Tax Management Portfolio, Corporate Liquidations, No. 784-3rd, analyses the tax considerations in connection with the liquidation of a corporation.
784-3rd, analyses the tax considerations in connection with the liquidation of a corporation. Evolution of the Tax Treatment of Corporate Liquidations B.
The principal focus of the Portfolio is on liquidations after the repeal of the General Utilities doctrine by the Tax Reform Act of 1986. Bar Taxation Section (Section Chair; Member and Former Chair of the Corporate Tax Committee); American Bar Association Tax Section (Vice Chair, Professional Services Committee; Member, Corporate Tax Committee; Member, Government Relations Committee); frequent speaker and author of various tax articles. Legislative History of the Repeal of the General Utilities Doctrine 1.
Addressing liquidations of subsidiaries under §332 (where the parent corporation owns at least 80% of the stock of the subsidiary) as well as liquidations of corporations that do not qualify under §332, the Portfolio considers the tax consequences to both the liquidating corporation and its shareholders. D., The Ohio State University Moritz College of Law; LL. Taxation, Georgetown University Law Center; Former Law Clerk to Hon.
This paper contributes to the debate on alternative corporate tax schemes, employing a rigorous real option methodology which has never been used to study both liquidation policy and taxation.
Different tax systems are considered, according to whether the tax regime is progressive or flat and losses are deductible or not.
The critical liquidation threshold is derived as a function of interest expenses, the firm's driving parameters and the tax rates and taxation brackets.
It is shown that only the adoption of a flat tax plan does not interfere with the firm's liquidation policy, while any progressive tax schedule can slow down or speed up the closure policy.
This paper has been presented at the 6th Annual Meeting of the EEFS, Sofia, 2007.
The authors would like to thank Tapan Biswas, Debora Di Gioacchino, Rumen Gechev, Laura Sabani and all other participants for their valuable comments.
The authors are particularly indebted to two anonymous referees for their invaluable remarks.
Financial support from Polo Scientifico Didattico in Rimini is gratefully acknowledged.