Step Transaction Basics & the IRS

One of the things that makes law such a fascinating field is the way that it forces us think in ways which are generally foreign to most of us. To think in “legal terms” is to think analytically, to mentally break down events in such a way that causality can be unraveled and properly assigned. This thought process doesn’t come naturally to most people – including many trained lawyers – and so it’s not uncommon for many people to struggle grasping certain legal concepts. The so-called step transaction doctrine is a good example of a legal theory which is designed to uncover the correct nature of a business transaction using analytical reasoning.   The IRS has provided insight into its interpretation of the step transaction doctrine and its application to tax-free reorganizations.  In Revenue Ruling 2008-25, the IRS clarified that it considers a step transaction to essentially be an umbrella concept which…

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