In an important recent decision, United States v. Quality Stores, Inc., et al.,1 in which Pepper represented the prevailing party, the U.S. Court of Appeals for the Sixth Circuit held that supplemental unemployment compensation benefits (SUB payments) paid by a bankrupt company to its former employees were not wages subject to taxation under the Federal Insurance Contributions Act (FICA).

Taxpayers that engaged in transactions under §381(a), including tax-free liquidations under §332 and certain tax-free reorganizations under §361, previously could not change their methods of accounting for the year of the transaction using the automatic consent procedures under Rev. Proc. 2011-14, 2011-1 C.B.

In Notice 2012-39 (the “Notice”), the IRS issued guidance announcing its intention to issue regulations with respect to certain transfers of intangible property by a U.S. corporation to a foreign corporation in a reorganization described in section 361 of the Internal Revenue Code (the “Code”), citing significant policy concerns involving certain intellectual property transfers that permit U.S. persons to repatriate earnings without U.S. income taxation. The IRS’ position in the Notice will impact repatriation planning strategies.

Background

Section 382 limits a loss corporation’s ability to use its Net Operating Losses (NOLs) carryforwards following an "ownership change."¹ An ownership change is triggered if one or more "5-percent shareholders" of the loss corporation increase their ownership in the aggregate by more than 50 percentage points during a testing period. Following an ownership change, the "Section 382 limitation" generally reduces the ability to use NOLs to offset taxable income in any post-change year.²

Two significant changes were made to the Virginia recording tax statutes applicable to deeds of trusts during the 2012 session of the General Assembly. First, the exemption from recording taxes for deeds of trust whose purpose is to refinance an existing debt with the same lender was eliminated. Second, on deeds of trust securing debt in excess of the fair market value of the real estate, the recording tax now may be paid on the value of the property conveyed rather than the amount of the debt.

The IRS and Treasury recently proposed regulations that, if finalized, would permit an employer in bankruptcy to amend its defined benefit plan to eliminate certain optional forms of benefit, including lump sum payments.

The IRS issued proposed regulations providing a limited exception to the anti-cutback rules under Code section 411(d)(6) for a plan sponsor that is a debtor in a bankruptcy proceeding. The anti-cutback rules generally prohibit amendments to qualified retirement plans that reduce or eliminate accrued benefits, early retirement benefits, retirement-type subsidies or optional forms of benefits.

Generally, retirement plan benefits are excluded from a bankruptcy estate. However, if the retirement plan is not covered by Title I of the Employee Retirement Income Security Act of 1974 (ERISA), a separate exemption from the bankruptcy estate must be found. Some retirement plans are not covered by Title I of ERISA because they do not cover employees, which, for this purpose, excludes the sole owner of a business and the owner’s spouse. These types of plans are commonly referred to as “Keogh” plans.

The decision we've all been waiting for is in -- the U.S.

The two most recent decisions of the Supreme Court involving federal taxes illustrate how a conservative approach to statutory interpretation tends to prevail, but only with great effort, and changing constituencies.

Hall v. United States