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Survey Article


The Eleventh Circuit Court of Appeals examined prominent and controversial tax issues during 2000. The technically difficult concept of cancellation of indebtedness income as it relates to the basis of a Subchapter S shareholder's interest was examined just prior to the United States Supreme Court's interpretation of this tax concept. The Supreme Court agreed with the interpretation of Internal Revenue Code ("I.R.C.") section 1366 espoused by the Eleventh Circuit. The Eleventh Circuit also examined an issue that the Supreme Court may soon consider when the circuit court followed the lead of an early 2000 Tax Court case examining the tax consequences of a corporate stock redemption incident to a divorce. Though the Eleventh Circuit characterizes the transaction as a tax free sale to the nonredeeming spouse under the provisions of I.R.C. section 1041, disagreement among the circuits and split decisions of the lower courts insure further examination of the Eleventh Circuit's position. The Eleventh Circuit also determined that an amount received for damages to business reputation received before the amendment to I.R.C. section 104(a)(2) on August 20, 1996, is excluded from tax. In that case, the court was required to revisit the concepts articulated by the United States Supreme Court in Commissioner v. Schleier and United States v. Burke. A case involving a procedural issue examined whether the action of a tax matters partner ("TMP") is binding on the partners and whether the partners were informed of administrative and judicial proceedings occurring on the partnership level. In addition, common tax transactions causing disagreement over the appropriate legal standard to be applied were also reviewed. The Eleventh Circuit denied a payor spouse an income tax deduction for a payment required by a divorce agreement. The payment was held to constitute child support because it was deemed to be fixed by a divorce instrument. Another case involving reimbursed traveling expenses reversed the grant of a summary judgment to the government.