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Interview: How to Write About Tax 

Posted on July 14, 2021

In this installment of Willis Weighs In, Tax Analysts’ Jasper Smith, Executive Editor for Commentary, talks with Tax Notes contributing editor Benjamin M. Willis and Jillian S. Brennan, 2021 valedictorian of the Villanova University Charles Widger School of Law, about their article on zero-basis debt and writing about tax.

Here are a few highlights from their discussion, edited for length and clarity.

Jasper Smith: Jillian, can you tell us a little bit about what motivated you to write your first tax article?

Jillian S. Brennan: Professor Willis, or Ben as he tells me to call him now that I’ve graduated, offered it to myself and my good friend Celso Leite. We got the best grades in his class, and he offered us this great opportunity to coauthor with him, and far be it from us to say no. We really wanted to write about something that we thought would have real practical implications for practitioners out there. And Ben had this great topic in his back pocket that he was willing to share with us.

Jasper Smith: Excellent. So, let's talk a little bit about the article on zero-basis debt, right?

Jillian S. Brennan: Sure. So, there's only two real cases that address this issue. There is Lessinger out of the second circuit and Peracchi out of the ninth circuit, and they both have very similar factual backgrounds. The gist is that a taxpayer was trying to avoid section 357(c) gain where they're transferring assets to their corporation, and the liabilities and those assets are greater than their basis in those assets.

So, the taxpayers transfer a promissory note to make up the difference, and the IRS comes after them saying, no, you can't do that. You can't make up the difference with your own promissory note. Both courts really ground their analyses in economic realism and say the notes can wipe out potential for section 357(c) gain. Ben, if you want to take it from here.

Ben Willis: Rev. Rul. 80-229 really added a lot of clarity and, I think, a new angle and perspective to this historic issue. What the IRS failed to appreciate is that, while debt has no basis before it’s outstanding, once a legally enforceable obligation under state law springs into existence, an asset is created and basis is given for that payment obligation.

That’s why historic cases like Crane and Tufts conclude that you get basis for debt. That's why you're not picking up income when you get loan proceeds, because you've given this legally enforceable obligation that offsets it.

I think where we created a little bit of a new twist is showing how the inverse can happen. In other words, when you have a distribution of a note from a corporation to a shareholder, it's clear that the shareholder gets basis, and that was demonstrated in Rev. Rul. 80-228 where a self-created note gives rise to section 351(b) boot.

Importantly, is clear that there was no gain that was triggered on the distribution of that note. If that was an actual asset in the corporation’s hands that had zero basis, as a self-created note, then they would have recognized gain. That note distribution didn’t create gain based on the same principles in Tufts and Crane. That same springing logic applies to a contribution, and, therefore, you don't have to worry about section 362 carryover basis. A section 1001 transaction can give rise to basis notwithstanding that it may also be a covered by section 351.

Jasper Smith: Can you talk to us a little bit about the process of writing your first article, Jillian?

Jillian S. Brennan: Sure. Ben was great. He sent us all these awesome articles and really helped us direct our research, but he certainly didn't make it easy on us either. He really challenged us to dig deep, think about the subject matter from different angles, and really make the article what we wanted it to be, which was practical.

Ben Willis: I'm glad to hear that it wasn't easy for Jillian because it was incredibly easy for me. Celso and Jillian clearly did a fantastic job due to their hard work. It is a tough topic. Their collaboration was just inspiring to watch. I love that.

Jasper Smith: So, Jillian, do you have any advice that you'd like to share with those who might be looking to write their first article or who are currently writing their first article?

Jillian S. Brennan: Sure. Just like anything with law or anything worthwhile generally, it's a lot of hard work. Plan for a lot of drafts. Plan for a lot of editing. Try to find a great mentor. It was really a labor of love.

Good research skills are just absolutely king. Then Ben taught me how to take all that research and boil it down into a short and easy to read article that’s practical. 

Jasper Smith: So, Ben, do you have anything you want to add in terms of advice for students?

Ben Willis: Jillian really reminded me that the process and the journey is what writing is all about. Jillian and Celso always appreciated the learning. And I think that's why she was so connected to the journey, the development, the process. You want to learn the most so no matter what happens with publication you’ve grown personally and can share that value. You’re really teaching yourself, and loving that is key to success.

Jasper Smith: Very good advice. Both of you. And I certainly echo your sentiments. And the only thing I'd add is just, you know, don't be afraid to take the plunge, get out there and try and hone your craft, and you can only get better at something by constantly working on it. 

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