In Camp v. Robinson, No. 10609D, (La. Bd. Tax App. June 13, 2018), the Louisiana Board of Tax Appeals (the “Board”) held that Louisiana’s Individual Net Capital Gain Exclusion applies to a multi-step transaction.  In so holding, the Board read more broadly the scope of the transactions to which the capital gain exclusion may apply and rejected the Louisiana Department of Revenue’s (the “Department”) narrow construction of the exclusion.

In Camp, the taxpayers sold the assets of their nonpublicly-traded Louisiana-domiciled business to a multi-national conglomerate in 2013.  The sale was structured as a tax-free reorganization under Internal Revenue Code Section 368.  As part of the reorganization, the taxpayers’ business received stock of the acquiring corporation and took a basis in that stock equal to the business’s basis in the assets sold.  As a result, no gain was immediately recognized on the sale of the business’s assets, instead the gain was deferred until the stock received in exchange for the assets was sold.

The acquisition agreement imposed a one-year holding period on the stock received by the taxpayers’ business.  Two years after the reorganization, the taxpayers’ business distributed a portion of the stock to the taxpayers and the individuals subsequently sold that stock and realized a gain on the sale.  On their 2015 individual income tax return, the taxpayers took the position that the gain they realized on the sale of stock qualified for the Net Capital Gain Exclusion, which permits a taxpayer to exclude gains recognized and treated for federal income tax purposes as arising from the sale or exchange of an equity interest in or substantially all of the assets of a nonpublicly traded business organization commercially domiciled in Louisiana.[1]

The premise of the taxpayers’ assertion was that the 2015 sale of the acquirer’s stock was one part of series of steps in a single transaction designed to facilitate the sale of the business.  In contrast, the Department viewed the sale as an isolated transaction and asserted that gain recognized on the subsequent sale of the acquirer’s stock did not “arise” from the sale of a nonpublicly traded Louisiana domiciled business because the acquirer was a publicly traded foreign company.

In ruling for the taxpayers, the Board first reviewed the language of the statute and concluded that if the transaction was viewed in isolation it must find in favor of the Department but if the transaction was viewed as one part of a sequence of steps in a single transaction the taxpayers should prevail.  Because the statute was ambiguous as to whether it applied to a multi-step transaction, the Board then reviewed the statute’s legislative history.  According to the Boardthe Louisiana legislature intended to remove the incentive for a Louisiana business owner to relocate to a state without a capital gains tax before selling a private business.  Accordingly, the Board could not discern a reason why the structure of a transaction as a tax-free reorganization should result in the revival of the incentive (to relocate) that the Legislature sought to eliminate.  For those reasons, the Board concluded that the taxpayers were entitled to claim the exclusion on the subsequent sale of the acquirer’s stock.

Although the Board held in favor of the Taxpayers on the substantive issue, the Board ultimately declined to grant the taxpayers’ motion for summary judgment.  The Board reasoned that f the additional gain attributable to the post-exchange appreciation of the acquirer’s stock was ineligible for the exclusion and the taxpayers did not establish the value of the consideration prior to that appreciation.  As a result, the Board determined there was an unresolved issue of material fact precluding summary judgment in the taxpayers’ favor.


While the decision may be appealed and while it is not binding on Louisiana courts, the Board’s holding in Camp does indicate how the Board may rule on similar issues and provides early guidance on how to view the capital gain exclusion in multi-step transactions.  The Board’s decision stands for the proposition that a taxpayer should have freedom to structure their affairs in a manner that best accomplishes their goals, while preserving the ability to claim the capital gain exclusion.  The Board’s decision is also significant because it looks to the intent of the legislation to preserve the objectives of the exclusion in the face of the most recent attempt by the Department to narrow the scope of the capital gain exclusion.

A taxpayer considering the sale of a Louisiana domiciled business should nonetheless tread cautiously.  While the Board’s decision in Camp suggests the availability of more freedom in determining the most appropriate structure of a sales transaction, the Department can be expected to continue to aggressively challenge these transactions as it continues to attempt to limit the scope of the capital gain exclusion.  That is, taxpayers considering the sale of a Louisiana business should be aware that the Department may challenge the applicability of the capital gain exclusion in reorganization transactions even if the exclusion clearly should apply.

For additional information, please contact: Jaye Calhoun at (504) 293-5936, Jason Brown at (225) 389-3733, or Willie Kolarik at (225) 382-3441.


[1] La. R.S. Sec. 47:293(9)(a)(xvii) (Note that the legislature placed additional restrictions on the capital gain exclusion during 2016).