In finance and accounting, property is anything that is held by an individual or a corporation that is regarded as an economic resource. As such, the thing can be controlled and manipulated to produce economic value and benefits to the owner. The property can thus be converted to cash at any time to suit the needs of the owner. Examples of property can be land or buildings. Entities can hold the above examples for varied reasons. A property becomes recognized in a particular body when a future benefit is associated with the property to flow to the entity and secondly when the cost of the ownership can be measured with much reliability.
26 USC §351 Transfer to Corporation Controlled by Transferor
According to the law in 26 USC §351, it recognizes that no loss will be detected if a person or a group of individuals transfer property to a corporation with the aim of exchange with the stock of the corporation; such a person or the group of individuals takes charge of the corporation with immediate effect. For that case, it means the purposes of control of that particular section are determined by the fact that, any corporation is mandated to enter into the distribution of a transferor’s part. Either, all of his or her stock in the same corporation for which it accepted its receivership with the aim of changing possession to its shareholders will not be given a primary concern.
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Secondly, on the application of the general rule, if the requirements of section 355 are adhered to in regard to the laws of the distribution discussed in the exchange of property with the shareholders, determination of how the tax transfers of property are treated by the distributing corporation to the controlled corporation (Leong, 2003). To determine the control, the section does not take into account the reality of shareholders of a distributing corporation disclosing part or whole of the stock that is distributed.
It can also capture corporations that distributed some stock but went ahead to issue out additional stock. With the above law in effect, courts have gone ahead to control the requirement of the section as not to be complacent with the desires of organizations or owners since the transferor of a property to a corporation in exchange for stock, losses control of the corporation by selling part or whole stock under taxable terms to a third party that cannot transfer the same property to a corporation for the same reason of exchange for stock.
In the analysis of property transfer, when there are two parties involved but at the same time separate entities, it is usually prudent to determine whether transferors of the property have failed to adhere to the control requirements of the section 351. It is requisite because the section is considered to be a deliberate attempt set by the Congress in a bid to facilitate incorporations of running businesses and limit the constructions that are technical but economically unviable. Pre-arranged sale of the stock is preceded by property transfer which is received and treated as not in line with intentions of the Congress in section 351 to enable the rearrangement of the interests of the transferors to his property.
As provided by the United States Code 26 USC §351, any property that is received by a taxpayer will be treated as one which is not like a kind property. This is happens because the property is not recognized anywhere to have been received in the form of exchange after the day the taxpayer transfers the same property to another third party or such a feature is received earlier than the stipulated days in the Federal Constitution after the day which the tax payer transfers it again to a third party before the due date including the extensions that have been allowed by the constitution which the transfer of the relinquished property occurs.
Disposition of the received stock comes after the treatment of the transferor of the property but not taxed. Consequently, even if the stock received is transferred between two parties the control requirements may be satisfied regarding a commitment that is binding in place upon the exchange of the property for stock (Brown, 2018). A transferor will not cause his or her partner to fail to satisfy the control requirements when the first transferor treats the second one inconsistently with Code 26 USC §351351 in accordance with the purposes described in it.
However, interests accrued on property, specific forms of debts entered to by the corporation or particular services outlined in Code 26 USC §351 as not to be treated as property for the particular segment, stock will be given out for services. The interests that are made on the debts on the transferee’s corporation that came about as a result of the start of the transferor holding the debt for a given period, and the obligations of the corporation that is transferring with no evidence by the security will not be considered as to have been issued in compensation for the property.
The rules of Code 26 USC §351 do not apply to transferring of property to a company that involves itself in investment activities. A company considered an investment company or to indulge in such business by the section when all the stock and securities held by the company are taken into account. All property shall be treated as stock and security unless it is provided in the regulations that have been described by the secretary of the company. Any interest that is in the form of precious metal, unless the precious metal is held in the active conduct of business after the contribution is also termed as a property. Additionally, any interests of an entity which has significant properties that directly or indirectly contain a description about the conduct of the business after the contribution are also termed as properties.
The tax system of any country considers the value of properties to a certain extend. This means that a country’s tax system going ahead to impose the tax without fully knowing the jurisdiction within which the tax imposed on the property should lie is liable for the violation of section 351 of the corporations. Occasionally the matter has been of concern, but due to extensive research on the causes, the previous principles have been well dealt with by Supreme courts to accommodate them. The jurisdiction problem of tax imposed on properties is depended upon the exact location of where the property is situated. It mostly applies to the tangible properties such as real estate and land. Their position can be readily determined since they have a realistic sense.
Integration of Conflicting Holding Purposes Under I.R.C. Sections 121, 280A, and 1031
For the case of intangible properties, a different mechanism has to be used when imposing tax since they do not usually have a fixed location or a permanent one. The intangible property cannot be taxed separately in the case where it represents merely the presence of the tangible property. It has at times made things difficult in courts as there is no actual or business location that can be associated with the intangible product (Manolakas, 2013). At times judges have gone ahead to make decisions depending on the location of the owner of the property which does not make it as legitimate as it ought to be in the laws of finance and accounting.
Arguments about the already settled rule of the intangible properties having no definite location they can be traced by to be taxed in lieu with the location of the owner have been given second thoughts by the majority of the court decisions in the recent times due to a rise in cases of such particular nature. The decisions based on the ruling of such cases has been perceived to be influenced by the general feeling of the juries in courts but not according to what is written in the books of laws related to business.
Properties such as real estate or land that is not held by the original owner but say a dealer for future use or anticipation for a rise in its value and thus for investment but not with the sole purpose of selling is determined by two factors. The first one is the intention of the holder, and the second one is the length of time taken by the property owner within the period of use or trading purposes. The subjective intend determines if the received property after selling it goes ahead to satisfy the statutory holding intent requirement based on the one in the subject. The property owner is, therefore, charged to provide enough evidence in a bid to proof where the two intentions rhyme with each other to hold the property.
Secondly, properties are required that they are held by their owners for a use that is productive in any form of trade or business transacted. It also goes hand in hand with the time with which the property is to remain in his possession with the aim of determining its purpose though the statute does not give a precise definition of the period that one is to stay in possession of the property. So long as the time the property is held is for productive use for investment or in business is the one significant to determine the intentions of the taxpayer at the same time the property owner? As stated by the Internal Revenue Service, leasing or renting a property which was for replacement purposes for not less than two years after the exchange of the same satisfies the intentions of the requisite intent as there are no other significant controversial factors for the investment intention of the property owner.
State Property Taxes and the Federal Supreme Court
Restrictions on how tax can be imposed are still evident regarding the persistent actions of the state on the jurisdiction to tax the properties in complacent with the Federal Constitution about what was interpretation and understanding of the Supreme Court. The most important issue addressed is the respect to discrimination as seen between the owner of the property and the property itself. The clause should be clarified to prevent the violation of the equal protection extended on both sides by the amendments. A broad scope has been given to the states by the courts in imposing property tax in addition to other forms of tax at the same time to exercise some sanctioning powers of considerable amounts to discrimination just in case they have not been justified clearly by the books of business.
In particular, the states can go ahead and impose the tax on certain types of properties depending on their species just in case they are reasonably classified as not being arbitrarily pure. It means that the court has not put down in writing in the Federal Constitution about the uniformity and equality provisions are similar in the constitutions of the states. As long as discrimination is practiced, it is bound to be exercised within certain limits that are preserved. The form of discrimination is that between residents and nonresidents. It is because it has been prohibited by the immunities and privilege clause in the constitution. However, on the other hand, the processes and procedures followed in the imposition of the property tax are maintained as they are meant to sustain the balance of the positions held by the residents and the nonresidents so that the property taxes can be easily collected from the nonresidents without interfering with the residents.
Another probable discrimination exhibited in the property tax imposition is that linked between the corporations and the individuals. The economic discrimination that comes about due to taxing separately properties belonging to a corporation and the stock of the corporation in separate terms to its stakeholders, it is entirely and permissible. From a legal point of view, independent properties are to be owned by different individuals. However, the existence of double taxation in the economy has allowed the stock of a corporation not to be taxed since the corporation itself is always subjected to property taxation. The property tax of the corporation can even be measured according to the willingness of the state through the evaluation of the value of its securities in the market which in broader terms is considered to be the appraisal value of its actual properties encompassing both tangible and intangible.
With regards to the set of rules and regulations enforced by the Federal Supreme Court about state property taxes, it also considers the procedural requisites which a specific court follows in the course of making decisions relating to the taxes. However, any court is bound by the same laws to act within the designed limits that have to see it enforced in such a way that it is in line with the property of the owner and does not suppress his or her substantive rights by giving him a notice in advance that is reasonably accompanied by a fair hearing from the court. Take an example of a real estate assessment which has been found to be attached to a wrong name (Gilbert, 2018). As far as the Federal Constitution is concerned, a property owner has no right as per the constitution to have his land or building assessed under a name that is not his but is just expected to remain in watch of assessment of his property to which the court retains the informal back tax assessments conducted.
The constitutionality of the states providing for prosecution of crimes against property for taxes on resident owners on properties that have been appropriately taxed and assessed against them do not seem to have been passed by the court. However, such procedures are never interfered by the court since some states subscribe to the particular method of property collection. Any matter, therefore, arising from the doubt of the constitutionality reasoning cannot be accepted by the court at all costs. The court has handled much more methods of property tax collection that are severe and has even sustained them in whichever angles they appear from in collection of Federal Taxes related to the property. Therefore, it is hard to believe that the court can hold methods that are comparatively mild and unconstitutional when it comes to tax collection. Courts have the powers to keep property tax collection inferentially by suit based on the requirements that are almost equitably assumed.
A property owner whether a corporation or an individual despite enjoying the benefits that come with the ownership is faced with a couple of problems to which remedies have to be provided for. It is majorly involved in the taxation that is in most cases illegally applied by taxation institutions. Solutions have been sought in Federal courts since time immemorial except where the constitution invades his rights to property ownership. The remedies are usually two. The first one is to sue the allegedly illegal tax imposed on him as per the value of the product or sue the taxation institution in a bid to recover the amount imposed as part or whole as per his claims to the illegal taxation.
States have come hand in hand with corporations and individuals with the aim of protecting the property owners. They have put limitations that are reasonable to maintain the suits to recover the property taxes that have been illegally collected. They have gone further by developing their courts besides the Federal ones to aid in dealing with the violation of the Federal Constitution regarding the collection of illegal property tax from individuals and corporations. If the state property tax is allowed to be collected by proceedings of the court, then there will be no injunction or the owner of the property will get it in the state court. The Supreme Court, therefore, advocates for extension of equitability relief against the collection of taxes being given in Federal Courts without a proof that is sufficient I term of evidence to undoubtedly bring to light an independent basis for involvement in the collection.
Two conditions have ordinarily been linked to the extension of equitable relief by the Supreme Court to property owners in respect to the properties they possess in consideration of their value. The first one is that the property owner charged with the duty of paying tax for the property must have exploited and exhausted all the remedies allocated to him or her by the administration and he has no other option but to recover the illegal taxes imposed on him as a prerequisite to the suit. Secondly, the property owner is entitled to clearing all taxes he is supposed to just in case he had not paid them to the authorities in the previous financial years of the state before he or she seeks out on some relief offered by the state.
References
Brown, R. (2018). State Property Taxes and the Federal Supreme Court. Indiana: Indiana University School of Law.
Gilbert, C. (2018). What Constitutes Property. Google Books. Retrieved 25 April 2018, from https://books.google.co.ke/books?id=9Q08AAAAIAAJ&pg=PA632&lpg=PA632&dq=The+Southwestern+reporter+case+law+summary+on+properties&source=bl&ots=nZn8OHnbk1&sig=SffR7XIi706ybE9qpb2dsGUPcKM&hl=en&sa=X&ved=0ahUKEwiSqu3189XaAhUFpo8KHWhtBr8Q6AEIXTAE#v=onepage&q=The%20Southwestern%20reporter%20case%20law%20summary%20on%20properties&f=false
Leong, L. (2003). Transfer to Corporation Controlled by Transferor. Retrieved 25 April 2018, from https://www.irs.gov/pub/irs-drop/rr-03-51.pdf
Manolakas, C. (2013). The Mixed Use of a Personal Residence: Integration of Conflicting Holding Purposes Under I.R.C. Sections 121, 280A, and 1031. Pacific McGeorge School of Law.
