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Abstract:
Backdating is a much misunderstood and largely unexplored subject. It involves a wide range of conduct, some of which is an integral part of everyday law practice. To the layperson, backdating connotes wrongdoing. The propriety of backdating, however, depends upon its purpose and effect. Every lawyer should be capable of distinguishing legitimate backdating from improper backdating. Unfortunately, the dividing line is often far from clear.

Little guidance exists on backdating, notwithstanding its pervasiveness, the complexity of determining its propriety, and the serious consequences of a misjudgment. An in-depth examination of the day-to-day backdating issues that most business lawyers face cannot be found in the literature. This Article begins to fill that void.

This Article explains the different meanings of backdating, explores the reasons why it is difficult to distinguish legitimate backdating from improper backdating, examines the impact of disclosure on the propriety of backdating, and develops an analytical approach to assist business lawyers in wrestling with the difficult situations most will confront in their daily practices. By illuminating the subject, it is hoped that this Article will begin a much needed dialogue about backdating.

backdating, business law, tax law, corporate law, ethics

Abstract:
In a merger, neither the assets nor the stock of one corporation are physically transferred to another corporation. Rather, the two corporations are unified by operation of law. The absence of a physical transfer of assets or stock obscures the tax effects of a merger. To determine these effects, a merger must be analogized to a sale of assets or a sale of stock. These alternative analogies yield significantly different results when the consideration for the merger is cash. When a cash merger is analogized to an asset sale, a 35% corporate tax is normally imposed. By contrast, no corporate tax normally results when a cash merger is analogized to a stock sale. Mergers have long been taxed like asset sales. Although analogizing cash mergers to asset sales was once defensible, changes in the law have eroded all support for this treatment. More significantly, well-counseled taxpayers can easily avoid the corporate tax resulting from the asset sale analogy. Thus, the continued treatment of cash mergers as asset sales merely traps the unwary. If a cash merger were instead analogized to a stock sale, the same tax consequences would apply to all. To level the playing field, therefore, the asset sale analogy should be abandoned and mergers should be taxed like stock sales.

merger, asset sale, stock sale, corporate acquisition, corporate tax, corporate law

Abstract:
Recent commentators have criticized the double taxation of distributed corporate income both as an inequitable tax that imposes greater tax burdens on individual shareholders than other taxpayers and as an inefficient tax that distorts the economic decisions of taxpayers. These scholars have called for integration, the elimination of a corporate tax on distributed income. Yet, integration certainly would mean loss of tax revenues and would require Congress to maintain tax revenues by alternative means. This Article asserts that proponents of integration largely have failed to consider this revenue need constraint. The Article questions the prudence of eliminating the double taxation of distributed corporate income because it may jeopardize recent tax reforms aimed at improving the efficiency and equity of the tax system.

integration, double taxation, corporate tax reform

Abstract:
The open-transaction doctrine stems from Burnett v. Logan, one of the most famous Supreme Court cases in the history of the tax law. For more than seven decades, this doctrine has wreaked havoc with the tax treatment of the seller and the buyer of a business whose purchase price is contingent on future profits. Contingent payment sales typically occur when the parties cannot agree on the value of the business. This Article argues that the open-transaction doctrine cannot be justified and that it is time for Congress to put the doctrine to rest. The Article advances a new system for taxing contingent payment sales. The courts have historically treated the seller's right to contingent payments as consideration provided by the buyer of the business. This Article argues that the seller's right to contingent payments should instead be conceptualized as a proprietary interest retained by the seller. This retained-interest theory provides a sound foundation for taxing contingent payment sales and fills a void that has always existed with respect to these common business transactions.

contingent payment, installment sales, open transaction doctrine, closed transaction, deferred payment sale, sale of a business

Abstract:
Although the attractive tax and control features of qualified college savings plans have received much attention, surprisingly little light has been shed on whether the contributor's creditors can invade these plans. This article explores the risks to which college savings plans are exposed and surveys the level of protection offered by each state.

college savings, qualified college savings plans, section 529 plans

Abstract:
This article develops a system for subjecting the income of all private enterprises to a single layer of tax. This new system distinguishes simple private enterprises from complex private enterprises, rather than discriminating among different state law forms. The article proposes that Subchapter K should cease to accommodate complex economic arrangements. If these arrangements were denied access to Subchapter K, many intricate rules designed to impede tax avoidance efforts could be eliminated. The resulting simplified version of Subchapter K could be melded with Subchapter S and thereby dramatically simplify the taxation of all non-publicly traded enterprises. The new owner-level tax regime would apply to all simple private enterprises regardless of legal form. As to complex private enterprises, the tax law should refrain from engaging in the contortions required to sustain a system that refrains from taxing the enterprise. Instead, a tax should be imposed on the business entity when income is earned. No additional tax should be imposed on the owners when distributions occur. The new entity-level tax should apply to all complex private enterprises regardless of legal form.

Subchapter K, Subchapter S, non-publicly traded, private enterprise, closely held businesses, closely held corporations

Abstract:
In King Enterprises, 189 Ct. Cl. 466 (1969), King Enterprises, Inc. and the other shareholders of Tenco, Inc. transferred all the stock of Tenco to Minute Maid Corporation in exchange for cash, promissory notes and Minute Maid stock. In form, a taxable stock sale had occurred. Seven months later, Tenco was merged upstream into Minute Maid. When Minute Maid acquired the Tenco stock, King Enterprises could not have known that this later merger would occur. Nevertheless, at King Enterprises' behest, the United States Court of Claims applied the step-transaction doctrine and treated King Enterprises as participating in a merger that qualified as a corporate reorganization, rather than a taxable stock sale. Thus, an action by the buyer (the merger of Tenco into Minute Maid) of which the seller (King Enterprises) was unaware when it sold its Tenco shares dramatically reduced the seller's tax liability.

The King Enterprises decision is untenable. It is patently wrong to permit a buyer's post-acquisition action to affect the seller's tax consequences when, at the time of the sale, the seller could not have known that the buyer would take the specific action that changed the seller's tax consequences. The case stands as a dangerous and unpredictable precedent for both taxpayers and the government. Until recently, King Enterprises has remained dormant, never followed and rarely cited in more than three decades. In 2001, however, the Internal Revenue Service resurrected the case in two significant public pronouncements (Rev. Ruls. 2001-26 and 2001-46). The stage is now set for the case to wreak future havoc.

It is our thesis that the tax consequences to one party to a transaction should not be changed by a subsequent unilateral act of another party when the first party neither knew, nor should have known, that the later act would occur. Part II examines the King Enterprises decision and reveals the lack of a connection between King Enterprises and the upstream merger of Tenco into Minute Maid. Part III critiques the case and demonstrates that it represents an unfortunate aberration in step-transaction doctrine jurisprudence. Part IV identifies how this dangerous precedent might victimize innocent taxpayers and whipsaw the government. Part V explores the body of law supporting the recent Internal Revenue Service rulings that potentially revitalize the case and demonstrates that King Enterprises is not a necessary foundation for these rulings. Finally, Part VI delineates the steps that should be taken to dethrone King Enterprises.

step transaction doctrine, reorganization, whipsaw, substance over form

Abstract:
In approaching the topic of justice, it is natural for us, as lawyers, to contemplate how we can further this goal by the actions we take in our professional lives. At first blush, our personal lives may seem incidental, or even irrelevant, to this subject. This essay suggests an alternative view; namely, that living by a philosophy of respect for others will inevitably influence how we conduct ourselves in our professional lives. In effect, a lawyer's personal philosophy can reinforce the effort to practice honorably and inspire the individual to treat people fairly and respectfully in the course of one's profession. Hence, each lawyer's personal philosophy can potentially contribute to the furtherance of a just society.

Legal Ethics, Public Service

Abstract:
This Article explores the circumstances in which tax deferral is beneficial, and derives some basic rules that refine the prevailing view that deferring taxes saves money. It demonstrates that Roth IRAs are often more attractive than traditional tax-deferred retirement plans but for a reason that generally is not emphasized. Specifically, when the tax on monies contributed to a Roth IRA is paid out of funds invested outside the plan, the benefit derived from the tax-free accumulation often will exceed the tax on the contribution. Moreover, the benefit of the Roth IRA is magnified when contributions are invested in high growth vehicles.

Roth IRA, tax deferral, retirement plans, IRA, time value of money

Abstract:
This Article begins by tracing the evolution of the accumulated earnings tax and the personal holding company tax from their origins to the mid-1980s. The Article then demonstrates the limited extent to which these corporate penalty taxes serve their historical purpose of preventing taxpayers from enjoying significant tax savings through the use of the corporate form. Finally, the Article addresses whether the accumulated earnings tax and the personal holding company tax are appropriate and efficient mechanisms for inducing corporations to distribute their earnings when individual tax rates do not greatly exceed corporate tax rates.

accumulated earnings tax, personal holding company, double taxation, corporate penalty taxes

Abstract:
An owner of property can divide ownership spacially, by selling all rights to a phyically discrete part of the property, or temporally, by selling a present interest or a future interest. This Article develops a Model illustrating inconsistencies under existing law between the economic and income tax consequences of a temporal division. It also explores the tendency of courts to equate, erroneously, a temporal division to a spacial division. When a temporal division is equated to a spacial division, income deferral will result from a temporal division. The Article develops an analytical framework to remedy the income deferral problem and to resolve, in a manner consistent with economic reality, the many other income tax issues raised by a temporal division. Finally, the Article demonstrates how the foregoing framework can be adapted to deal with the special problems raised when wasting property is the subject of a temporal division.

present interest, future interest, remainder interest, joint purchase, temporal division