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Anti Stuffing Laws

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Submitted By sly9man14
Words 1507
Pages 7
Midterm 10.20.12

Anti-Stuffing and Net Operating Loss Anti-Stuffing is actually something that I have been whiteness to on a few occasions with an old business partner that I had a acquired. Unfortunately the partnership did not succeed, so I am going to share my love for business and what I had found out about Anti-Stuffing, but not limited to Net Operating Loss companies and how this affects them. Before 1986, the history of capital gain tax came back to one court ruling. This case was General Utilities and Operating Company v. Helvering, 296 U.S. 200 (1935), which resulted in the General Utilities doctrine. Under this doctrine companies could distribute their corporate properties or stock to shareholders without having to pay a capital gains tax at the corporate level. Before this doctrine was repealed courts did not take into account the built in tax liability when determining the value of a company. As a result of this companies were finding ways around these taxes and saving themselves a fair amount of money. In 1986 the Tax Reform Act was passed making it much harder on companies trying to liquidate. It stated that if a company tries to liquidate it must identify its gains or losses at the time of sale, as if it were being sold on the open market. Under this act any such sale will be taxable. This gave us a double-edged sword, as a result of this act. Their two options both would result in losses for the company buying the stock. The first is called “built in gains”, and the second is duplication of loss. An example of the first is; Company A has a stock that has a fair market value (FMV) of $100 and a basis(which is what the stock was originally bought for or started out at) of $50. Company B then buys the stock for $100; now their basis for the stock has become $100. After company B buys the stock, company A sells off its assets

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