Florida Tax Attorney Blog

Topic: 17-year-old Destiny Coulson shot her 21-year-old boyfriend point blank in the face. A Michigan court has ruled that she will be tried as adult based upon the seriousness of the crime and past behavioral problems in school. The defendant is looking at second-degree murder charges, and the big question is whether this defendant was legally insane at the time of the shooting. In this clip, Brianne comments on the importance of distinguishing between medical insanity and legal insanity.

17-year-old Destiny Coulson shoots her 21-year-old boyfriend point blank in the face. A Michigan court ruled this week that she will be tried as adult. The defendant is looking at second-degree murder charges, and the big question is whether this defendant was legally insane at the time of the shooting.

I'll chime in with Nancy Grace tonight at 8 PM on HLN. Be sure to tune in!

The United States tax system is a worldwide tax system. That is, the income of a U.S. person is taxed regardless of where the income is derived. The U.S. Supreme Court has justified this worldwide approach to taxation on the ground that U.S. citizens derive certain benefits and protections as a result of their U.S. citizenship no matter where they are in the world. Taxation is the quid pro quo for receipt of these benefits. See Cook v. Tait. In other words, U.S. citizens should pay for the benefits they receive as a result of their U.S. citizenship. However, the U.S. tax system does allow an offset against U.S. tax liability to the extent that foreign taxes are paid on foreign source income.

Are You Entitled to a Foreign Tax Credit?

There are five subcomponents of this seemingly simple question.

(1) Proof issues: How does one prove that foreign taxes have been paid? This question is by the income tax regulations.

(2) Foreign taxes must be "paid": What constitutes payment for purposes of qualifying for the foreign tax credit?

(3) Money paid to foreign government must be a "tax": Not all payments to foreign governments are considered income taxes within the meaning of U.S. tax law. In order to be eligible for a foreign tax credit, the amount paid to the foreign government must be considered a "tax" when viewed under U.S. tax law.

(4) Tax must be paid on foreign source income: Assuming the taxpayer is able to prove that a sum was, in fact, paid to a foreign government and that the amount paid was a "tax" as U.S. tax law defines that term, there may still be sourcing issues. In order to qualify for a foreign tax credit, the tax paid must be paid on foreign source income. Determining whether income is foreign source income or not is not always as straightforward an analysis as one would think. For instance, U.S. tax law may recharacterize income generated abroad as U.S. source income under certain circumstances.

(5) Foreign source income must be generated in year that credit is claimed: The credit is only available to the extent that a taxpayer generates foreign source income in the year in which the credit is claimed. This limitation on the foreign tax credit is usually implicated in situations where a portion of the foreign tax credit must be carried forward to subsequent tax years. Despite the existence of a carryover credit, it is necessary to ensure that there has been foreign source income in a subsequent tax year prior to claiming a foreign tax credit.

As a final note, I would emphasize once again that the U.S. tax system is a system of worldwide taxation. This means that U.S. citizens have U.S. tax filing obligations even if they are living and working abroad. It may be that no U.S. tax is owed after application of the foreign tax credit and other Internal Revenue Code provisions, but the statute of limitations does not start running if a taxpayer does not file a tax return. This means that the taxpayer remains exposed to audit potential for an indefinite period of time. With that being said, U.S. citizens who are residing abroad should consult with a U.S. tax professional regarding their filing obligations and potential tax liabilities.

New tangible asset regulations were issued December 23, 2011 and are effective for tax years beginning in 2012. These regulations set forth the methodology for determining whether costs associated with tangible assets should be capitalized or deducted. In this respect, the regulations deal with four topics:

• Material and Supplies;

• Acquisition of Tangible Property;

• Improvements to Tangible Property; and

• Dispositions of Tangible Property

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Companies with tangible assets of $10 million or more will be impacted most significantly. However, all companies with tangible property would be well-advised to review current capitalization policies to determine what steps must be taken to ensure compliance with the new regulations.

The new tangible asset regulations are complex and difficult to navigate, but I can help. If you need help determining whether your company is compliant, contact me today.

Although a tax year may be closed for purposes of assessing a deficiency, it is not closed for purposes of ensuring accurate carryforwards to an open tax year. In this spirit, the IRS has frequently used facts from closed tax years to determine the amount of basis or net operating loss ("NOL") carryforward available for open tax years.

In Rev. Rul. 77-225, the IRS held that expiration of the limitations period for the tax year in which an improper charitable contribution deduction was claimed did not preclude disallowance of deduction carryforwards in open tax years. The IRS reasoned that the retroactive disallowance of the deduction claimed in a closed tax year was permissible insofar as the disallowance was for the sole purpose of determining the correct amount of NOL carryforward.

In FSA 200230030, the IRS held that the correct determinations of basis and pass through of loss from closed tax years must be used for purposes of determining the taxpayer's basis in an s-corporation with respect to open tax years. Similarly, in TAM 200619021, the IRS held that the correct basis adjustments for gain and loss in closed tax years must be used for purposes of determining a taxpayer's correct stock basis for open tax years.

Courts have also used facts from closed tax years to compute the correct amount of NOL carryforward available for an open tax year. See e.g., Mennuto v. Commissioner, 56 T.C. 910 (1971) (holding that recalculation of NOL carryover from barred year is permissible for purposes of determining deficiency in open year); Calumet Industries, Inc. v. Commissioner, 95 T.C. 257 (1990) (holding that correct amount of taxable income or NOL for closed tax year may be determined as a preliminary step in determining correct amount of NOL carryover to open tax year); Hill v. Commissioner, 95 T.C. 437 (1990) (allowing IRS to recompute carryover from closed tax year where such computation was necessary to determine correct tax liability for an open tax year); Leitgen v. Commissioner, 82-2 U.S.T.C. (8th Cir. 1982), aff'g T.C. Memo. 1981-525 (1981) (considering substantiation of NOL in closed tax year to determine whether loss was available to be carried forward to open tax years).

Taken together, these rulings and cases collectively stand for the proposition that while the statute of limitations may have run on the originating tax year, the proper calculation of the carryover from that year is "open" to the extent that it is being used to determine tax liability or taxable income for an open tax year. Indeed, the Board of Tax Appeals held as early as 1932 that the IRS had a duty to consider items in a closed tax year in determining proper NOL carryforward to an open tax year. See Lord Forres, 25 BTA 154 (1932).

Note that all of the foregoing authorities involve cases of the IRS making adjustments to closed tax years for purposes of reducing excessive carryforwards. This raises the question: can the taxpayer use the same theory to increase (or, in some cases, create) a favorable carryforward? According to the rulings and cases, the answer is yes. See e.g., Springfield Street Railway Co. v. U.S., 312 F.2d 754 (Ct. Cl. 1963) (holding that taxpayer can amend closed year to increase carryover from closed year); Rev. Rul. 65-96 (holding that IRS will follow reasoning of Springfield Street Railway Co.); PLR 9504032 (holding that taxpayer is not barred by statute of limitations from redetermining NOL carryforwards from closed tax year).

This treatment is further supported by I.R.C. § 6214(b) which states that, "[t]he Tax Court in redetermining a deficiency of income tax for any taxable year . . . shall consider such facts with relation to the taxes for other years . . . as may be necessary [to] correctly redetermine the amount of such deficiency." Significantly, the language of the statute is mandatory rather than permissive. The statute does not simply grant the Tax Court discretion to consider closed tax years. Rather, the statute mandates that the Tax Court consider closed tax years to ensure accurate measurement of taxable income in open tax years. Similarly, the Board of Tax Appeals described the IRS has having a duty, not an option, to consider items from closed tax years. These mandates reflect the desirable tax policy of having tax attributes mirror economic reality to the greatest extent possible.

Takeaway: Given the affirmative duty of the Tax Court and the IRS to consider items from closed tax years to the extent that they may impact open tax years, the IRS revenue agent who is conducting an audit should be required to consider closed tax years in order to accurately reflect income in open tax years. This means that an incorrectly reported item from a closed tax year must be corrected for purposes of determining the correct tax liability in an open tax year. This concept can be invoked by the IRS against the taxpayer or by the taxpayer against the IRS.

The Emily Vernon Foundation for Homeless and Abused Animals whose property tax exemption is under challenge by the Palm Beach County property appraiser paid its entire tax bill this week.

Jennifer Sorentrue of the Palm Beach Post summarizes the procedural history of this case well in her May 9 and May 16 articles. The non-profit animal rescue group owns a 5,900-square-foot luxury home, stables and kennels on 7.3 acres in Wellington. The group applied for a charitable property tax exemption last year, but the Palm Beach County property appraiser denied the request on the ground that the house was being used as a residence for the foundation trustee's family

The rescue group appealed the property appraiser's decision to the Palm Beach County Value Adjustment Board, which oversees property tax exemptions. The special magistrate assigned to the case ruled in favor of the animal rescue group, ultimately agreeing that the vast majority of the estate qualified under the charitable exemption requirements. The Value Adjustment Board unanimously approved the magistrate's decision at its April 17 meeting.

The Palm Beach County property appraiser, Gary Nikolits, subsequently filed suit against the Value Adjustment Board alleging that the Board exceeded its authority when it granted the exemption. According to Nikolits, the Board did not have authority to approve the magistrate's decision because Florida law requires a property owner to make a "good faith" payment during the pendency of a petition challenging a property tax assessment, and the animal rescue group had not paid its property tax bill. This is what prompted payment of the tax bill.

The animal rescue group plans to seek a refund if the Value Adjustment Board's decision is upheld in court. Approximately $86,000 (plus penalties and interest) is at stake. That's $86,000 that could be better spent on rescuing and caring for abused and abandoned animals.

In my opinion, the property appraiser's initial denial of the exemption and subsequent challenge illustrates a blatant and impermissible entanglement of government and religion. Here's why: the property appraiser's primary reason for denying the exemption is that the house is also being used as a residence by the foundation's principals. Yet, home-based churches and clergy housing receive property tax exemptions on religious grounds throughout Palm Beach County.

Let me be clear: I'm not saying that these religious exemptions should be denied. I recognize the importance of religion in society and believe that its presence should be facilitated and accommodated. Significantly, however, "[t]he First Amendment has erected a wall between church and state . . . and [t]hat wall must be kept high and impregnable." Everson v. Board of Education, 330 U.S. 1 (1947). This means that the government must be neutral with respect to religion. This means that government may neither favor nor burden religion. Palm Beach County's allowance of property tax exemptions for home-based religious organizations and denial of charitable property tax exemptions for this home-based animal rescue group effects a symbolic endorsement and preference for religious charities over non-religious charities. Government cannot constitutionally convey a message that religion is preferred over non-religion. County of Allegheny v. ACLU, 492 U.S. 573 (1989).

The Treasury Regulations tell us when to value stock issued in a reorganization for purposes of evaluating continuity. Curiously, however, these same regulations are silent as to how to value such stock.

With respect to the valuation date, stock will be valued at the agreement date if: (1) there is a binding merger agreement; and (2) the number of shares to be issued and the non-stock consideration are fixed. Otherwise, stock must be valued at the date on which the transaction closes. But once the valuation date is determined to be either the signing date or the closing date, how do you value the stock? On a typical trading day, a stock will trade within a range of prices, so which price is the relevant price for valuation purposes? The high? The low? The closing price? The weighted average? Curiously, the regulations provide not guidance on this subject.

The most conservative approach would be to use the lowest trading value for the relevant valuation date. So long as continuity requirements are satisfied based on the lowest trading value, you can rest assured that the requisite continuity of interest exists. However, the correct answer is probably less conservative. In the estate tax context, publicly traded securities are valued on the basis of the mean between the highest and lowest quoted selling prices on the valuation date. See Treas. Reg. § 20.2031-2(b). With that being said, there appears to be no reason in law or logic to believe that the same principles would not apply to stock valuation in the reorganization context.

If you need assistance in properly structuring a business reorganization under Section 368 of the Internal Revenue Code, please contact me.

Teresa Mayes, wife of the late Adam Mayes, has admitted to authorities that she was present for the gruesome killings of thirty-one-year-old Jo Ann Bain and fourteen-year-old Adrienne Bain. In addition, she has admitted to assisting with the removal of the two bodies and the transportation of the two kidnapped girls across state lines. She has been charged with two counts of first-degree murder and two-counts of aggravated kidnapping for her admitted role in these crimes.

Despite the egregious nature of these crimes, Teresa Mayes likely has a fairly solid defense.

Insanity

In an interview with Nancy Grace, Teresa Mayes' mother revealed that her daughter, Teresa, suffers from various learning disabilities. The exact nature of these disabilities remains unclear at this time, but according to Teresa Mayes' mother, doctors did not expect that Teresa Mayes would be able to successfully graduate high school. With that being said, an insanity defense may be appropriate in this case.

Under Tennessee law, Teresa Mayes will be excused on grounds of insanity if she proves by clear and convincing evidence that, at the time of the offense: (1) she was suffering from a severe mental disease or defect; and (2) as a result of that mental disease or defect, she was unable to appreciate the nature and quality of her conduct; or the wrongfulness of her conduct.

Insanity, if proven at trial, operates as a complete defense to the charged crime. That is, successful assertion of the insanity defense results in an acquittal on grounds of insanity.

Battered Woman Syndrome

In her interview with Nancy Grace, Teresa Mayes' mother also revealed that Teresa was a victim of domestic violence. According to Teresa's mother, Adam Mayes was controlling and physically abusive.

In the case of a battered woman, a cycle of violence induces a state of "learned helplessness" which keeps the battered woman in the relationship. The cycle begins with an initial building of tension and violence, culminates in an explosion, and ends with a "honeymoon." The battered woman is captive. She begins to believe her husband is omnipotent, and resistance will be futile at best. And, of course, given Teresa Mayes' learning disabilities, she was likely more susceptible to fall victim to Adam Mayes' controlling and abusive ways than an average woman.

To be clear, the battered woman syndrome defense is generally asserted in self-defense cases where an abused woman attacks her abuser. However, the theory underlying the traditional battered woman syndrome defense may, nevertheless, prove helpful to Teresa Mayes' defense. If anything, her status as a battered woman demonstrates an inability to appreciate the nature and qualify of her conduct due to her captor's control over her.

The trial of Florida developer Adam Kaufman who is charged with the murder of his wife begins tomorrow. The primary defense theory is that his wife collapsed onto the magazine rack where Mr. Kaufman discovered her body after experiencing an allergic reaction to a spray tan. The defense has been ridiculed by prosecutors and commentators as offensive and ridiculous, but the defense theory may not be as farfetched as the prosecution is making it out to be.

To be clear, the medical examiner has ruled the death as a homicide. But homicide is simply a cause of death. It's not the crime in and of itself. So the fact that the medical examiner has ruled the death as a homicide does not necessarily speak to the prosecution's ability to prove the crime of murder at trial.

The primary ingredient in the self-tanning spray used in spray tan booths is dihydroxyacetones (commonly referred to as DHA). DHA is a colorless chemical which causes a browning effect when applied to the skin. It has been FDA approved for topical application to the skin. Significantly, however, the FDA has not approved the spray application or the incidental inhalation that can occur during the spray application process. It is certainly plausible that accidental inhalation of this chemical could cause a person to react adversely. In this respect, it is certainly plausible that any adverse reaction to chemical inhalation could include fainting. With that being said, Adam Kaufman's wife could have fainted as a reaction to DHA inhalation earlier that day and fallen onto the magazine rack where her husband discovered her body. In this respect, it should be noted that the medical examiner's determination of homicide was largely based on bruising and trauma in the neck area which could be consistent with strangulation. But this type of neck trauma could also be consistent with falling onto the magazine rack. Moreover, the manner of death (i.e. suffocation) could still be accurate based on pressure placed on the victim's neck by the magazine rack.

The bottom line is this: the level of proof required in a criminal trial is "beyond a reasonable doubt." In light of the foregoing, I think it is unclear whether the prosecution will be able to prove each element of the crime beyond a reasonable doubt. This is especially true when you consider that the victim's own family believes the defense theory. Indeed, some of the victim's family members are expected to testify as defense witnesses at trial.

As a final note, consider what I consider to be the three most ridiculous legal defense theories to have been successfully asserted in a court of law.

1. The PMS Defense

Geraldine Richter was stopped for erratic driving and arrested for driving under the influence of alcohol. A breathalyzer test administered at the scene revealed a blood alcohol level in excess of the legal limit. During the course of the traffic stop, the defendant directed offensive language toward the state trooper and attempted to kick him in the groin. She was acquitted on all charges after her lawyer successfully argued that her violent behavior at the scene of the traffic stop was due to PMS rather than intoxication and that the breathalyzer result was skewed because she was holding her breath in her fit of rage.

2. The Gay Panic Defense

In 2009, Joseph Biederman was acquitted on murder charges after stabbing Terrance Hauser 61 times with a medieval sword after his defense attorney asserted what is known as the gay panic defense. In essence, this is a legal defense in which a person claims temporary insanity as a result of having been at the receiving end of a homosexual advance.

3. The Twinkie Defense

In Dan White's 1979 trial for the murders of San Francisco city supervisor Harvey Milk and San Francisco mayor George Moscone, defense counsel was able to obtain a lesser conviction of voluntary manslaughter by arguing diminished capacity due, in part, to defendant's poor diet which was high in sugary junk foods.

Is the spray tan murder defense up there with these three or does it have legitimate merit? Personally, I think that supporting facts and evidence are present in what has been dubbed the spray tan murder case which were lacking in these other cases. With that being said, I think that the defense theory has a reasonable chance of success at trial.

Under the continuity of proprietary interest doctrine, a substantial part of the proprietary interest in the target corporation must be preserved in the reorganization. As to what constitutes a "substantial part," the treasury regulations indicate that 40% is sufficient. See Treas. Reg. § 1.368-1T(e)(2)(v), Example (1). That is, the requisite level of continuity is preserved if at least 40% of the value received for the target stock is in the form of stock in the acquiring company. While there are cases out there finding the requisite level of continuity where stock of the acquiring company constitutes less than 40% of the total merger consideration, taxpayers are well-advised to structure the transaction to satisfy the 40% threshold.

But even then, the transaction may be subject to fluctuations in value. Historically, where the merger consideration consisted of a fixed number of shares, the risk was that the stock would decline in value between the signing of the merger agreement and the closing date and, thereby, cause the merger consideration to consist of less than 40% of the total merger consideration. These types of valuation issues have been largely mitigated by the signing date rule under which valuation occurs at the close of the day before the signing of the merger agreement in cases where it applies. However, valuation concerns have not been eliminated, especially in the private company environment.

Unlike public company stock for which an active market exists, there is no established market for stock of privately held companies. As a result, valuation of the shares is a subjective determination to which the IRS is not bound. Thus, even in cases where the signing date rule applies, the actual value of the shares on the day before signing is susceptible to challenge by the IRS. Consequently, valuation risks continue to persist in the private restructuring environment.

Although valuation risks cannot be eliminated in the private restructuring environment, restructuring transactions can be proactively structured so that a successful valuation challenge by the IRS doesn't turn into a double-level tax disaster. In this respect, the reverse forward merger structure is one of the soundest forms of protection. Here's how it works:

Step 1: acquiring company sets up two subsidiaries, Sub1 and Sub2.

Step 2: reverse merger of Sub1 into target company.

Step 3: forward merger of target company with and into Sub2.

Under this structure, if the share valuations are respected, the separate steps would, more likely than not, be integrated, and the steps would, collectively, qualify as a tax-free reorganization. Obviously, this is the desired result. However, if the share valuations are successfully challenged, the reverse merger would constitute a qualified stock purchase of the target shares, while the forward merger would constitute a good (A) reorganization. The result? A single layer of tax at the shareholder level. Thus, while the transaction is not tax-free in its entirety, the reverse forward structure avoids the double layer of taxation (i.e. at both the shareholder and corporate levels) that would otherwise be triggered by a successful valuation challenge.

Governor Rick Scott's task force will meet today for the first time to examine Florida's controversial "Stand Your Ground" law. The seventeen-member task force will receive public testimony throughout the state. After hearing this testimony and evaluating the statute, the task force will make recommendations to Governor Scott and the Florida Legislature.

So what should be done about this law: repeal or reform? Despite high emotions for an all-out repeal of the "stand your ground" right in the wake of the shooting death of Trayvon Martin, reform is probably the more appropriate route.

It remains important that the people of Florida feel confident in their right to defend themselves under the appropriate circumstances. At the same time, it is crucial that the people of Florida understand that deadly force must be used only as a last resort. I think that a return to the common law duty to retreat could be the best way to reconcile these seemingly irreconcilable goals.

Like Florida's "Stand Your Ground" law, the common law duty of retreat recognizes every man's right of self-defense. However, the common law of self-defense requires a person to make a reasonable effort to retreat before employing deadly force. Under the common law, a person may not resort to deadly force without first exhausting every reasonable non-deadly means to avoid the danger.

To be clear, I believe that a "stand your ground" right should continue to exist in cases where a person is attacked in his or her home. But this is not inconsistent with the common law's "castle doctrine," which abrogates the duty to retreat when a person is attacked in his or her home.

But moving the "castle doctrine" out of the castle and into the streets clearly appears to have been a mistake. Trayvon Martin in Florida and Daniel Adkins, Jr. in Arizona are only the most recent victims of this mistake.

As a general rule, where a parent corporation elects to change a subsidiary's tax classification from corporation status to disregarded entity status (e.g., conversion of a corporate subsidiary into a single-member LLC), the election is treated as a constructive liquidation. This means that I.R.C. § 332 will generally preclude the parent corporation from recognizing gain or loss as a result of the liquidation.

But what if the subsidiary which is deemed to liquidate into the parent corporation is insolvent at the time of this deemed liquidation? Does Section 332's non-recognition rule preclude the parent corporation from claiming a worthless stock deduction under I.R.C. § 165(g) insofar as such a deduction is essentially in the nature of a loss?

It shouldn't, and here's why:

The non-recognition rules contained in Section 332 are only implicated if the transaction satisfies the three-prong test set forth in I.R.C. § 332(b). Under the first prong of Section 332(b), the recipient corporation must own at least eighty percent of the total vote and value of the liquidating corporation's stock, on the date of adoption of the plan of liquidation, and at all times until receipt of the liquidating corporation's property.

Under the second prong of Section 332(b) the distribution must be either: (1) in complete cancellation of all of the stock of the liquidating corporation, and within the taxable year ; or (2) one of a series of distributions in complete cancellation of the stock of the subsidiary in accordance with a plan under which all the liquidating distributions will be completed within three years from the close of the taxable year during which the first of the series of distributions occurred under the plan.

Under the third prong of Section 332(b), the distribution must be pursuant to a plan of liquidation that has been adopted by each of the corporate parties to the transaction. To be clear, the statute does not explicitly state that a plan of liquidation is a necessary prerequisite to non-recognition treatment under Section 332. However, the requirement is explicit in the definition of "complete liquidation" as defined in the treasury regulations. Specifically, the regulations state: "[t]o constitute a distribution in complete liquidation within the meaning of Section 332, the distribution must be (1) made by the liquidating corporation in complete cancellation or redemption of all of its stock in accordance with a plan of liquidation; or (2) one of a series of distributions in complete cancellation or redemption of all its stock in accordance with a plan of liquidation." See Treas. Reg. § 1.332-2(a) & § 1.332-2(c). It should be noted, however, that a formal plan of liquidation is not required. See e.g., Fowler Hosiery Co. v. Commissioner, 301 F.2d 394 (7th Cir. 1962) (holding that there was no need for liquidating subsidiary to adopt a formal plan of liquidation; it was sufficient that the distribution was in fact part of a plan of complete liquidation); McCarthey v. Conley, 229 F. Supp 517 (D.C. Conn. 1964) (stating that the Court must consider whether or not any informal plan did exist as a matter of fact, notwithstanding the absence of a formal plan).

In addition to the three-prong analysis set forth in the statute, Treasury Regulation § 1.332-2(b) provides that Section 332 only applies to cases in which the recipient corporation receives at least partial payment for the stock which it owns in the liquidating corporation. A transfer of assets is first applicable to discharge any indebtedness to the transferee. Houston Natural Gas Corp. v. Commissioner, 9 TC 570, 574 (U.S. Tax Ct. 1947). Consequently, when the fair market value of a subsidiary's assets, (including intangible assets such as goodwill and going concern value) is less than the sum of its liabilities, no part of the transfer is attributable to the parent's stock ownership, and the payment -for-stock requirement is not satisfied. See Rev.Rul. 2003-125, 2003-2 CB 1243. And of course, if the payment-for-stock requirement is not satisfied, the Section 332 non-recognition rules are inapplicable.

As a result, if the subsidiary is insolvent in the sense that the fair market value of its assets (including goodwill and going concern value) do not exceed the sum of its liabilities, Section 332 will not apply to preclude recognition of a loss by the parent corporation. And in that case, Section 332 would not disallow a Section 165(g) worthless stock deduction. This is true even though the liquidation resulting from a check-the-box election to be disregarded is constructive rather than actual. See Private Letter Ruling 201115001.

As a final note, it should be emphasized that the parent corporation would receive an ordinary loss deduction instead of a capital loss deduction under the affiliation exception. See I.R.C. §165(g)(3). This is significant for two reasons. First, the loss deduction is not subject to the capital loss limitations. Moreover, the loss is first applied as an offset to ordinary income. Thus, the corporation may currently deduct the entire loss notwithstanding whether it has any capital gains for the year.

In general, a shareholder purpose does not satisfy the business purpose requirement imposed in the corporate reorganization context, at least not in the 355 context. Treas. Reg. § 1.355-2(b)(2). However, in some cases, a shareholder purpose may be "so nearly coextensive" with a corporate business purpose as to preclude any distinction between them. In this spirit, enhancement of shareholder value is often a valid business purpose insofar as the corporation benefits by reason of the enhanced shareholder value. Namely, enhanced shareholder value provides a more valuable currency to the corporation for purposes of post-spin acquisitions and equity compensation programs. Increased share value means that less shares are needed to fund equity compensation programs and potential future acquisitions.

Significantly, all of this and more was acknowledged by the IRS in Revenue Ruling 2004-23. Spin-offs more often than not result in enhanced share value because the market for the shares becomes much larger when a controlling corporate shareholder is eliminated. Thus, this ruling opens the flood gates for satisfying the corporate business purpose requirement with a shareholder purpose. Thus, after Revenue Ruling 2004-23, the business purpose requirement can almost always be satisfied.

One word of caution: while Revenue Ruling 2004-23 provides substantial leeway in the business purpose department, it is not carte blanche. For instance, the logic and theory of the revenue ruling is really only relevant in the public company context. Private companies typically do not diversify equity ownership or provide equity-based employee compensation. As a result, citing a more valuable currency for use in equity compensation programs and future acquisitions would probably be an impermissible shareholder purpose. Even in the public company context, a company with no substantial equity compensation program and/or no history of acquisitions and no legitimate plans of acquisition would probably be a poor candidate for a 2004-23 type business purpose.

On April 3, 29 year old Daniel Adkins, Jr. was shot and killed as he and his yellow lab walked past an Arizona fast food drive-thru about two miles from Adkins' home. Apparently, the shooter nearly hit Adkins with his SUV as the shooter and his pregnant fiance pulled up to the drive-through window to pick up their order. Adkins allegedly swung his hands in the direction of the SUV in response to the near-collision. According to the shooter, it was this gesture which prompted the shooter to draw a .40-calibur handgun from his pants and fatally shoot Adkins. The shooter claims that Adkins was carrying a 3-foot metal pipe or bat, but no weapon was found on or near Adkins' person.

Arizona law recognizes a "stand your ground" right similar to the Florida law at the center of the controversy surrounding the Trayvon Martin case. As a result, the Arizona shooter has not been charged with any crime in the shooting death of Daniel Adkins, Jr.

Significantly, the shooter has told police that he did not believe that Adkins would have killed him or his fiance.

With that being said, this case clearly falls outside the intended scope of any state's stand your ground law. Stand your ground laws confer a right to meet force with force. Under the authority of these laws, a person is permitted to meet a punch with a punch ... a slap with a slap. And yes, worst case scenario, a person is permitted to meet deadly force with deadly force. The stand your ground law does not permit a person to meet an ambiguous gesture with a bullet. . Yet, as previously mentioned, no charges have been filed against the shooter in connection with the death of 29-year-old Daniel Adkins, Jr.

In any event, the Trayvon Martin and Daniel Adkins, Jr. shooting cases raise substantial concerns about the wisdom of stand your ground laws. To be clear, every person possesses a right of self-defense under our law. But stand your ground laws arguably provide too much discretion. They encourage a shoot first, think later kind of mentality which unreasonably infringes upon one of the most fundamental rights: the right to life.

As we all know by now, six-year-old Isabel Celis disappeared from her bedroom either late last Friday night or early last Saturday morning.

Last week, surveillance video footage from a neighboring business was released. This footage shows a group of five people passing through a parking lot after leaving a nearby nightclub. There has been a lot of talk about this group, and it is hoped that they might have seen or heard something that can help police locate Isabel Celis.

What surprises me about the release of this surveillance video is not what the police and media are talking about, but rather what they are not talking about. Take a look at this surveillance footage released last week by the Tucson police department. If you watch closely, there appears to be a person moving about the curtilage of the building after the group from the nightclub has passed through the parking lot. The activity of this unidentified sixth person can be seen for approximately five seconds beginning about 49-50 seconds into the footage shown here.

Who is this unidentified person seen walking near the building?