Tax Factors NEW TAX LEGISLATION PROPOSALS By JEROME KURTZ Member of the Pennsylvania Bar One looking at Sections 411 and 412 of the Tax Reform Bill of 1969, I believe; would be hard pressed to understand why, out, of all the problems that have been described in the reorganization area, the particular problems dealt with in those two sections were selected. I think that requires some historical background and an appreciation of the way legislative activity often works. The roles of the government and taxpayers in the legislative area resemble, in many ways; those of players in a giant chess game in which each player responds to the other's moves in an attempt to "win" the game. The recent legislation 'dealing with conglomerate mergers is an example of this analogy-and also of another-that frequently a planned defense must be abandoned when the expected offensive moves do not <cur. The orientation of the House Bill dealing with mergers could not have been predicted because the developments in the acquisition area were unexpected. For many years there has been an undercurrent of dissatisfaction or, A least, skepticism about the operation of the reorganization provi- ! ons of the Code. This criticism was usually expressed by those who kit the tax law encouraged economic concentration through the tax le reorganization provisions. The reorganization provisions in their present form represent an evolution from very early rules, the underlying philosophy of which was that when a shareholder exchanges one ece of paper for another piece of paper, both representing an interest in a corporation, albeit somewhat altered in form, it was an inapproprite time to impose a tax. As time passed it became clear that the reor anitation provisions applied equal treatment to a wide range of transtions which were very dissimilar. One can well argue that when an individual shareholder of a major poration exchanges his stock in that corporation which has merged ith another, his position is changed very little. lle held stock in X before and now he holds stock in XY.. Both are TAX-FREE TRANSACTIONS assets simply moves with them to the new corporation; and of cours this fact, that there is no adjustment to basis, is the basic disadvantag of a non-taxable acquisition to an acquiring corporation, where it pa a premium in terms of the value of the stock it issues as consideration for the assets. The other tax attributes of the acquired corporation, get crally speaking, pass to the acquiring corporation-its accumulate carnings, the accounting treatment of various items, certain carry-oven and the like. However, net operating loss carry-overs may be reduce if the shareholders of the loss corporation acquire too few shares, i terms of percentages, of the acquiring corporation. For each percentag point they own in the surviving corporation less than twenty percen the carry-overs are reduced by five percent. This has been a very fast run-through of the basic rules and cons quences of non-taxable acquisitions. During the discussion period ¦ hope we can go a little more into the details of some of these matten and also compare with Bill DeWind a few of the relative advantage and disadvantages of non-taxable transactions and taxable transaction of the type he discussed earlier. Twentieth TAX INSTITUTE. University of "Save their California, Tax Planning in Connection With Corporate Reorganizations; Partnerships; Reacquisition of Real and Personal Property; Patents; Accounting Methods and Changes; Life Insurance and Estate Planning : Tax Incentives: Their Use and Misuse JEROME KURTZ Discussion of trends in tax policy during the last five or six Federal Tax Support of Charities and Other Exempt Organizations: The Need for a National Policy LAWRENCE M. STONE Unrelated business income advertising and trade shows; Federal Tax Information Freedom of Information Act and the Internal FRANK S. SCHMIDT Analysis of Public Law 89-487 and its application to the MICHAEL J. CONNELL Discussion of the corporate and tax problems in corporate XV 27 79 97 |