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The Service determined a $183 million deficiency in the Chesapeake Corporation's Federal Income tax, asserting that Chesapeake owed a $36.6 million substantial understatement of income tax penalty for 1999. Chesapeake's subsidiary contributed its assets and most of its liabilities to a newly formed limited liability company, simultaneously receiving a $755 million distribution. The Tax Court held that the transaction was a disguised sale, requiring Chesapeake to recognize a $524 million gain for the year of contribution and distribution. Chesapeake was also liable for the substantial undersatement penalty.
Robert Jennings and Elizabeth Sweigart of Opportune, LLP compare Canal Corp. with other cases bearing on the tax implications of disguised sales by corporate parent companies to newly formed affiliates. Mr. Jennings and Ms. Sweigart analyze Canal Corp. in the context of the corporate taxpayer's reliance on tax advisor PricewaterhouseCoopers' pre-transaction opinion. They examine conflict of interest issues and taxpayer reliance on advisory opinions, offering views on the viability of leveraged partnerships in view of Canal Corp. and steps corporate taxpayers need to consider in tax advisor engagements.
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View commentary insight excerpts from Robert Jennings and Elizabeth Sweigart's on Implications of Canal Corp. v. Comm'r for U.S. Taxpayers and Their Advisors.
View also on this site commentary insights by Lexis Federal Tax Analysts Charles Zubrzycki.
Hear further podcast insights by Mr. Jennings and Ms. Sweigart on this site, addressing:
Codification of the Economic Substance Doctrine
Transactional Planning Best Practices and Documentation
Tax Court Decision in Veritas v. Comm'r
LEXIS.com users can access the opinion in Canal Corp. v. Comm'r, 2010 U.S. Tax Ct. LEXIS 25 (T.C. Aug. 5, 2010)
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