabilities And Partnership Nonrecourse Allocations, Karen C. Burke
Exculpatory Liabilities And Partnership Nonrecourse Allocations, Karen C. Burke
Karen Burke
The rise of limited liability companies (LLCs) classified as partnerships for federal income tax purposes challenges traditional assumptions concerning the treatment of recourse and nonrecourse liabilities under Subchapter K. The complex rules of sections 704(b) and 752 give little attention to liabilities that are recourse to the entity under section 1001 but for which no member bears the economic risk of loss under section 752. In comparison to traditional general or limited partnerships, however, LLCs are much more likely to incur such "exculpatory" liabilities because of the limited liability shield under state law. Although exculpatory liabilities are functionally quite similar …
The Sound And Fury Of Carried Interest Reform, Karen C. Burke
The Sound And Fury Of Carried Interest Reform, Karen C. Burke
Karen Burke
Of all the proposals advanced in recent years to reform Subchapter K, the part of the Internal Revenue Code governing partnership tax, perhaps none has generated more acrimony and confusion than the pending carried interest legislation contained in proposed § 710. While reformers have framed the issue of taxing the compensatory portion of a service partner's return as ordinary income in terms of distributive justice, critics have been quick to invoke the rhetoric of class warfare to fend off reform. In the most elementary terms, the carried interest legislation would tax some (but not all) of a service partner's share …
Lipstick, Light Beer, And Backloaded Savings Accounts, Karen C. Burke, Grayson M.P. Mccouch
Lipstick, Light Beer, And Backloaded Savings Accounts, Karen C. Burke, Grayson M.P. Mccouch
Karen Burke
The article addresses current proposals for expanding tax-preferred individual savings accounts and their implications for retirement security and tax policy. The authors argue that the yield-exempt approach embraced by the Bush Administration in its proposals is likely to generate enormous long-term revenue losses, exacerbate inequalities in income and wealth, and erode broad-based coverage under employer-sponsored retirement plans. In addition to these fiscal and distributional concerns, they conclude that the proposals pose a serious obstacle to fundamental tax reform.
Taxing Hot Asset Shifts, Karen C. Burke
Taxing Hot Asset Shifts, Karen C. Burke
Karen Burke
The Article comments on I.R.S. Notice 2006-14 which proposes to simplify and rationalize the collapsible partnership rules of section 751(b). It concludes that the proposed hot asset sale approach represents much needed improvement of section 751(b) but suggests that the Treasury should also consider more fundamental reform that would treat a nonprorata current distribution as a partial liquidation. The Article also explores the relationship between sections 734(b) and 751(b), focusing on the 1954 ALI proposals and Professor Andrews' more recent proposals concerning hot asset distributions and mandatory basis adjustments. The Article is an outgrowth of the author's work as a …
The Moving Target Of Tax Reform, Karen C. Burke, Grayson M.P. Mccouch
The Moving Target Of Tax Reform, Karen C. Burke, Grayson M.P. Mccouch
Karen Burke
In 2000, Professor William Turnier proposed a package of three reforms to make the estate tax more “equitable” and “taxpayerfriendly.” All of his proposals—allowing a surviving spouse to inherit a deceased spouse’s unused exemption, replacing the state death tax credit with a deduction, and indexing the exemption for inflation—were eventually enacted. Today, the estate tax remains on the books, but changes in rates and exemptions have severely curtailed its role in the larger federal tax system. Income tax rate reductions for capital gains and dividends have further lightened the tax burden on capital income, and international pressure to reduce the …
Family Limited Partnerships: Discounts, Options, And Disappearing Value, Karen C. Burke, Grayson M.P. Mccouch
Family Limited Partnerships: Discounts, Options, And Disappearing Value, Karen C. Burke, Grayson M.P. Mccouch
Karen Burke
Family partnerships have been become increasingly popular as a means of avoiding estate and gift taxes. As other estate freezing techniques have been closed off by statutory anti-abuse rules, estate planners have increasingly resorted to partnerships as a vehicle for transferring assets within a family at deeply discounted values. Discounts ranging from one-third to over one-half of the value of the underlying assets are routinely claimed, and often allowed, based on lack of marketability and lack of control, even where these disabilities have no lasting or ascertainable economic effect. Nevertheless, the use of family partnerships to suppress value for transfer …
Cobra Strikes Back: Anatomy Of A Tax Shelter, Karen C. Burke, Grayson M.P. Mccouch
Cobra Strikes Back: Anatomy Of A Tax Shelter, Karen C. Burke, Grayson M.P. Mccouch
Karen Burke
Paul Daugerdas gained notoriety for himself and his erstwhile firm, Jenkens & Gilchrist, as the designer of a tax shelter that uses contingent liabilities to generate artificial tax losses on a grand scale. The basic shelter transaction is surprisingly simple. In essence, it uses offsetting options to inflate the basis of property that is distributed by a partnership and then contributed to and sold by another partnership, resulting in a large tax loss without any corresponding economic loss. In principle, this type of shelter could be replicated indefinitely and generate unlimited tax losses. Mr. Daugerdas is by no means unique. …