Prepare tax memo , Business Law and Ethics

Patriot, Inc (a C corporation) filed for Chapter 11 bankruptcy protection during August, 2011 and has worked out a re-organization plan that was accepted by the Bankruptcy Court and the creditors' committee.  Under the plan, the note holder (which is a venture capital firm that financed the business) with a notes payable of $125,000,000 will receive new common stock; the old common stock will be cancelled.   The new Patriot, Inc will emerge from bankruptcy on November 30, 2011. 

Ed Harris will continue as the CEO and will own 2% of the stock resulting from a conversion of liabilities the corporation owed him.  He is concerned about the tax implications of debt forgiveness.  The corporation has the following tax attributes and selected tax basis as follows:

2172_bankruptcy.png

He has heard that debt forgiveness results in taxable income which is called cancellation of debt income which, while not immediately recognized for tax purposes, reduces tax attributes.  He believes the new corporation will be profitable with the burden of the debt repayment removed.  His preference would be to preserve the tax carryovers to offset future taxable income. 

He is also concerned about Section 382 which he heard about from a colleague at his country club.  He is not sure how this will impact the future NOL utilization.

He has asked for your advice as to the best way from a tax perspective to treat the cancellation of debt to preserve the NOL carryovers and to describe how Section 382 will operate to limit the use of the NOLs.  He anticipates the new corporation making an acquisition within six months which will increase revenue 15% and profits by 12%.   Since this acquisition is planned, he wants your memo to cover electing out of IRC Code Section 382 (l) (5), which he has heard can be beneficial to the future utilization of NOLs.

Prepare a tax memo on these issues (no more than four pages), to the tax partner on this engagement, Robert Holder.  You need to read Sections 382 and 108 and the related regulations to develop your solution.  You must show how you plan to reduce the tax attributes resulting from the cancellation of debt income (see the ordering rules and elections that may be made).  In addition to searching the primary tax sources, you should search the web as many accounting and law firms have written articles about this topic.  You should also consult IRS form 982 and the instructions.  You should discuss the Code, Regulations, Court Cases, Rulings, etc., that will support your strategy to advise and assist Mr. Harris accomplish his goals, if possible. 

Posted Date: 3/16/2013 6:09:12 AM | Location : United States







Related Discussions:- Prepare tax memo , Assignment Help, Ask Question on Prepare tax memo , Get Answer, Expert's Help, Prepare tax memo Discussions

Write discussion on Prepare tax memo
Your posts are moderated
Related Questions
Q. Evaluate nature of phoenix activity? The literature on phoenix activity and the stakeholders consulted in this project emphasised that phoenix activity has evolved significa


Equitable Lien General examples are for the lien of an unpaid seller about land who that has moved out of possession to unpaid purchase money and such the right of partners on

Explain the Universal Declaration of Human Rights 1948 The Universal Declaration of Human Rights 1948 (UDHR) is the nucleus of all Human Rights legal instruments from which oth

The International Court of Justice The International Court of Justice (ICJ) issued a legal opinion on the legality of nuclear weapons, which says that the threat or use of forc

Articles of Partnership - Authority of Partners The relations of partners to one other are governed through the Articles of Partnership.  Like third parties are not allowed fo

QUESTION 1 (a) What are the various alternatives that exist to settle a dispute besides going to court (b) What are their respective advantages and disadvantages QUESTIO

Determine the central feature of politics Indeed this manipulation is a central feature of politics: "Problem definition is the active manipulation of images of conditions by c

Holder or Other Holder in Due Course The holder of a bill of exchange who that does not come within the statutory definition of such a holder in due course holds that the bill

Question 1: (A) What do you understand by Collective Bargaining? (B) What is collective bargaining from: (I) The economic point of view