Andres Berdugo (Chamberlain Hrdlicka, San Antonio, TX), Form Follows Function: The Continuity of Business Enterprise Doctrine, 180 Tax Notes 2333 (Sept. 25, 2023) (1st Place: Tax Notes Student Writing Competition):
In this article, Berdugo analyzes the continuity of business enterprise doctrine and argues that ambiguity and other flaws in the implementing regulations prevent them from achieving the policy objectives of the doctrine.
Conclusion
Eliminating the COBE requirement does not appear to be an effective way to achieve the policy objectives of the reorganization provisions of the code. Treasury has emphasized the importance of COBE in ensuring that tax-free reorganizations simply adjust ongoing interests in property.
However, the current COBE regulations are problematic because of their ambiguity, leading to various issues. On the one hand, the regulations governing the remote continuity doctrine display an apparent inconsistency in their treatment of transfers to corporations versus partnerships. For transfers to corporations, the regulations include a control requirement to maintain continuity between the assets of the former target corporation and its shareholders.
However, for partnerships, the regulations provide for a lower threshold, which is problematic as it does not distinguish between capital and profits interests. This is significant because a profits interest has no current liquidation value, and therefore, if the partnership were liquidated later on, the target corporation’s assets would be transferred to the capital interests’ holders. Therefore, the regulations have effectively enabled the transfer of post-reorganization assets to unrelated parties.
On the other hand, the lack of clear guidance from the COBE regulations on whether a SPAC undergoing a de-SPAC transaction has a historic business that AC may continue presents significant challenges. The interchangeable nature of cash further complicates the analysis, and the subjective nature of the “significant portion of the assets” test creates unnecessary confusion. From a policy perspective, some de-SPAC transactions do not resemble a sale of business assets of the SPAC, and the economic reality of de-SPAC transactions suggests that there has been no liquidation of assets held by the SPAC. Instead, some de-SPAC transactions could properly be viewed as a readjustment of continuity interest in property under modified corporate forms.
Therefore, interpreting COBE as a SAAR is not only doctrinally sound but also beneficial in terms of practicality and policy considerations. But that approach alone does not fully resolve all the challenges associated with the COBE requirement. As a solution, we propose that a GAAR be implemented to scrutinize the application of COBE and other nonstatutory requirements under the reorganization provisions of the code. A GAAR would empower the IRS to address abusive transactions that undermine the policy objectives of the reorganization provisions.
Press Release, UCI Law Graduate Tax Program’s Andres Berdugo ’23 Named 2023 Tax Notes Student Writing Competition Winner:
The University of California, Irvine School of Law (UCI Law) is proud to announce that Andres Berdugo (’23), a recent LL.M. graduate of the UCI Law Graduate Tax Program, was named the winner of the 2023 Tax Notes Student Writing Competition for his article titled, “Form Follows Function: A Critical Analysis and Reassessment of the Continuity of Business Enterprise Doctrine.” The annual student writing competition recognizes superior student writing on unsettled questions in federal, state, or international tax law or policy. Berdugo’s article will be published in Tax Notes Federal, Tax Notes International, and Tax Notes State in September.
“I chose to embark on writing my paper primarily to have the privilege of learning from Professor Joshua D. Blank in his Tax Writing course,” said competition winner Andres Berdugo. “The paper he authored, which I encountered during my Corporate Taxation class, titled ‘Confronting Continuity: A tradition of fiction in Corporate Reorganizations,’ profoundly influenced the topic I opted to explore in my own paper, as well as the approach I undertook. The mentorship and guidance I received from him throughout the process of writing this paper have been invaluable.”
“Thus, when I received the news that Tax Notes had selected my paper for publication, my first action was to express my gratitude to him,” Berdugo added. “I consider myself extremely fortunate to have benefitted from his mentorship, and I firmly believe that this achievement is built on the foundation of his guidance.”
Ariel S. Greenblum, Presenting Andres Berdugo, Our Student Writing Competition Winner, 180 Tax Notes 2333 (Sept. 25, 2023):
Andres recently accepted a position as a tax associate at Chamberlain, Hrdlicka, White, Williams & Aughtry in its San Antonio office. His role will encompass tax controversy and tax planning, including international tax matters. The best piece of advice Andres received as a tax student is that the lawyer who only knows the law knows nothing. Understanding a client’s business model and actively participating in its full legal team is important, as is appreciating how the economics of a particular transaction are relevant to any advice provided.
Andres has sought to apply this knowledge by contributing skills such as graphic design and client relationship management to the firms with which he’s worked.
Andres’s advice for aspiring tax lawyers? He recommends the TouchTax app. Access to the IRC and Treasury regulations on an iPhone or iPad is invaluable, he says.
