Coggin Automotive Corporation - Page 23

                                       - 23 -                                         
          partnerships should be viewed as a separate entity, and                     
          consequently, none of any limited partnership’s inventory or LIFO           
          reserve is deemed to be owned by petitioner or the other partners.          
          We agree with respondent’s position for the following reasons.              
               In 1986, Congress enacted the Tax Reform Act of 1986 (TRA),            
          Pub. L. 99-514, secs. 631-633, 100 Stat. 2085, 2269-2282, which did         
          away with the General Utilities doctrine.  (Under the General               
          Utilities doctrine, corporations  generally had not been taxed on           
          the distribution of assets whose fair market values exceeded their          
          tax bases.  See Estate of Davis v. Commissioner, 110 T.C. 530, 548          
          n.13 (1998).)  In TRA section 632(a), section 1374 (Tax Imposed on          
          Certain Built-In Gains) was amended to prevent the potential                
          circumvention of the corporate level of tax on the distribution of          
          appreciated (built-in gain) assets by a former C corporation that           
          held such assets at the time of its conversion to an S                      
          corporation.6 See Rondy, Inc. v. Commissioner, T.C. Memo. 1995-372          
          (“the original purpose of section 1374 was to support Congress’             
          repeal of the General Utilities doctrine”); H. Conf. Rept. 99-841           
          (Vol. II), at II-198 to II-199, II-203 (1986), 1986-3 C.B. (Vol.            
          4), 1, 198-199, 203.                                                        
               It became apparent that the goal of section 1374 was not being         
          achieved with respect to former C corporations that used the LIFO           

               6    In general, sec. 1374 requires an S corporation to pay            
          a corporate-level tax on any net recognized built-in gains                  
          recognized within 10 years following the effective date of the S            

Page:  Previous  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  Next

Last modified: May 25, 2011