repeal of the
General Utilities doctrine in 1986, (14) taxpayers had the
The
General Utilities doctrine was repealed by the Tax Reform Act of 1986, P.L.
Previously, the
General Utilities doctrine had, with some exceptions, allowed a corporation to distribute appreciated property to its shareholders without recognizing gain.
The
General Utilities doctrine, named for the (1935) Supreme Court decision (1) allowing a corporation to distribute appreciated assets to shareholders without reporting a taxable gain, was once known as one of seven fundamental principles of American corporate taxation.
(1.) In general, two taxes are due under sections 336 and 301 of the Internal Revenue Code upon dissolution of a C corporation because of the repeal of the so-called
General Utilities doctrine by Tax Reform Act of 1986.
The LDR was adopted in 1991 in order to prevent the investment adjustment system of the consolidated return regulations from circumventing the repeal of the
General Utilities doctrine. The LDR was also meant to prevent the losses of a subsidiary from being duplicated in the form of a parent's investment losses.
The avoidance of capital gains tax was based upon the
General Utilities doctrine. Under the
General Utilities doctrine, a corporation could avoid recognition of gain on the distribution of appreciated property to its shareholders.
99-514, as part of the repeal of the
General Utilities doctrine. The
General Utilities doctrine grew out of General Utilities 6.
The Tax Reform Act of 1986 repealed the
General Utilities doctrine by requiring corporate-level gain recognition on a corporation's sale or distribution of appreciated property, regardless of whether it occurs in a liquidating or non-liquidating context.
In 1986, Congress repealed the last element of the
General Utilities doctrine. As a result, corporations must recognize gain when they distribute appreciated assets to stockholders, regardless of whether they structure the transaction as a property dividend or as a stock redemption.
It held that as a result of the repeal of the
General Utilities doctrine, a tax liability upon liquidation or sale for built-in capital gains was not too speculative.
Under the 1986 act, the
General Utilities doctrine was repealed, with a few exceptions: distributions in kind, sale of investment assets and the Section 1231 element as to assets used in a trade or business.
