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Corporate Dilution Article Recognized in Review of Ten Leading Corporate Tax Articles

May 3, 2016

Tax Notes, a subscription-based publication providing news, analysis and commentary for tax professionals, recently recognized an article co-authored by Loyola University law professor Jeff Kwall and Varnum tax attorney Katie Wilbur as one of the ten leading corporate tax articles published in 2014 - 2015.

Articles selected for the Tax Notes review, published April 11, 2016, were selected "with the goal of alerting readers to articles that may be of interest but escaped their notice." Criteria for articles included in the review included a focus on "pure" corporate tax matters and that the article not have been previously published in Tax Analysts publications. Instead, the reviewers focused on law reviews and specialized tax journals.

Kwall and Wilbur's article, "The Outer Limits of Realization: Weiss v. Stearn and Corporate Dilution," examines the question of when corporate dilution should trigger a tax realization event. It explores the U.S. Supreme Court's 1924 decision which held that the transfer of shares in a company that diluted the proprietary interest of shareholders from 100 percent to 50 percent did not constitute a taxable event. The article calls for clarification on dilution realization, which, in the 90+ years since the decision, has been determined on an ad hoc basis.

In the Tax Notes summation, the reviewers noted:

"Kwall and Wilbur suggest that Congress enact targeted non-recognition rules that would defer tax on some dilutive transactions. Although the reorganization rules already provide non-recognition relief for many dilutive transactions, there is no indication that those rules were drafted specifically to address this problem.

"The authors contend that because the realization doctrine has been significantly liberalized since Stearn, it is time to reconsider the flaw in the Court's reasoning in that early case."

Kwall and Wilbur's article, originally published in the Florida Tax Review, can be found in its entirety at

Katie Wilbur is an associate in the firm’s tax practice. She focuses on federal income tax matters for both foreign and domestic clients and issues pertaining to employee benefits and executive compensation.

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