CORPORATE TAX MID-TERM EXAM

HINT # 1 (THE FIRST OF A SERIES TO GET YOU STARTED)

GENERAL ORGANIZATIONAL SUGGESTIONS
LIKE ANY OTHER EXAMINATION, THIS IS AN INDIVIDUAL EFFORT. ACCORDINGLY,
YOU ARE ON YOUR HONOR NOT TO DISCUSS ANY ASPECT OF THE EXAMINATION
WITH ANY PERSON OTHER THAN ME. PLEASE DO NOT DISHONOR YOURSELF BY
VIOLATING THIS TRUST.
You might consider these thoughts as you organize your memorandum and your thought process.
Please organize your exam with the following major headings:
I.

Relevant Facts
As you present the facts of the case, you might first determine how many transactions you
will be analyzing for purposes of identifying the members of each control group (i.e.,
identify at what points in time you should focus to determine who is in control of the corporation immediately after each exchange). You also might explain why you identified
the control groups as you did, and then note that your analysis rests upon the validity of
that assumption. In other words, be sure to state any assumptions you have made in deciding how many transactions need to be analyzed for purposes of determining if any of
them qualify for non-recognition under Section 351. Once youve identified how many
transactions you will be analyzing, and which shareholders are members of the control
group for each of those separate transactions, you then might describe the contributions of
each shareholder and the consideration received by each of them from the corporation.
Organizing the facts in that manner might help you both in identifying the issues presented and analyzing them.
Be careful to specifically identify the appropriate contributing shareholder in the context
of A, LLC.

II.

Issues Presented
Having organized and set forth the relevant facts for each transaction you identified
above, you might set forth in broad terms the issues presented with respect to each of
those transactions. For example, you might identify the issue as whether the contributions by A, C, E and F on July 13, 2012, by D on January 1, 2013, and by B and F on December 31, 2012 qualified for non-recognition under Section 351 of the Internal Revenue
Code of 1986 (the Code). You can then address the more specific issues you identify
for each of the contributing shareholders in the analysis portion of your memorandum.
Give considerable thought to the manner in which you describe the issue or issues - that
will help firm up the structure of your analysis when you get to it.

III.

Governing Law
In this section, you should set forth a logical progression of relevant citations from the
Code, the Regulations, and any relevant administrative pronouncement from the IRS,
such as a Revenue Procedure. You might consider working from the broad to the particular, setting forth the general rules of law and then identifying relevant exceptions to those
rules.
For example, you might begin by referring to Section 1001 of the Code, which applies to
sales or exchanges of property, in general. You might note that Section 1001(a) defines
realized gain and realized loss as the difference between the amount realized and
the adjusted basis in that property, and that Section 1001(c) requires the recognition of
that gain or loss unless some other provision of the Code provides otherwise. You then
might refer to Section 351 as a potential exception to the general rule of Section 1001(c),
and then loosely describe the conditions that must be satisfied in order for Section 351 to
apply. You also might want to refer to the sections of the Code that would govern the
transactions if Section 351 does not apply, such as Section 267. From the corporations
perspective, you might refer to Sections 1032 and 118. At this point, you should focus on
setting up the general scheme for determining the amount of realized gain or loss and recognized gain or loss, and you should do so from the perspective of both the shareholder
and the corporation.
You might wait until the analysis portion of your memo to refer to the more specific provisions of the Code dealing with the shareholders basis in the stock, the corporations
basis in the property contributed, the amount of realized and recognized gain or loss, the
effect of liabilities, the character of any recognized gain, etc.

IV.

Analysis
Here, you might want to break the discussion down by each separate transaction you
identified in your statement of facts (by focusing on the exchanges you would group together in order to identify members of the various control groups for purposes of applying
Section 351), and then address the tax consequences to each member of those control
groups. You should refer here to the specific provisions of the Code that bear on the tax
consequences to each shareholder, such as the Code section that applies to determine the
shareholders basis in his stock, the sections that determine if he must recognize any gain
or loss, and those sections that relate to the character of any recognized gain or loss. Explain why you invoked the Code sections you have selected, and explain, also, how those
provisions apply to the facts of each shareholders contribution. Once you have found the
need to refer to a specific Code section for a particular shareholder, you shouldnt need to
explain it in detail again when you find that it applies to another shareholder. At that
point, to avoid being redundant, you might simply refer back to your earlier discussion of
those authorities for other shareholders (e.g., as noted above with reference to A,
).

Be as specific as necessary when referring to the Code and Regulations (for example,
dont merely cite Section 358 in general - be more specific and explain your conclusion
with reference to subsections, paragraphs, subparagraphs, etc., to the extent necessary to
make your point - in other words, you should not reproduce the full content of a Code
section, but set forth only the specific provisions that support your conclusion). Show me
your thought process, and back it up with specific authority.