What Corporate Tax Shelters Can Teach Us About the Structure of Subchapter C

Coven argues that the rules extending nonrecognition treatment to the incorporation of property never have been properly integrated with the double taxation of corporations. As a result, the duplicate burden or benefit is applied retroactively. That defect, Coven believes, has been long overlooked, but now that it has been exploited by one popular version of the loss replicating corporate tax shelter, it must be addressed. The remedy applied by Congress to the tax shelter in section 358(h) is insufficient, does not operate correctly and undermines the integrity of the code, he says. This article proposes a more comprehensive solution that would improve the code by eliminating both the benefits and the burdens of the retroactive double tax through dual basis adjustments similar to those used in partnership taxation. The article was prepared before the adoption of section 362(e)(2). That provision, however, merely underscores the need for the solution suggested here, Coven concludes