Tax Conference Program

Conference Location

University of Chicago Gleacher Center
450 North Cityfront Plaza Drive, Chicago, IL 60611

              Program Schedule

              • Friday, November 4, 2022
                • Registration and Continental Breakfast
                  • Room 100 Foyer
                • Welcome & Introductory Remarks
                • Session 1: The Boundaries of Redemptions: Determining the Model for Imposing the Section 4501 Excise Tax
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                  • Moderator: Karen Gilbreath Sowell, Ernst & Young LLP

                    Lead Presenter: Marc Countryman, Ernst & Young LLP

                    Panelists:

                    • Colin Campbell, US Treasury
                    • Jodi Schwartz, Wachtell, Lipton, Rosen & Katz

                    New Code section 4501 imposes an excise tax on publicly traded US corporations equal to 1 percent of the value of its stock that is repurchased by the corporation during the tax year. There are many open questions regarding the application of the excise tax. While many of the issues will surface quickly, developing a conceptual paradigm will be necessary to determine the proper scope of transactions that should be subject to the tax.

                    Public statements indicate Congress was concerned that corporations were repurchasing shares as a tax-advantaged means of delivering cash to shareholders and enhancing the value of the remaining shares, rather than investing in their business, paying more wages to employees, or keeping prices to consumers down. The provision itself provides few hints regarding the intended scope, and there is no legislative history to assist.

                    Section 4501 imposes the excise tax on the value of stock “repurchased” and defines a “repurchase” as a redemption within the meaning of section 317(b), and transactions determined by Treasury to be “economically similar” to a redemption. Section 317(b) generally provides that “stock shall be treated as redeemed by a corporation if the corporation acquires its stock from a shareholder in exchange for property”. Given this broad definition, many corporate transactions involve components that may fall within the definition of a redemption under section 317(b), even if not commonly thought of as a redemption (e.g., a share-for-share exchange in a reorganization under section 368(a)).

                    The impact of a broad definition of redemption may not be unique to section 4501 (e.g., section 162(k)). However, imposing the excise tax on transactions that fall within the section 317(b) definition of redemption, and potentially “economically similar” transactions, appears be over inclusive.

                    The paper will explore the possible scope of transactions that appear to be the target of the excise tax under section 4501. The paper will consider different approaches that could be applied to determine the nature of transactions to which the excise tax might apply and the extent to which such transactions should be taken into account under section 4501. The paper will then analyze whether a more mechanical standard, with certain exceptions, is most appropriate, or whether more principle-based approaches (as informed by the statute) are preferrable. The paper will observe that the application and administration of the excise tax will likely be greatly enhanced by the IRS and Treasury acting on the directive in section 4501(f) to issue regulations or other guidance to refine the application of the excise tax as necessary or appropriate to carry out the purposes of the provision.

                  • Break
                    • -
                    • Room 100 Foyer
                  • Session 2: Subpar F? The Role of Anti-Deferral in a Post-GILTI (and Maybe Pillar Two) World
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                    • Moderator: Julia Skubis Weber, Baker & McKenzie LLP

                      Lead Presenter: Julie Roin, University of Chicago Law School

                      Panelists:

                      • Reuven Avi-Yonah, Michigan Law
                      • John Stowell, Walt Disney Company

                      Almost five years ago, Congress enacted the GILTI regime, effectively ending U.S. multinationals’ ability to defer U.S. tax on offshore earnings. The TCJA legislative history said little about Congress’s vision for the coexistence of GILTI with Subpart F, or their distinct policy objectives. What became immediately clear was that bolting GILTI onto the existing Subpart F framework only exacerbated existing complexity and the questions around Subpart F’s relevance and effectiveness. This panel will discuss Subpart F's original and evolving overall purpose in the context of GILTI and the GloBE minimum tax regime. In an era of unprecedented global tax conformity, how would we design a more sensible, less complicated CFC regime?

                    • Lunch: Join fellow conference attendees for an informal buffet lunch.
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                      • 621 Executive Dining Room
                        • Lunch Speaker: Sheldon I. Banoff, Katten Muchin Rosenman LLP, Retired
                        • “History of the University of Chicago Law School Federal Tax Conference: 75 Years in 7.5 Minutes”
                    • Session 3: Concepts and Context in Partnership Capital Shifts
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                      • Moderator: Eric Sloan, Gibson Dunn

                        Lead Presenter: Jim Sowell, KPMG

                        Panelists:

                        • Phillip Gall, Ernst & Young LLP
                        • Andrea Romezan-Jackson, Latham & Watkins LLP

                        This panel will discuss the taxation of partnership capital shifts – what they are and why we care. The panel will begin by briefly setting the stage – that is, highlighting many of the factors that should be considered in evaluating capital shifts and discussing certain contexts in which capital shifts may occur. The paper next will discuss the capital accounts and different ways to analyze the value of a partnership interest. Then, the panel will discuss the general rules relating to realization events and income inclusion outside the context of partnerships. This will be followed by a discussion of the limited authority that exists analyzing partnership capital shifts, including administrative guidance that accounts for capital shifts in a manner that generally avoids immediate taxation but preserves ultimate taxation to the proper parties within the framework of subchapter K. Finally, the panel will explore model or models that could address the taxation of capital shifts, with consideration given to a number of common situations in which capital shifts arise.

                      • Break
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                        • Room 100 Foyer
                      • Session 4: “The U.S.’s Anti-inversion Regime: Is it Time for the Hotel California to Adopt a New Check-out Policy?”
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                        • Moderator: Christopher Trump, Deloitte Tax LLP

                          Lead Presenter: Scott Levine, Jones Day

                          With Panelists:

                          • John Merrick, Office of the Chief Counsel, Internal Revenue Service
                          • Caroline Ngo, McDermott Will & Emery

                          This paper would take a holistic look at the U.S.’s anti-inversion regime and potential for reform. More specifically, the paper would discuss: (i) the history of the anti-inversion regime, (ii) the rationale for the series of rules causing more and more cross-border transactions to be classified as inversions, (iii) the government’s more recent proposals to place further restrictions on such transactions, and (iv) possible reforms to the overall regime to simplify the unwieldy web of rules governing the space while recentering the regime in line with global efforts to combat base erosion and profit shifting consistent through the OECD’s inclusive framework proposals

                          A. The History and Policy Behind the Anti-inversion Rules

                          Congress and the Treasury have attempted to thwart inversions since at least the early 1990s with the issuance of Notice 94-46 and the subsequent promulgation of the Treas. Reg. section 1.367(a)-3(c) regulations (frequently referred to as the “Helen of Troy Regulations”).  These rules primarily sought to protect the U.S. fisc against appreciated assets leaving the U.S. taxing jurisdiction.  As these rules were fairly narrow, generally only applying to require gain recognition in transactions where either the transferor group received 50 percent or more of the foreign acquiror’s stock or the transferred business exceeded the value of the foreign acquiror’s business, the potential for erosion of the U.S. tax base remained.  U.S.-headquartered businesses were still able to combine with foreign businesses while partially or entirely escaping the U.S. tax net.  Further, as individual capital gains rates fell and corporate boards became less concerned about shareholder-level taxes and more focused on reducing their global effective tax rate, the Helen of Troy regulations, in many ways, became largely ineffective.

                          The rather limited impact of the Helen of Troy Regulations and a few high-profile expatriation-type transactions led to Congress ultimately to enact Section 7874 in 2004.  The stated purpose of this legislation was impede taxpayers from obtaining the benefits of inversions—that is, reducing (or eliminating) U.S. tax on currently deferred earnings, reducing (or eliminating) U.S. tax on future foreign earnings, and reducing U.S. tax on U.S. source earnings.  As with the Helen of Troy Regulations, taxpayers were able to structure transactions that avoided the application of Section 7874 (and thus avoided recharacterization of the new foreign parent as a domestic corporation for U.S. tax purposes).  In the immediate years following its enactment, there were a limited number of inversions—a total of 10 inversions between 2004 and 2011—perhaps in part due to promised international tax reform that would shift the United States to a more territorial system and in part the continued ability of U.S. multinationals to indefinitely defer most of the U.S. tax on their foreign earnings by reinvesting them overseas.

                          However, the promise of tax reform remained elusive and, starting in 2012 a new trend of inversion transactions began for U.S. businesses seeking to further reduce their effective tax rates arguably to better compete with lower-taxed foreign competitors.  Again, corporate boards willing to subject their shareholders to relatively low U.S. capital gains rates, coupled with the ability to avoid the provision of Section 7874(b) requiring the historic shareholders of the U.S. target to acquire 80% or more of the foreign parent corporation in the combination, was rendering the new statute insufficiently robust to combat the government’s base erosion concerns.  So as tax reform discussions between the Obama Administration and the Republican-controlled Congress reached a stalemate, Treasury crafted a series of regulatory dikes to hold back the tide of inversions.  The regulatory measures taken were neither temporary nor simple.  What ensued was a deluge of regulations significantly expanding the scope of Section 7874 while restricting the use of related measures (such as interest deductions and so-called “out-from-under” planning).

                          The government promulgated a labyrinth of rules applying in some cases to seemingly innocuous cross-border combinations inversions while stretching the scope of Section 7874 in ways unfathomable when originally enacted.  In a span of less than two years, the statute’s regulatory scheme grew to the 12-section behemoth it is today.  And that does not even take into account ancillary regulations to further confine the benefits of a successful inversion to which the 80%-or-more ownership rule of Section 7874(b) does not apply (e.g., Treas. Reg. sections 1.385-3 and 1.304-7).

                          B.  The Current Rules—a Web of Confusion and the Delivery of Unexpected Outcomes

                          When enacted, Section 7874 contained numerous ambiguities, some of which were answered through the subsequent promulgation of regulations.  For the most part, these regulations centered around the definition of an expanded affiliated group and certain issues relating to stock options and potentially abusive transactions designed to avoid the statute.  Since then, however, the parade of regulatory guidance issued during President Obama’s second term was substantially devoted to effectively expanding the scope of Section 7874 by increasing the ownership fraction and resulted in making seemingly run-of-the-mill transactions subject to Section 7874(b).  

                          My paper would discuss these rules and where they appear inconsistent with an overall policy of incentivizing U.S. multinationals to remain headquartered in the United States.  The paper would likely include a discussion of (i) the so-called non-ordinary course distribution rules and whether they both are too expansive and ambiguous; (ii) open issues relating to the determination of the ownership fraction and whether such anomalies as the so-called “zero-over-zero” issue should derail an otherwise legitimate combination; (iii) the reasonableness of the so-called “serial inverter” and “third-country” rules in an age of continual and material changes to local and global tax rules; (iv) the statutory significant business activities exception and its effective demise by regulation; (v) anomalies under the revised expanded affiliated group regulations leading form to triumph over substance in certain circumstances; and (vi) the uncertainty surrounding the requirement that substantially all of the domestic entity’s properties be acquired in the transaction.

                          My paper would also discuss the growth of what I refer to as Section 7874 adjacent rules.  This portion of the paper would focus on those rules that attempt to restrict the benefits afforded

                        • Reception and Dinner
                          • RPM on the Water, 317 N. Clark Street
                          • Dinner Speaker: David Weisbach, The University of Chicago Law School

                      • Saturday, November 5, 2022
                        • Continental Breakfast
                          • -
                          • Room 100 Foyer
                        • Session 5: M&A and Partnerships
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                          • Moderator: Tim Devetski, Ernst & Young LLP

                            Lead Presenter: Mike Carew, Kirkland & Ellis LLP

                            Panelists:

                            • Pamela Lawrence Endreny, Gibson Dunn
                            • Craig Gerson, PwC

                            Subchapters K and C provide dramatically different rules for mergers and acquisitions of the entities within their purview. While tax-deferral for the receipt of equity in an acquiring partnership may be fairly noncontroversial, obtaining tax-deferral for the receipt of equity of a corporate acquirer may require fitting into a narrow exception. Tax basis carryover and holding period tacking rules are significantly different for partnership, as compared to corporate, mergers and acquisitions.

                            Despite the differences in the applicable tax rules, mergers and acquisitions involving target partnerships or corporations have many similarities in practice. For example, acquirers use debt leverage to increase returns on their equity investments and frequently desire for their sellers to retain some equity in the combined business.

                            This paper will consider the dramatically different tax consequences that attend similar merger and acquisition transactions involving corporations and partnerships. The paper will seek to determine whether the differences are historic remnants or whether they stem from the status of corporations as separate tax paying entities (and therefore continue to play an important role). This paper will also consider whether (and to what extent) the rules for corporations and partnerships should be made more consistent.

                            Significant subtopics include (i) the extent to which distributions to pre-existing or disposing equity owners should be treated as disposition proceeds (or respected as distributions), (ii) whether form should control the “direction” of a corporate reorganization or partnership merger and (iii) whether non-statutory, corporate continuity rules, or the statutory “control immediately after” requirement for a tax-deferred transfer to a corporation, should be constrained or eliminated (such that tax-deferral for equity owners in the corporate context may be found more often).

                          • Break
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                          • Session 6: Section 367(b): Where Do We Go From Here?
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                            • Moderator: Eric Sensenbrenner, Skadden, Arps, Slate, Meagher & Flom LLP

                              Lead Presenter: Gary Scanlon, KPMG

                              Panelists:

                              • Layla Asali, Miller & Chevalier
                              • Lindsay Kitzinger, US Treasury

                              Congress enacted Section 367(b) primarily to address the potential avoidance of U.S. tax on deferred foreign income through transactions that would otherwise qualify for nonrecognition under Subchapter C of the Code. Consistent with this policy, the regulations under Section 367(b) require income on the importation of basis and E&P in inbound nonrecognition transactions and tax-free stock exchanges of CFC stock by a U.S. shareholder that would result in the loss of Section 1248 status. However, subsequent changes to the Code, including those enacted in the TCJA, have significantly eroded the motivating purpose of Section 367(b) by dramatically limiting the scope of the U.S. system of deferral and eliminating most of the benefits of converting dividend income to capital gain that existed under prior law. Whether and how the Section 367(b) regulations should continue to address nonrecognition transactions after the TCJA is a pressing policy issue.