TAX SIMPLIFICATION RECOMMENDATIONS
Posted February 2001

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Collapsible Corporation

Repeal the collapsible corporation provisions. The repeal of the General Utilities doctrine in 1986 rendered IRC § 341 redundant. By definition, a collapsible corporation is a corporation formed or availed of with a view to a sale of stock, or liquidation, before a substantial amount of the corporate gain has been recognized. Since 1986, a corporation cannot sell its assets and liquidate without recognition of gain at the corporate level; likewise, the shareholders of a corporation cannot sell their stock in a manner that would allow the purchaser to obtain a step-up in basis of the assets, without full recognition of gain at the corporate level. Because it was the potential for escaping corporate taxation that gave rise to IRC § 341, it is now deadwood and should be repealed. Its repeal would result in the interment of the longest sentence in the Code.

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