Conflicting Definitions of "Liabilities" Threatens Some Tax-free Reorganizations

Abstract

The assumption of "liabilities" in reorganizations and Section 351 transfers can constitute boot and create taxable gain in an otherwise tax-free transaction. But what are "liabilities" for this purpose? Recent cases have raised conflicting theories about their nature (particularly for cash basis taxpayers), which can adversely affect a wide range of corporate transfers. Professor Phelan analyzes the impact of these late developments in the reorganization area.