In Uncategorized on 01/31/2022 at 16:40

Timberland, the ourtdoorsy schmattists (I have a thirty-five year old pair of their shoes that wear like steel), did the usual inversion with their IP after they merged with another sporting clothing merchant, and wanted to do a pay-as-you-go over a 20-year useful life per Section 367(d)(2)(A)(ii)(I) rather than immediate gain recognition under I.R.C. §367(d)(2)(A)(ii)(II) by reason of Timberland’s constructive transfer of intangible property.

Judge Halpern says “Nope,” in 92 (count ’em, 92) pages, in TBL Licensing LLC f.k.a. The Timberland Company, and Subsidiaries (A Consolidated Group), 158 T. C. 1, filed 1/31/22. Timberland elected nonrecognition for some of the consolidateds, hence the reorganization twist.

Timberland started with a Section 368(a)(1)(F) reorganization, which means that they have made a constructive transfer of Section 936(h)(3)(B) property, meaning an immediate pick up of gain based on expected useful life, not the Temp. Reg. Section 1.367(d) 1T(c)(3).

There’s a side fight about whether Timberland was funded with offshore cash that had never been taxed, but that plays no role in the outcome. See 158 T. C. 1, at p. 7, footnote 4.

If any of this makes sense to any of you, my condolences. Briefly, the idea that if an onshore lays off property to an offshore in a reorg, it’s taxable, even if the same deal between two onshores would result in nonrecognition of built-in gain (basis bortscht, FMV a telephone number with country, city and area codes). And here the FMV is stiped at a billion-and-a-quarter plus.

The whole story is timing: when must the onshore pay up? The NYSBA Tax Section issued a report on the subject, but Judge Halpern isn’t giving it much weight, if any.

IRS wins. I leave it to the specialists to dissect the reasoning. And I fully expect an appeal.


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