Variables that Create Tax Planning Opportunities. Entity variable Time period variable Jurisdiction variable Character variable Caveat: We will discuss manipulation of these variables while first assuming equivalent before-tax cash flows and no differential non-tax costs.
In the landmark case of Gregory vs. Helvering, the taxpayer created, reorganized and liquidated a corporation all within 6 days for the sole purpose of changing ordinary income (dividend) into capital gain. The subsequent dispute with the IRS was ultimately heard by the Supreme Court, who held that the formation and liquidation of the corporation “was in fact an elaborate and devious form of conveyance masquerading as a corporation reorganization” with no business purpose other than saving taxes. In disregarding the transaction, the court stated that “to hold otherwise would be to exalt artifice above reality and to deprive the statutory provision in question of all serious purpose.”