Boot Distributions and Assumption of Liabilities (Portfolio 782)

Description

Bloomberg Tax Portfolio, Boot Distributions and Assumption of Liabilities, No. 782, discusses the tax problems arising in connection with boot distributions by a corporation to shareholders and creditors. Boot is money or property received pursuant to a corporate organization, reorganization or separation, other than the stock and securities permitted to be received under various Code sections without the recognition of gain or loss. When boot is received in these transactions, the gain (but not loss) generally is recognized to the extent of the value of the boot. In corporate reorganizations and separations, the gain may be treated as a dividend to the extent of available earnings and profits. Nonqualified preferred stock is generally treated as boot when received in a corporate organization, reorganization, or separation exchange. Securities received in a corporate organization are treated as boot. Securities received in a corporate reorganization or separation exchange are treated as boot to the extent that the fair market value of the principal amount of securities received exceeds the principal amount of the securities surrendered.

The assumption of liabilities (including the acquisition of property subject to a liability) by a transferee corporation in a corporate organization or reorganization generally is not treated as the receipt of boot by the transferor. Exceptions apply if the principal purpose of an assumption is to avoid federal income tax or is not for a bona fide business purpose, or to the extent that the assumed liabilities exceed the adjusted basis of the property transferred.

This Portfolio examines the statutory development of the rules pertaining to boot, as well as the effect of IRS rulings and court decisions. It also analyzes: (1) the nature of boot, (2) the types of boot other than money, (3) the extent to which the assumption of liabilities constitutes boot, (4) the tax impact of boot upon the distributing corporation and the recipient, including the treatment of boot as a dividend, (5) the effect of excessive boot, and (6) other problems relating to particular types of corporate transactions.

Table of Contents

I. Introduction
II. Boot in a Section 351 Exchange
III. Assumption of Liabilities
IV. Boot in Reorganizations
V. Corporate Separations