Opinion ID: 415638
Heading Depth: 1
Heading Rank: 9

Heading: R.C. Sec. 815(d)(2)(A) provides as follows:

Text: (2) Termination as life insurance company.-- (A) Effect of termination.--Except as provided in section 381(c)(22) (relating to carryovers in certain corporate readjustments), if-- (i) for any taxable year the taxpayer is not an insurance company, or (ii) for any two successive taxable years the taxpayer is not a life insurance company, then the amount taken into account under section 802(b)(3) for the last preceding taxable year for which it was a life insurance company shall be increased (after the application of subparagraph (B)) by the amount remaining in its policyholders surplus account at the close of such last preceding taxable year. 9 In the Tax Equity & Fiscal Responsibility Act of 1982, Sec. 225, Pub.L. No. 97-248, 1982 U.S.Code Cong. & Ad.News (96 Stat.) 10, 169, Congress restricted the range of transactions that may be classified as F reorganizations. As amended, section 368(a)(1)(F) limits F reorganization treatment to a mere change in identity, form, or place of organization of one corporation, however effected (emphasis added). Because the amendment applies only to plans of reorganization adopted on or before August 31, 1982, it does not control the disposition of this case 10 The IRS requirements for recognition of an F reorganization are similar. Rev.Rul. 75-561, 1975-2 C.B. 129, states that a combination of two or more corporations qualifies as an F reorganization if: (1) There is complete identity of shareholders and their proprietary interests in the acquired corporation and the acquiring corporation; (2) The acquired corporations and the acquiring corporation are engaged in the same business activities or integrated activities before the combination; and (3) The business enterprise of the acquired corporations and the acquiring corporations continues unchanged after the combination. 11 For a review of the historical development of the continuity of interest requirement in the context of corporate reorganizations, see B. Bittker & J. Eustice, supra, p 14.11 12 All negotiations in connection with the acquisition of Southern were conducted by Ourso in Security's name. Security arranged the necessary financing with the Bank prior to making an offer to the Southern shareholders; the Bank's confirmation of the borrowing agreement noted that [i]t is recognized by us that it would be your intention to merge the companies if you were successful with your purchase arrangements. The initial purchase offer to Southern's shareholders was made by Security as well. OIC was not even incorporated under state law until December 21, 1970, well after these preliminary negotiations had transpired. The formation of OIC did not disrupt the plan Security had set in motion. On January 2, 1970, two days before the Southern shares were tendered, the OIC board of directors resolved to liquidate Southern as soon as OIC acquired control. Immediately upon acquiring all the Southern shares, OIC (as Southern's sole shareholder) resolved to liquidate Southern; Ourso, as Southern's liquidator, entered into a reinsurance agreement with Security. Within 48 hours after OIC acquired the Southern shares, OIC had cashed out the Southern shareholders, paid off a portion of its acquisition-related debt with the proceeds of Southern's net worth and surplus, and transferred Southern's assets to Security The Standard acquisition differed from that of Southern only in that OIC, not Security, participated in the initial negotiations. On October 19, 1971, a week before OIC acquired the Standard shares, the OIC board resolved to liquidate Standard immediately upon acquiring control. On October 25, 1971, the very day the shares were purchased, OIC (as Standard's sole shareholder) resolved to liquidate Standard. One week later, on November 3, 1971, Standard in effect sold its assets to Security by means of a reinsurance agreement. All of Standard's operating assets were transferred to Security by December 31, 1971. In slightly over two months, Standard's shareholders were eliminated, its net worth and surplus were liquidated to pay off OIC's purchase money loan, and its assets were transferred to Security. As both parties noted at oral argument, these documentary facts are undisputed. In light of the state of this record, any conclusion other than an intention to liquidate would be clearly erroneous. Consequently, we find it unnecessary to remand for findings of fact on this point. 13 Cf. Aetna Casualty & Sur. Co. v. United States, 568 F.2d 811 (2d Cir.1976), reh'g denied, 77-1 U.S.Tax Cas. (CCH) p 9261 (F reorganization treatment allowed, for purposes of net operating loss carryover only, where identity of shareholder interests between acquired and acquiring corporations measured only 61.1%) 14 Some language in the district court's opinion is reminiscent of step transaction analysis. For example, the district court observed that [p]rior to OIC's purchase of Southern's stock, there was no binding commitment to merge Southern with Security, nor was there a definite commitment to liquidate Southern. The court also noted that the liquidation and merger were in no way foreordained at the time OIC acquired Standard. Thus the district court arguably addressed the step transaction issue sub silentio. As we explain in text, however, supra at 1245, the binding commitment test has been limited in application to a narrow category of cases to which this case does not belong; accordingly, the district court's reliance on the absence of any binding commitments was misplaced. Furthermore, to the extent the district court applied the end result test, its finding that the various steps in these transactions were not foreordained must be considered clearly erroneous in light of the ample documentation to the contrary and the immediacy with which the plans were executed 15 For a history of the evolution of the rule of Sec. 334(b)(2), see B. Bittker & J. Eustice, supra, p 11.44(2). As for the future of Sec. 334(b)(2), see Tax Equity and Fiscal Responsibility Act of 1982, Sec. 224(b), Pub.L. No. 97-248, 1982 U.S.Code Cong. & Ad.News (96 Stat.) 10, 167-68 (repealing Sec. 334(b)(2)) 16 Briefly, Security's argument is that it cannot be a transferee under I.R.C. Sec. 6901(h), which defines a transferee as a donee, heir, legatee, devisee, [or] distributee, because it was a good faith purchaser of the Southern and Standard assets for value from OIC 17 Section 6901(c) provides that the period of limitations for assessment of transferee liability shall be as follows: (1) Initial transferee.--In the case of the liability of an initial transferee, within 1 year after the expiration of the period of limitation for assessment against the transferor; (2) Transferee of transferee.--In the case of the liability of a transferee of a transferee, within 1 year after the expiration of the period of limitation for assessment against the preceding transferee, but not more than 3 years after the expiration of the period of limitation for assessment against the initial transferor. In this case, the Sec. 6901 limitations period would have expired on March 15, 1975, as to Southern and on March 15, 1976, as to Standard. Because the transferee liability agreements signed by Ourso are undated, Security argues that the government has failed to show that the documents were signed before the statute of limitations had expired.