A recent Tax Court case illustrates the reach of the economic substance doctrine and the step transaction doctrine. For the benefit of our readers, we have briefed the case below:
Complex Media, Inc. v. Comm’r, T.C. Memo. 2021-14 | February 10, 2021 | Halpern, J. | Dkt. Nos. 13368-15 and 19898-17
Short Summary: Taxpayer-corporation (Corp.) acquired the assets of a business from a third-party partnership (P’ship). In exchange for the transferred assets, Corp. issued approximately 5 million shares of common stock. Immediately thereafter, Corp. redeemed 1.875 million of the common shares held by P’ship in exchange for $2.7 million in cash and Corp’s obligation to make an additional payment of $300,000 a year later. P’ship paid the cash and assigned its right to the additional payment to one of its partners in redemption of that partner’s interest in P’ship. Corp. claimed an increased basis of $3 million in intangible assets it acquired from P’ship and amortized that additional basis under I.R.C. § 197(a). The IRS disallowed the deductions under I.R.C. § 197(a).
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