Long-term Capital Gain Research Articles

Taxation. Proceeds from Liquidation of a Collapsible Corporation Held Entitled to Long-Term Capital Gain Treatment Where Liquidation Completed before Effective Date of Section 117(m)

Taxation. Proceeds from Liquidation of a Collapsible Corporation Held Entitled to Long-Term Capital Gain Treatment Where Liquidation Completed before Effective Date of Section 117(m)

Shifting the Burden of Income Taxes by Contract

Income tax consequences are a material aspect of many financial transactions. Such transactions are frequently encouraged or discouraged because of the income tax consequences assumed to flow from them. An owner of land, for example, may be willing to sell at a gain if he feels certain that there will result a long-term capital gain, but may be unwilling to sell at the same price if he feels that the result will be a short-term gain. Yet guaranties of expected income tax consequences are rarely obtainable from the Federal Government. The availability of a closing agreement is severely limited.' The avenue of declaratory relief is closed.2 Where one party to a transaction is uncertain as to the tax consequences, he may endeavor to shift his income tax risk to the other. Whether such a tax-shifting covenant can be arranged depends primarily on the bargaining positions of the parties. Whenever such tax-shifting covenants become a part of the bargain, the practical effect is to substitute the financial ability of the obligor for the uncertain tax risk. Thus, for example, a buyer may induce a recalcitrant seller to sell his land if the buyer is willing to assume the seller's income tax burden. Such tax-shifting covenant may give the parties the impression that one of them, the seller, has concluded a transaction wherein he is tax-free. But a look beneath the surface will show that many a problem lurks below.