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Corporate Taxation

     Corporate Taxation is complicated and cumbersome, whether it is reporting income on consolidated returns or changing the corporate structure through mergers or acquisitions.

• Consolidated returns: if several corporations are linked together either vertically or horizontally, it is possible to use losses from one entity to offset income of another entity. This gives rise to some interesting possibilities; for example, an income-rich corporation may decide to go shopping for a losses-laden corporation to reduce its tax liability (the rules say that you can only take losses within a certain number of years). This is a typical transaction where a professional should be consulted. There are many rules and exceptions, some leading to confusion and pit-falls.

• Mergers & Acquisitions: the IRC has several M&A structures it will recognize. They are titled A through F, with some mutations. The most popular are A, B and C. Depending on what happens, it is best to adhere to the IRC’s formula. If the transacting corporation exceeds the margins of the formula, it may be denied carry-over basis (i.e. a disposition), triggering taxation of accrued value. Some of the most famous M&As such as that of Time and Warner generated millions of dollars in legal fees for tax professionals; if the big players take it seriously, there is a very good reason for it.