The Friday, October 10, 2008, edition of The State newspaper (Columbia, South Carolina) carried an article about the possible Wells Fargo-Wachovia merger. The article stated the merger could cause “major job cuts.” In an economic downturn such as the current one, employees are going to suffer job losses. Any employment attorney will tell you that will result in more employment-related lawsuits being filed by former employees against their former employers. Any bankruptcy attorney will tell you that will result in increased bankruptcy filings.

On Friday, November 14, 2008, the Executive Office for United States Trustees ("EOUST") issued for public comment a notice of proposed rulemaking setting forth procedures and criteria U.S. Trustees will use when considering applicants seeking to become approved providers of a personal financial management instructional course (the "Proposed Rule"). Comments are due by January 13, 2009.

Summary of Key Aspects of the Proposed Rule

Given the current state of the economy, it should come as no surprise that business related bankruptcy filings increased 41.6 percent and non-business bankruptcies increased 28.4 percent between June 30, 2007, and June 30, 2008, with more than one million Americans filing for bankruptcy during calendar year 2007, according to the Administrative Office of the U.S. Courts.

Under Section 1031 of the Internal Revenue Code, a taxpayer does not recognize gain or loss on the exchange of like-kind property. Before 1984, the Code did not specifically address so-called deferred exchanges - exchanges in which the taxpayer relinquished property and some time later received the replacement property - although at least one leading case did. The 1984 rules require that the taxpayer identify the replacement property within 45 days after the disposition and close on the replacement property and close within 180 days after the disposition.

On June 17, 2009, the Seventh Circuit examined the tax practitioner privilege in Valero Energy Corporation v. U.S., 103 AFTR 2d 2009-2683. Valero, a large oil refiner, expanded its operations in 2001 by acquiring Ultra Diamond Shamrock Corporation (“UDS”). Prior to the acquisition, Ernst & Young developed a restructuring and refinancing plan for UDS’s Canadian subsidiaries. Valero asked its tax advisors, Arthur Anderson, to review the plan and provide additional tax advice.

There is something for everyone in the suitably named Worker, Homeownership, and Business Assistance Act of 2009–including potential recoveries for unsecured creditors of a debtor reorganizing or liquidating pursuant to the United States Bankruptcy Code.

Background

Introduction

The United States Bankruptcy Court for the Southern District of New York ruled recently on the validity of “gift plans” – plans of reorganization under which a senior creditor “gifts” assets to a junior creditor or equity holder.1 In In re Journal Register Co.,2 Bankruptcy Judge Alan L. Gropper approved a plan in which secured lenders gifted a portion of their recovery to certain trade creditors, and detailed some of the important limitations on gift plans.

Evolution of the Gift Plan Doctrine

A recent decision provides new support for excluding a broad range of severance pay from FICA taxes—a position undercut by the taxpayer’s loss in CSX Corp. v. United States, 518 F.3d 1328 (Fed. Cir. 2008). United States v. Quality Stores Inc., (W.D. Mich., Feb. 23, 2010), affirms a bankruptcy court’s conclusion that, contrary to Revenue Ruling 90-72, 1990-2 C.B.

A newly released IRS letter ruling (PLR 201006003, Oct. 28, 2009) provides guidance on how a consolidated return group may obtain an ordinary loss deduction in liquidating an insolvent subsidiary. Although a write-off of worthless stock generally produces a capital loss deduction, Code Section 165(g)(3) converts these losses to ordinary deductions when they arise from a write-off of stock of an affiliated corporation.

2006 FICA Refund Claims Due April 15, 2010