IRS applies Sec. 162(k) to deemed stock redemption.
Author | Burke, Pamela P. |
Position | Brief Article |
In Letter Ruling (TAM) 9342005, the Service held that the acquisition of Taxpayer's (T) stock by Newco, followed immediately by the downstream merger of Newco into T, in which T assumed all of the indebtedness incurred to acquire its stock, constituted a redemption by T. The IRS further held that all of the loan costs were incurred "in connection with" the redemption and, as a result, disallowed the deduction taken for the capitalized loan costs under Sec. 162(k).
The Service used a substance over form analysis to hold that the stock purchase followed by a downstream merger was a redemption. in reaching its conclusion, the IRS stated that Newco never acquired beneficial ownership of the T stock, never derived an economic benefit from the stock and was never liable under the debt obligations.
After determining that the transactions should be treated as a...
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