§355 — Distribution of stock and securities of a controlled corporation
104 citing cases
Statute Text — 26 U.S.C. §355
If—
a corporation (referred to in this section as the “distributing corporation”)—
distributes to a shareholder, with respect to its stock, or
distributes to a security holder, in exchange for its securities,
solely stock or securities of a corporation (referred to in this section as “controlled corporation”) which it controls immediately before the distribution,
the transaction was not used principally as a device for the distribution of the earnings and profits of the distributing corporation or the controlled corporation or both (but the mere fact that subsequent to the distribution stock or securities in one or more of such corporations are sold or exchanged by all or some of the distributees (other than pursuant to an arrangement negotiated or agreed upon prior to such distribution) shall not be construed to mean that the transaction was used principally as such a device),
the requirements of subsection (b) (relating to active businesses) are satisfied, and
as part of the distribution, the distributing corporation distributes—
all of the stock and securities in the controlled corporation held by it immediately before the distribution, or
an amount of stock in the controlled corporation constituting control within the meaning of section 368(c), and it is established to the satisfaction of the Secretary that the retention by the distributing corporation of stock (or stock and securities) in the controlled corporation was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income tax,
then no gain or loss shall be recognized to (and no amount shall be includible in the income of) such shareholder or security holder on the receipt of such stock or securities.
Paragraph (1) shall be applied without regard to the following:
whether or not the distribution is pro rata with respect to all of the shareholders of the distributing corporation,
whether or not the shareholder surrenders stock in the distributing corporation, and
whether or not the distribution is in pursuance of a plan of reorganization (within the meaning of section 368(a)(1)(D)).
Paragraph (1) shall not apply if—
the principal amount of the securities in the controlled corporation which are received exceeds the principal amount of the securities which are surrendered in connection with such distribution, or
securities in the controlled corporation are received and no securities are surrendered in connection with such distribution.
For purposes of this section (other than paragraph (1)(D) of this subsection) and so much of section 356 as relates to this section, stock of a controlled corporation acquired by the distributing corporation by reason of any transaction—
which occurs within 5 years of the distribution of such stock, and
in which gain or loss was recognized in whole or in part,
shall not be treated as stock of such controlled corporation, but as other property.
Neither paragraph (1) nor so much of section 356 as relates to paragraph (1) shall apply to the extent that any stock (including nonqualified preferred stock, as defined in section 351(g)(2)), securities, or other property received is attributable to interest which has accrued on securities on or after the beginning of the holder’s holding period.
Nonqualified preferred stock (as defined in section 351(g)(2)) received in a distribution with respect to stock other than nonqualified preferred stock (as so defined) shall not be treated as stock or securities.
For treatment of the exchange if any property is received which is not permitted to be received under this subsection (including nonqualified preferred stock and an excess principal amount of securities received over securities surrendered, but not including property to which paragraph (3)(C) applies), see section 356.
For treatment of accrued interest in the case of an exchange described in paragraph (3)(C), see section 61.
Subsection (a) shall apply only if either—
the distributing corporation, and the controlled corporation (or, if stock of more than one controlled corporation is distributed, each of such corporations), is engaged immediately after the distribution in the active conduct of a trade or business, or
immediately before the distribution, the distributing corporation had no assets other than stock or securities in the controlled corporations and each of the controlled corporations is engaged immediately after the distribution in the active conduct of a trade or business.
For purposes of paragraph (1), a corporation shall be treated as engaged in the active conduct of a trade or business if and only if—
it is engaged in the active conduct of a trade or business,
such trade or business has been actively conducted throughout the 5-year period ending on the date of the distribution,
such trade or business was not acquired within the period described in subparagraph (B) in a transaction in which gain or loss was recognized in whole or in part, and
control of a corporation which (at the time of acquisition of control) was conducting such trade or business—
was not acquired by any distributee corporation directly (or through 1 or more corporations, whether through the distributing corporation or otherwise) within the period described in subparagraph (B) and was not acquired by the distributing corporation directly (or through 1 or more corporations) within such period, or
was so acquired by any such corporation within such period, but, in each case in which such control was so acquired, it was so acquired, only by reason of transactions in which gain or loss was not recognized in whole or in part, or only by reason of such transactions combined with acquisitions before the beginning of such period.
For purposes of subparagraph (D), all distributee corporations which are members of the same affiliated group (as defined in section 1504(a) without regard to section 1504(b)) shall be treated as 1 distributee corporation.
For purposes of determining whether a corporation meets the requirements of paragraph (2)(A), all members of such corporation’s separate affiliated group shall be treated as one corporation.
For purposes of this paragraph, the term “separate affiliated group” means, with respect to any corporation, the affiliated group which would be determined under section 1504(a) if such corporation were the common parent and section 1504(b) did not apply.
If a corporation became a member of a separate affiliated group as a result of one or more transactions in which gain or loss was recognized in whole or in part, any trade or business conducted by such corporation (at the time that such corporation became such a member) shall be treated for purposes of paragraph (2) as acquired in a transaction in which gain or loss was recognized in whole or in part.
The Secretary shall prescribe such regulations as are necessary or appropriate to carry out the purposes of this paragraph, including regulations which provide for the proper application of subparagraphs (B), (C), and (D) of paragraph (2), and modify the application of subsection (a)(3)(B), in connection with the application of this paragraph.
Except as provided in paragraph (2), no gain or loss shall be recognized to a corporation on any distribution to which this section (or so much of section 356 as relates to this section) applies and which is not in pursuance of a plan of reorganization.
If—
in a distribution referred to in paragraph (1), the corporation distributes property other than qualified property, and
the fair market value of such property exceeds its adjusted basis (in the hands of the distributing corporation),
then gain shall be recognized to the distributing corporation as if such property were sold to the distributee at its fair market value.
For purposes of subparagraph (A), the term “qualified property” means any stock or securities in the controlled corporation.
If any property distributed in the distribution referred to in paragraph (1) is subject to a liability or the shareholder assumes a liability of the distributing corporation in connection with the distribution, then, for purposes of subparagraph (A), the fair market value of such property shall be treated as not less than the amount of such liability.
Sections 311 and 336(a) shall not apply to any distribution referred to in paragraph (1).
In the case of a disqualified distribution, any stock or securities in the controlled corporation shall not be treated as qualified property for purposes of subsection (c)(2) of this section or section 361(c)(2).
For purposes of this subsection, the term “disqualified distribution” means any distribution to which this section (or so much of section 356 as relates to this section) applies if, immediately after the distribution—
any person holds disqualified stock in the distributing corporation which constitutes a 50-percent or greater interest in such corporation, or
any person holds disqualified stock in the controlled corporation (or, if stock of more than 1 controlled corporation is distributed, in any controlled corporation) which constitutes a 50-percent or greater interest in such corporation.
For purposes of this subsection, the term “disqualified stock” means—
any stock in the distributing corporation acquired by purchase during the 5-year period ending on the date of the distribution, and
any stock in any controlled corporation—
acquired by purchase during the 5-year period ending on the date of the distribution, or
received in the distribution to the extent attributable to distributions on—
stock described in subparagraph (A), or
any securities in the distributing corporation acquired by purchase during the 5-year period ending on the date of the distribution.
For purposes of this subsection, the term “50-percent or greater interest” means stock possessing at least 50 percent of the total combined voting power of all classes of stock entitled to vote or at least 50 percent of the total value of shares of all classes of stock.
For purposes of this subsection—
Except as otherwise provided in this paragraph, the term “purchase” means any acquisition but only if—
the basis of the property acquired in the hands of the acquirer is not determined (I) in whole or in part by reference to the adjusted basis of such property in the hands of the person from whom acquired, or (II) under section 1014(a), and
the property is not acquired in an exchange to which section 351, 354, 355, or 356 applies.
The term “purchase” includes any acquisition of property in an exchange to which section 351 applies to the extent such property is acquired in exchange for—
any cash or cash item,
any marketable stock or security, or
any debt of the transferor.
If—
any person acquires property from another person who acquired such property by purchase (as determined under this paragraph with regard to this subparagraph), and
the adjusted basis of such property in the hands of such acquirer is determined in whole or in part by reference to the adjusted basis of such property in the hands of such other person,
such acquirer shall be treated as having acquired such property by purchase on the date it was so acquired by such other person.
If this paragraph applies to any stock or securities for any period, the running of any 5-year period set forth in subparagraph (A) or (B) of paragraph (3) (whichever applies) shall be suspended during such period.
This paragraph applies to any stock or securities for any period during which the holder’s risk of loss with respect to such stock or securities, or with respect to any portion of the activities of the corporation, is (directly or indirectly) substantially diminished by—
an option,
a short sale,
any special class of stock, or
any other device or transaction.
For purposes of this subsection, a person and all persons related to such person (within the meaning of section 267(b) or 707(b)(1)) shall be treated as one person.
If two or more persons act pursuant to a plan or arrangement with respect to acquisitions of stock or securities in the distributing corporation or controlled corporation, such persons shall be treated as one person for purposes of this subsection.
Paragraph (2) of section 318(a) shall apply in determining whether a person holds stock or securities in any corporation (determined by substituting “10 percent” for “50 percent” in subparagraph (C) of such paragraph (2) and by treating any reference to stock as including a reference to securities).
If—
any person acquires by purchase an interest in any entity, and
such person is treated under subparagraph (A) as holding any stock or securities by reason of holding such interest,
such stock or securities shall be treated as acquired by purchase by such person on the later of the date of the purchase of the interest in such entity or the date such stock or securities are acquired by purchase by such entity.
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including—
regulations to prevent the avoidance of the purposes of this subsection through the use of related persons, intermediaries, pass-thru entities, options, or other arrangements, and
regulations modifying the definition of the term “purchase”.
If there is a distribution to which this subsection applies, any stock or securities in the controlled corporation shall not be treated as qualified property for purposes of subsection (c)(2) of this section or section 361(c)(2).
This subsection shall apply to any distribution—
to which this section (or so much of section 356 as relates to this section) applies, and
which is part of a plan (or series of related transactions) pursuant to which 1 or more persons acquire directly or indirectly stock representing a 50-percent or greater interest in the distributing corporation or any controlled corporation.
If 1 or more persons acquire directly or indirectly stock representing a 50-percent or greater interest in the distributing corporation or any controlled corporation during the 4-year period beginning on the date which is 2 years before the date of the distribution, such acquisition shall be treated as pursuant to a plan described in subparagraph (A)(ii) unless it is established that the distribution and the acquisition are not pursuant to a plan or series of related transactions.
A plan (or series of related transactions) shall not be treated as described in subparagraph (A)(ii) if, immediately after the completion of such plan or transactions, the distributing corporation and all controlled corporations are members of a single affiliated group (as defined in section 1504 without regard to subsection (b) thereof).
This subsection shall not apply to any distribution to which subsection (d) applies.
Except as provided in regulations, the following acquisitions shall not be taken into account in applying paragraph (2)(A)(ii):
The acquisition of stock in any controlled corporation by the distributing corporation.
The acquisition by a person of stock in any controlled corporation by reason of holding stock or securities in the distributing corporation.
The acquisition by a person of stock in any successor corporation of the distributing corporation or any controlled corporation by reason of holding stock or securities in such distributing or controlled corporation.
The acquisition of stock in the distributing corporation or any controlled corporation to the extent that the percentage of stock owned directly or indirectly in such corporation by each person owning stock in such corporation immediately before the acquisition does not decrease.
This subparagraph shall not apply to any acquisition if the stock held before the acquisition was acquired pursuant to a plan (or series of related transactions) described in paragraph (2)(A)(ii).
Except as provided in regulations, for purposes of this subsection, if the assets of the distributing corporation or any controlled corporation are acquired by a successor corporation in a transaction described in subparagraph (A), (C), or (D) of section 368(a)(1) or any other transaction specified in regulations by the Secretary, the shareholders (immediately before the acquisition) of the corporation acquiring such assets shall be treated as acquiring stock in the corporation from which the assets were acquired.
For purposes of this subsection—
The term “50-percent or greater interest” has the meaning given such term by subsection (d)(4).
Paragraph (1) shall not apply to any distribution made in a title 11 or similar case (as defined in section 368(a)(3)).
The rules of paragraph (7)(A) of subsection (d) shall apply.
Section 318(a)(2) shall apply in determining whether a person holds stock or securities in any corporation. Except as provided in regulations, section 318(a)(2)(C) shall be applied without regard to the phrase “50 percent or more in value” for purposes of the preceding sentence.
For purposes of this subsection, any reference to a controlled corporation or a distributing corporation shall include a reference to any predecessor or successor of such corporation.
If there is a distribution to which paragraph (1) applies—
the statutory period for the assessment of any deficiency attributable to any part of the gain recognized under this subsection by reason of such distribution shall not expire before the expiration of 3 years from the date the Secretary is notified by the taxpayer (in such manner as the Secretary may by regulations prescribe) that such distribution occurred, and
such deficiency may be assessed before the expiration of such 3-year period notwithstanding the provisions of any other law or rule of law which would otherwise prevent such assessment.
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations—
providing for the application of this subsection where there is more than 1 controlled corporation,
treating 2 or more distributions as 1 distribution where necessary to prevent the avoidance of such purposes, and
providing for the application of rules similar to the rules of subsection (d)(6) where appropriate for purposes of paragraph (2)(B).
Except as provided in regulations, this section (or so much of section 356 as relates to this section) shall not apply to the distribution of stock from 1 member of an affiliated group (as defined in section 1504(a)) to another member of such group if such distribution is part of a plan (or series of related transactions) described in subsection (e)(2)(A)(ii) (determined after the application of subsection (e)).
This section (and so much of section 356 as relates to this section) shall not apply to any distribution which is part of a transaction if—
either the distributing corporation or controlled corporation is, immediately after the transaction, a disqualified investment corporation, and
any person holds, immediately after the transaction, a 50-percent or greater interest in any disqualified investment corporation, but only if such person did not hold such an interest in such corporation immediately before the transaction.
For purposes of this subsection—
The term “disqualified investment corporation” means any distributing or controlled corporation if the fair market value of the investment assets of the corporation is—
in the case of distributions after the end of the 1-year period beginning on the date of the enactment of this subsection, ⅔ or more of the fair market value of all assets of the corporation, and
in the case of distributions during such 1-year period, ¾ or more of the fair market value of all assets of the corporation.
Except as otherwise provided in this subparagraph, the term “investment assets” means—
cash,
any stock or securities in a corporation,
any interest in a partnership,
any debt instrument or other evidence of indebtedness,
any option, forward or futures contract, notional principal contract, or derivative,
foreign currency, or
any similar asset.
Such term shall not include any asset which is held for use in the active and regular conduct of—
a lending or finance business (within the meaning of section 954(h)(4)),
a banking business through a bank (as defined in section 581), a domestic building and loan association (within the meaning of section 7701(a)(19)), or any similar institution specified by the Secretary, or
an insurance business if the conduct of the business is licensed, authorized, or regulated by an applicable insurance regulatory body.
Such term shall not include any security (as defined in section 475(c)(2)) which is held by a dealer in securities and to which section 475(a) applies.
Such term shall not include any stock and securities in, or any asset described in subclause (IV) or (V) of clause (i) issued by, a corporation which is a 20-percent controlled entity with respect to the distributing or controlled corporation.
The distributing or controlled corporation shall, for purposes of applying this subsection, be treated as owning its ratable share of the assets of any 20-percent controlled entity.
For purposes of this clause, the term “20-percent controlled entity” means, with respect to any distributing or controlled corporation, any corporation with respect to which the distributing or controlled corporation owns directly or indirectly stock meeting the requirements of section 1504(a)(2), except that such section shall be applied by substituting “20 percent” for “80 percent” and without regard to stock described in section 1504(a)(4).
Such term shall not include any interest in a partnership, or any debt instrument or other evidence of indebtedness, issued by the partnership, if 1 or more of the trades or businesses of the partnership are (or, without regard to the 5-year requirement under subsection (b)(2)(B), would be) taken into account by the distributing or controlled corporation, as the case may be, in determining whether the requirements of subsection (b) are met with respect to the distribution.
The distributing or controlled corporation shall, for purposes of applying this subsection, be treated as owning its ratable share of the assets of any partnership described in subclause (I).
This clause shall only apply with respect to any business if substantially all of the income of the business is derived from persons who are not related (within the meaning of section 267(b) or 707(b)(1)) to the person conducting the business.
For purposes of this subsection—
The term “50-percent or greater interest” has the meaning given such term by subsection (d)(4).
The rules of section 318 shall apply for purposes of determining ownership of stock for purposes of this paragraph.
For purposes of this subsection, the term “transaction” includes a series of transactions.
The Secretary shall prescribe such regulations as may be necessary to carry out, or prevent the avoidance of, the purposes of this subsection, including regulations—
to carry out, or prevent the avoidance of, the purposes of this subsection in cases involving—
the use of related persons, intermediaries, pass-thru entities, options, or other arrangements, and
the treatment of assets unrelated to the trade or business of a corporation as investment assets if, prior to the distribution, investment assets were used to acquire such unrelated assets,
which in appropriate cases exclude from the application of this subsection a distribution which does not have the character of a redemption which would be treated as a sale or exchange under section 302, and
which modify the application of the attribution rules applied for purposes of this subsection.
This section (and so much of section 356 as relates to this section) shall not apply to any distribution if either the distributing corporation or controlled corporation is a real estate investment trust.
Paragraph (1) shall not apply to any distribution if, immediately after the distribution, the distributing corporation and the controlled corporation are both real estate investment trusts.
Paragraph (1) shall not apply to any distribution if—
the distributing corporation has been a real estate investment trust at all times during the 3-year period ending on the date of such distribution,
the controlled corporation has been a taxable REIT subsidiary (as defined in section 856(
l
)) of the distributing corporation at all times during such period, and
the distributing corporation had control (as defined in section 368(c) applied by taking into account stock owned directly or indirectly, including through one or more corporations or partnerships, by the distributing corporation) of the controlled corporation at all times during such period.
A controlled corporation will be treated as meeting the requirements of clauses (ii) and (iii) if the stock of such corporation was distributed by a taxable REIT subsidiary in a transaction to which this section (or so much of section 356 as relates to this section) applies and the assets of such corporation consist solely of the stock or assets held by one or more taxable REIT subsidiaries of the distributing corporation meeting the requirements of clauses (ii) and (iii). For purposes of clause (iii), control of a partnership means ownership of at least 80 percent of the profits interest and at least 80 percent of the capital interests.
Treasury Regulations
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Treas. Reg. §1.355-0Outline of sections
In order to facilitate the use of §§ 1.355-1 through 1.355-8, this section lists the major paragraphs in those sections as follows:
(a) Effective date of certain sections.
(b) Application of section.
(a) Property distributed.
(b) Independent business purpose.
(1) Independent business purpose requirement.
(2) Corporate business purpose.
(3) Business purpose for distribution.
(4) Business purpose as evidence of nondevice.
(5) Examples.
(c) Continuity of interest requirement.
(1) Requirement.
(2) Examples.
(d) Device for distribution of earnings and profits.
(1) In general.
(2) Device factors.
(i) In general.
(ii) Pro rata distribution.
(iii) Subsequent sale or exchange of stock.
(A) In general.
(B) Sale or exchange negotiated or agreed upon before the distribution.
(C) Sale or exchange not negotiated or agreed upon before the distribution.
(D) Negotiated or agreed upon before the distribution.
(E) Exchange in pursuance of a plan of reorganization.
(iv) Nature and use of assets.
(A) In general.
(B) Assets not used in a trade or business meeting the requirement of section 355(b).
(C) Related function.
(3) Nondevice factors.
(i) In general.
(ii) Corporate business purpose.
(iii) Distributing corporation publicly traded and widely held.
(iv) Distribution to domestic corporate shareholders.
(4) Examples.
(5) Transactions ordinarily not considered as a device.
(i) In general.
(ii) Absence of earnings and profits.
(iii) Section 303(a) transactions.
(iv) Section 302(a) transactions.
(v) Examples.
(e) Stock and securities distributed.
(1) In general.
(2) Additional rules.
(f) Principal amount of securities.
(1) Securities received.
(2) Only stock received.
(g) Recently acquired controlled stock under section 355(a)(3)(B).
(1) Other property.
(2) Exceptions.
(3) DSAG.
(4) Taxable transaction.
(5) Examples.
(h) Active conduct of a trade or business.
(i) Effective/applicability date.
(a) General requirements.
(1) Application of section 355.
(2) Examples.
(b) Active conduct of a trade or business defined.
(1) In general.
(2) Active conduct or a trade or business immediately after distribution.
(i) In general.
(ii) Trade or business.
(iii) Active conduct.
(iv) Limitations.
(3) Active conduct for five-year period preceding distribution.
(4) Special rules for acquisition of a trade or business (Prior to the Revenue Act of 1987 and Technical and Miscellaneous Revenue Act of 1988).
(i) In general.
(ii) Example.
(iii) Gain or loss recognized in certain transactions.
(iv) Affiliated group.
(5) Special rules for acquisition of a trade or business (After the Revenue Act of 1987 and Technical and Miscellaneous Revenue Act of 1988).
(c) Examples.
(a) Distributing corporation.
(1) In general.
(2) Special rule when an asset transfer precedes a stock distribution.
(b) Significant distributee.
(c) Definitions.
(1) Significant distributee.
(2) Publicly traded stock.
(d) Substantiation information.
(e) Effective/applicability date.
(a) Conventions.
(1) Examples.
(2) Five-year period.
(3) Distributing securities.
(4) Marketable securities.
(b) General rules and purposes of section 355(d).
(1) Disqualified distributions in general.
(2) Disqualified stock.
(i) In general.
(ii) Purchase.
(iii) Exceptions.
(A) Purchase eliminated.
(B) Deemed purchase eliminated.
(C) Elimination of basis.
(1) General rule.
(2) Special rule for transferred and exchanged basis property.
(3) Special rule for Split-offs and Split-ups.
(D) Special rule if basis allocated between two corporations.
(3) Certain distributions not disqualified distributions because purposes of section 355(d) not violated.
(i) In general.
(ii) Disqualified person.
(iii) Purchased basis.
(iv) Increase in interest because payment of cash in lieu of fractional shares.
(v) Other exceptions.
(vi) Examples.
(4) Anti-avoidance rule.
(i) In general.
(ii) Example.
(c) Whether a person holds a 50 percent or greater interest.
(1) In general.
(2) Valuation.
(3) Effect of options, warrants, convertible obligations, and other similar interests.
(i) Application.
(ii) General rule.
(iii) Options deemed newly issued and substituted options.
(A) Exchange, adjustment, or alteration of existing option.
(B) Certain compensatory options.
(C) Substituted options.
(iv) Effect of treating an option as exercised.
(A) In general.
(B) Stock purchase agreement or similar arrangement.
(v) Instruments treated as options.
(vi) Instruments generally not treated as options.
(A) Escrow, pledge, or other security agreements.
(B) Compensatory options.
(1) General rule.
(2) Exception.
(C) Certain stock conversion features.
(D) Options exercisable only upon death, disability, mental incompetency, or separation from service.
(E) Rights of first refusal.
(F) Other enumerated instruments.
(vii) Reasonably certain that the option will be exercised.
(A) In general.
(B) Stock purchase agreement or similar arrangement.
(viii) Examples.
(4) Plan or arrangement.
(i) In general.
(ii) Understanding.
(iii) Examples.
(iv) Exception.
(A) Subsequent disposition.
(B) Example.
(d) Purchase.
(1) In general.
(i) Definition of purchase under section 355(d)(5)(A).
(ii) Section 355 distributions.
(iii) Example.
(2) Exceptions to definition of purchase under section 355(d)(5)(A).
(i) Acquisition of stock in a transaction which includes other property or money.
(A) Transferors and shareholders of transferor or distributing corporations.
(1) In general.
(2) Exception.
(B) Transferee corporations.
(1) In general.
(2) Exception.
(C) Examples.
(ii) Acquisition of stock in a distribution to which section 305(a) applies.
(iii) Section 1036(a) exchange.
(iv) Section 338 elections.
(A) In general.
(B) Example.
(v) Partnership distributions.
(A) Section 732(b).
(B) Section 734(b).
(3) Certain section 351 exchanges treated as purchases.
(i) In general.
(A) Treatment of stock received by transferor.
(B) Multiple classes of stock.
(ii) Cash item, marketable stock.
(iii) Exception for certain acquisitions.
(A) In general.
(B) Example.
(iv) Exception for assets transferred as part of an active trade or business.
(A) In general.
(B) Active conduct of a trade or business.
(C) Reasonable needs of the trade or business.
(D) Consideration of all facts and circumstances.
(E) Successive transfers.
(v) Exception for transfer between members of the same affiliated group.
(A) In general.
(B) Examples.
(4) Triangular asset reorganizations.
(i) Definition.
(ii) Treatment.
(iii) Example.
(5) Reverse triangular reorganizations other than triangular asset reorganizations.
(i) In general.
(ii) Letter ruling and closing agreement.
(iii) Example.
(6) Treatment of group structure changes.
(i) In general.
(ii) Adjustments to basis of higher-tier members.
(iii) Example.
(7) Special rules for triangular asset reorganizations, other reverse triangular reorganizations, and group structure changes.
(e) Deemed purchase and timing rules.
(1) Attribution and aggregation.
(i) In general.
(ii) Purchase of additional interest.
(iii) Purchase between persons treated as one person.
(iv) Purchase by a person already treated as holding stock under section 355(d)(8)(A).
(v) Examples.
(2) Transferred basis rule.
(3) Exchanged basis rule.
(i) In general.
(ii) Example.
(4) Certain section 355 or section 305 distributions.
(i) Section 355.
(ii) Section 305.
(5) Substantial diminution of risk.
(i) In general.
(ii) Property to which suspension applies.
(iii) Risk of loss substantially diminished.
(iv) Special class of stock.
(f) Duty to determine stockholders.
(1) In general.
(2) Deemed knowledge of contents of securities filings.
(3) Presumptions as to securities filings.
(4) Presumption as to less-than-five-percent shareholders.
(5) Examples.
(g) Effective date.
(a) In general.
(b) Plan.
(1) In general.
(2) Certain post-distribution acquisitions.
(3) Plan factors.
(4) Non-plan factors.
(c) Operating rules.
(1) Internal discussions and discussions with outside advisors evidence of business purpose.
(2) Takeover defense.
(3) Effect of distribution on trading in stock.
(4) Consequences of section 355(e) disregarded for certain purposes.
(5) Multiple acquisitions.
(d) Safe harbors.
(1) Safe Harbor I.
(2) Safe Harbor II.
(i) In general.
(ii) Special rule.
(3) Safe Harbor III.
(4) Safe Harbor IV.
(i) In general.
(ii) Special rules.
(5) Safe Harbor V.
(i) In general.
(ii) Special rules.
(6) Safe Harbor VI.
(7) Safe Harbor VII.
(i) In general.
(ii) Special rules.
(8) Safe Harbor VIII.
(i) In general.
(ii) Special rule.
(9) Safe Harbor IX.
(i) In general.
(ii) Special rule.
(e) Options, warrants, convertible obligations, and other similar interests.
(1) Treatment of options.
(i) General rule.
(ii) Agreement, understanding, or arrangement to write, transfer, or modify an option.
(iii) Substantial negotiations related to options.
(2) Stock acquired pursuant to options.
(3) Instruments treated as options.
(4) Instruments generally not treated as options.
(i) Escrow, pledge, or other security agreements.
(ii) Options exercisable only upon death, disability, mental incompetency, or separation from service.
(iii) Rights of first refusal.
(iv) Other enumerated instruments.
(f) Multiple controlled corporations.
(g) Valuation.
(h) Definitions.
(1) Agreement, understanding, arrangement, or substantial negotiations.
(2) Controlled corporation.
(3) Controlling shareholder.
(4) Coordinating group.
(5) Disclosure event.
(6) Discussions.
(7) Established market.
(8) Five-percent shareholder.
(9) Implicit permission.
(10) Public announcement.
(11) Public offering.
(12) Similar acquisition (not involving a public offering).
(13) Similar acquisition involving a public offering.
(i) One public offering.
(ii) More than one public offering.
(iii) Potential acquisition involving a public offering.
(14) Ten-percent shareholder.
(i) [Reserved]
(j) Examples.
(k) Effective dates.
(a) In general.
(1) Scope.
(2) Overview.
(i) Purposes and conceptual overview.
(ii) References to and definitions of terms used in this section.
(iii) Special rules and examples.
(3) Purposes of section; Predecessor of Distributing overview.
(i) Purposes.
(ii) Predecessor of Distributing overview.
(A) Relevant Property transferred to Controlled.
(B) Relevant Property includes Controlled Stock.
(4) References.
(i) References to Distributing or Controlled.
(ii) References to Plan or Distribution.
(iii) Plan Period.
(5) List of definitions.
(b) Predecessor of Distributing.
(1) Definition.
(i) In general.
(ii) Pre-Distribution requirements.
(A) Relevant Property requirement.
(B) Reflection of basis requirement.
(iii) Post-Distribution requirement.
(2) Additional definitions and rules related to paragraph (b)(1) of this section.
(i) References to Distributing and Controlled.
(ii) Potential Predecessor.
(A) Potential Predecessor definition.
(B) Expanded Affiliated Group definition.
(iii) Successors of Potential Predecessors.
(iv) Relevant Property; Relevant Equity.
(A) In general.
(B) Property held by Distributing.
(C) F reorganizations.
(v) Stock of Distributing as Relevant Property.
(A) In general.
(B) Certain reorganizations.
(vi) Substitute Asset.
(A) In general.
(B) Controlled stock received by Distributing.
(1) In general.
(2) Exception.
(C) Treatment as Relevant Property.
(vii) Separated Property.
(viii) Underlying Property.
(ix) Multiple Predecessors of Distributing.
(x) Deemed exchanges.
(c) Additional definitions.
(1) Predecessor of Controlled.
(2) Successors.
(i) In general.
(ii) Determination of Successor status.
(3) Section 381 Transaction.
(d) Special acquisition rules.
(1) Deemed acquisitions of stock in Section 381 Transactions.
(i) Rule.
(ii) Example.
(2) Deemed acquisitions of stock after Section 381 Transactions.
(3) Separate counting for Distributing and each Predecessor of Distributing.
(e) Special rules for limiting gain recognition.
(1) Overview.
(i) Gain limitation.
(ii) Multiple Planned 50-percent Acquisitions.
(iii) Statutory Recognition Amount limit; Section 336(e).
(2) Planned 50-percent Acquisition of a Predecessor of Distributing.
(i) In general.
(ii) Operating rules.
(A) Separated Property other than Controlled stock.
(B) Controlled stock that is Separated Property.
(C) Anti-duplication rule.
(3) Planned 50-percent Acquisition of Distributing.
(4) Gain recognition limited to Statutory Recognition Amount.
(5) Section 336(e) election.
(f) Predecessor or Successor as a member of the affiliated group.
(g) Inapplicability of section 355(f) to certain intra-group Distributions.
(1) In general.
(2) Alternative application of section 355(f).
(h) Examples.
(i) Applicability date.
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Treas. Reg. §1.355-0(a)In general.
In general.
(1) Scope.
(2) Overview.
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Treas. Reg. §1.355-0(b)Predecessor of Distributing.
Predecessor of Distributing.
(1) Definition.
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Treas. Reg. §1.355-0(c)Additional definitions.
Additional definitions.
(1) Predecessor of Controlled.
(2) Successors.
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Treas. Reg. §1.355-0(d)Special acquisition rules.
Special acquisition rules.
(1) Deemed acquisitions of stock in Section 381 Transactions.
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Treas. Reg. §1.355-0(e)Special rules for limiting gain recognition.
Special rules for limiting gain recognition.
(1) Overview.
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Treas. Reg. §1.355-0(f)Predecessor or Successor as a member of the affiliated group.
Predecessor or Successor as a member of the affiliated group.
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Treas. Reg. §1.355-0(g)Inapplicability of section 355(f) to certain intra-group Distributions.
Inapplicability of section 355(f) to certain intra-group Distributions.
(1) In general.
(2) Alternative application of section 355(f).
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Treas. Reg. §1.355-0(h)Examples.
Examples.
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Treas. Reg. §1.355-0(i)Applicability date.
Applicability date.
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Treas. Reg. §1.355-0(j)Examples.
Examples.
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Treas. Reg. §1.355-0(k)Effective dates.
Effective dates.
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Treas. Reg. §1.355-0(v)Stock of Distributing as Relevant Property.
Stock of Distributing as Relevant Property.
(A) In general.
(B) Certain reorganizations.
(vi) Substitute Asset.
(A) In general.
(B) Controlled stock received by Distributing.
(1) In general.
(2) Exception.
(C) Treatment as Relevant Property.
(vii) Separated Property.
(viii) Underlying Property.
(ix) Multiple Predecessors of Distributing.
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Treas. Reg. §1.355-0(x)Deemed exchanges.
Deemed exchanges.
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Treas. Reg. §1.355-1Distribution of stock and securities of a controlled corporation
(a) Effective/applicability date of certain sections. Except as otherwise provided, this section and §§ 1.355-2 through 1.355-4 apply to transactions occurring after February 6, 1989. For transactions occurring on or before that date, see 26 CFR 1.355-1 through 1.355-4 (revised as of April 1, 1987). This section and §§ 1.355-2 through 1.355-4, other than § 1.355-2(g) and (i), do not reflect the amendments to section 355 made by the Revenue Act of 1987, the Technical and Miscellaneous Revenue Act of 1988, and the Tax Technical Corrections Act of 2007. For the applicability date of §§ 1.355-2(g), 1.355-5, 1.355-6, and 1.355-7, see §§ 1.355-2(i), 1.355-5(e), 1.355-6(g), and 1.355-7(k), respectively.
(b) Application of section. Section 355 provides for the separation, without recognition of gain or loss to (or the inclusion in income of) the shareholders and security holders, of one or more existing businesses formerly operated, directly or indirectly, by a single corporation (the “distributing corporation”). It applies only to the separation of existing businesses that have been in active operation for at least five years (or a business that has been in active operation for at least five years into separate businesses), and which, in general, have been owned, directly or indirectly, for at least five years by the distributing corporation. A separation is achieved through the distribution by the distributing corporation of stock, or stock and securities, of one or more subsidiaries (the “controlled corporations”) to its shareholders with respect to its stock or to its security holders in exchange for its securities. The controlled corporations may be preexisting or newly created subsidiaries. Throughout the regulations under section 355, the term distribution refers to a distribution by the distributing corporation of stock, or stock and securities, of one or more controlled corporations, unless the context indicates otherwise. Section 355 contemplates the continued operation of the business or businesses existing prior to the separation. See § 1.355-4 for types of distributions that may qualify under section 355, including pro rata distributions and non pro rata distributions.
(c) Stock rights. Except as provided in § 1.356-6, for purposes of section 355, the term securities includes rights issued by the distributing corporation or the controlled corporation to acquire the stock of that corporation. For purposes of this section and section 356(d)(2)(B), a right to acquire stock has no principal amount. For this purpose, rights to acquire stock has the same meaning as it does under sections 305 and 317(a). Other Internal Revenue Code provisions governing the treatment of rights to acquire stock may also apply to certain distributions occurring in connection with a transaction described in section 355. See, for example, sections 83 and 421 through 424 and the regulations thereunder. This paragraph (c) applies to distributions occurring on or after March 9, 1998.
(d) Nonqualified preferred stock. See § 1.356-7(a) and (b) for the treatment of nonqualified preferred stock (as defined in section 351(g)(2)) received in certain exchanges for (or in certain distributions with respect to) nonqualified preferred stock or preferred stock. See § 1.356-7(c) for the treatment of the receipt of preferred stock in certain exchanges for (or in certain distributions with respect to) common or preferred stock described in section 351(g)(2)(C)(i)(II).
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Treas. Reg. §1.355-1(a)Effective/applicability date of certain sections.
Effective/applicability date of certain sections. Except as otherwise provided, this section and §§ 1.355-2 through 1.355-4 apply to transactions occurring after February 6, 1989. For transactions occurring on or before that date, see 26 CFR 1.355-1 through 1.355-4 (revised as of April 1, 1987). This section and §§ 1.355-2 through 1.355-4, other than § 1.355-2(g) and (i), do not reflect the amendments to section 355 made by the Revenue Act of 1987, the Technical and Miscellaneous Revenue Act of 1988, and the Tax Technical Corrections Act of 2007. For the applicability date of §§ 1.355-2(g), 1.355-5, 1.355-6, and 1.355-7, see §§ 1.355-2(i), 1.355-5(e), 1.355-6(g), and 1.355-7(k), respectively.
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Treas. Reg. §1.355-1(b)Application of section.
Application of section. Section 355 provides for the separation, without recognition of gain or loss to (or the inclusion in income of) the shareholders and security holders, of one or more existing businesses formerly operated, directly or indirectly, by a single corporation (the “distributing corporation”). It applies only to the separation of existing businesses that have been in active operation for at least five years (or a business that has been in active operation for at least five years into separate businesses), and which, in general, have been owned, directly or indirectly, for at least five years by the distributing corporation. A separation is achieved through the distribution by the distributing corporation of stock, or stock and securities, of one or more subsidiaries (the “controlled corporations”) to its shareholders with respect to its stock or to its security holders in exchange for its securities. The controlled corporations may be preexisting or newly created subsidiaries. Throughout the regulations under section 355, the term distribution refers to a distribution by the distributing corporation of stock, or stock and securities, of one or more controlled corporations, unless the context indicates otherwise. Section 355 contemplates the continued operation of the business or businesses existing prior to the separation. See § 1.355-4 for types of distributions that may qualify under section 355, including pro rata distributions and non pro rata distributions.
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Treas. Reg. §1.355-1(c)Stock rights.
Stock rights. Except as provided in § 1.356-6, for purposes of section 355, the term securities includes rights issued by the distributing corporation or the controlled corporation to acquire the stock of that corporation. For purposes of this section and section 356(d)(2)(B), a right to acquire stock has no principal amount. For this purpose, rights to acquire stock has the same meaning as it does under sections 305 and 317(a). Other Internal Revenue Code provisions governing the treatment of rights to acquire stock may also apply to certain distributions occurring in connection with a transaction described in section 355. See, for example, sections 83 and 421 through 424 and the regulations thereunder. This paragraph (c) applies to distributions occurring on or after March 9, 1998.
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Treas. Reg. §1.355-1(d)Nonqualified preferred stock.
Nonqualified preferred stock. See § 1.356-7(a) and (b) for the treatment of nonqualified preferred stock (as defined in section 351(g)(2)) received in certain exchanges for (or in certain distributions with respect to) nonqualified preferred stock or preferred stock. See § 1.356-7(c) for the treatment of the receipt of preferred stock in certain exchanges for (or in certain distributions with respect to) common or preferred stock described in section 351(g)(2)(C)(i)(II).
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Treas. Reg. §1.355-2Limitations
(a) Property distributed. Section 355 applies to a distribution only if the property distributed consists solely of stock, or stock and securities, of a controlled corporation. If additional property (including an excess principal amount of securities received over securities surrendered) is received, see section 356.
(b) Independent business purpose—(1) Independent business purpose requirement. Section 355 applies to a transaction only if it is carried out for one or more corporate business purposes. A transaction is carried out for a corporate business purpose if it is motivated, in whole or substantial part, by one or more corporate business purposes. The potential for the avoidance of Federal taxes by the distributing or controlled corporations (or a corporation controlled by either) is relevant in determining the extent to which an existing corporate business purpose motivated the distribution. The principal reason for this business purpose requirement is to provide nonrecognition treatment only to distributions that are incident to readjustments of corporate structures required by business exigencies and that effect only readjustments of continuing interests in property under modified corporate forms. This business purpose requirement is independent of the other requirements under section 355.
(2) Corporate business purpose. A corporate business purpose is a real and substantial non Federal tax purpose germane to the business of the distributing corporation, the controlled corporation, or the affiliated group (as defined in § 1.355-3(b)(4)(iv)) to which the distributing corporation belongs. A purpose of reducing non Federal taxes is not a corporate business purpose if (i) the transaction will effect a reduction in both Federal and non Federal taxes because of similarities between Federal tax law and the tax law of the other jurisdiction and (ii) the reduction of Federal taxes is greater than or substantially coextensive with the reduction of non Federal taxes. See Examples (7) and (8) of paragraph (b)(5) of this section. A shareholder purpose (for example, the personal planning purposes of a shareholder) is not a corporate business purpose. Depending upon the facts of a particular case, however, a shareholder purpose for a transaction may be so nearly coextensive with a corporate business purpose as to preclude any distinction between them. In such a case, the transaction is carried out for one or more corporate business purposes. See Example (2) of paragraph (b)(5) of this section.
(3) Business purpose for distribution. The distribution must be carried out for one or more corporate business purposes. See Example (3) of paragraph (b)(5) of this section. If a corporate business purpose can be achieved through a nontaxable transaction that does not involve the distribution of stock of a controlled corporation and which is neither impractical nor unduly expensive, then, for purposes of paragraph (b)(1) of this section, the separation is not carried out for that corporate business purpose. See Examples (3) and (4) of paragraph (b)(5) of this section. For rules with respect to the requirement of a business purpose for a transfer of assets to a controlled corporation in connection with a reorganization described in section 368(a)(1)(D), See § 1.368-1(b).
(4) Business purpose as evidence of nondevice. The corporate business purpose or purposes for a transaction are evidence that the transaction was not used principally as a device for the distribution of earnings and profits within the meaning of section 355(a)(1)(B). See paragraph (d)(3)(ii) of this section.
(5) Examples. The provisions of this paragraph (b) may be illustrated by the following examples:
(c) Continuity of interest requirement—(1) Requirement. Section 355 applies to a separation that effects only a readjustment of continuing interests in the property of the distributing and controlled corporations. In this regard section 355 requires that one or more persons who, directly or indirectly, were the owners of the enterprise prior to the distribution or exchange own, in the aggregate, an amount of stock establishing a continuity of interest in each of the modified corporate forms in which the enterprise is conducted after the separation. This continuity of interest requirement is independent of the other requirements under section 355.
(2) Examples.
(d) Device for distribution of earnings and profits—(1) In general. Section 355 does not apply to a transaction used principally as a device for the distribution of the earnings and profits of the distributing corporation, the controlled corporation, or both (a “device”). Section 355 recognizes that a tax-free distribution of the stock of a controlled corporation presents a potential for tax avoidance by facilitating the avoidance of the dividend provisions of the Code through the subsequent sale or exchange of stock of one corporation and the retention of the stock of another corporation. A device can include a transaction that effects a recovery of basis. In this paragraph (d), “exchange” includes transactions, such as redemptions, treated as exchanges under the Code. Generally, the determination of whether a transaction was used principally as a device will be made from all of the facts and circumstances, including, but not limited to, the presence of the device factors specified in paragraph (d)(2) of this section (“evidence of device”), and the presence of the nondevice factors specified in paragraph (d)(3) of this section (“evidence of nondevice”). However, if a transaction is specified in paragraph (d)(5) of this section, then it is ordinarily considered not to have been used principally as a device.
(2) Device factors—(i) In general. The presence of any of the device factors specified in this subparagraph (2) is evidence of device. The strength of this evidence depends on the facts and circumstances.
(ii) Pro rata distribution. A distribution that is pro rata or substantially pro rata among the shareholders of the distributing corporation presents the greatest potential for the avoidance of the dividend provisions of the Code and, in contrast to other types of distributions, is more likely to be used principally as a device. Accordingly, the fact that a distribution is pro rata or substantially pro rata is evidence of device.
(iii) Subsequent sale or exchange of stock—(A) In general. A sale or exchange of stock of the distributing or the controlled corporation after the distribution (a “subsequent sale or exchange”) is evidence of device. Generally, the greater the percentage of the stock sold or exchanged after the distribution, the stronger the evidence of device. In addition, the shorter the period of time between the distribution and the sale or exchange, the stronger the evidence of device.
(B) Sale or exchange negotiated or agreed upon before the distribution. A subsequent sale or exchange pursuant to an arrangement negotiated or agreed upon before the distribution is substantial evidence of device.
(C) Sale or exchange not negotiated or agreed upon before the distribution. A subsequent sale or exchange not pursuant to an arrangement negotiated or agreed upon before the distribution is evidence of device.
(D) Negotiated or agreed upon before the distribution. For purposes of this subparagraph (2), a sale or exchange is always pursuant to an arrangement negotiated or agreed upon before the distribution if enforceable rights to buy or sell existed before the distribution. If a sale or exchange was discussed by the buyer and the seller before the distribution and was reasonably to be anticipated by both parties, then the sale or exchange will ordinarily be considered to be pursuant to an arrangement negotiated or agreed upon before the distribution.
(E) Exchange in pursuance of a plan of reorganization. For purposes of this subparagraph (2), if stock is exchanged for stock in pursuance of a plan of reorganization, and either no gain or loss or only an insubstantial amount of gain is recognized on the exchange, then the exchange is not treated as a subsequent sale or exchange, but the stock received in the exchange is treated as the stock surrendered in the exchange. For this purpose, gain treated as a dividend pursuant to sections 356(a)(2) and 316 shall be disregarded.
(iv) Nature and use of assets—(A) In general. The determination of whether a transaction was used principally as a device will take into account the nature, kind, amount, and use of the assets of the distributing and the controlled corporations (and corporations controlled by them) immediately after the transaction.
(B) Assets not used in a trade or business meeting the requirement of section 355(b). The existence of assets that are not used in a trade or business that satisfies the requirements of section 355(b) is evidence of device. For this purpose, assets that are not used in a trade or business that satisfies the requirements of section 355(b) include, but are not limited to, cash and other liquid assets that are not related to the reasonable needs of a business satisfying such section. The strength of the evidence of device depends on all the facts and circumstances, including, but not limited to, the ratio for each corporation of the value of assets not used in a trade or business that satisfies the requirements of section 355(b) to the value of its business that satisfies such requirements. A difference in the ratio described in the preceding sentence for the distributing and controlled corporation is ordinarily not evidence of device if the distribution is not pro rata among the shareholders of the distributing corporation and such difference is attributable to a need to equalize the value of the stock distributed and the value of the stock or securities exchanged by the distributees.
(C) Related function. There is evidence of device if a business of either the distributing or controlled corporation (or a corporation controlled by it) is (1) a “secondary business” that continues as a secondary business for a significant period after the separation, and (2) can be sold without adversely affecting the business of the other corporation (or a corporation controlled by it). A secondary business is a business of either the distributing or controlled corporation, if its principal function is to serve the business of the other corporation (or a corporation controlled by it). A secondary business can include a business transferred to a newly-created subsidiary or a business which serves a business transferred to a newly-created subsidiary. The activities of the secondary business may consist of providing property or performing services. Thus, in Example (11) of § 1.355-3(c), evidence of device would be presented if the principal function of the coal mine (satisfying the requirements of the steel business) continued after the separation and the coal mine could be sold without adversely affecting the steel business. Similarly, in Example (10) of § 1.355-3(c), evidence of device would be presented if the principal function of the sales operation after the separation is to sell the output from the manufacturing operation and the sales operation could be sold without adversely affecting the manufacturing operation.
(3) Nondevice factors—(i) In general. The presence of any of the nondevice factors specified in this subparagraph (3) is evidence of nondevice. The strength of this evidence depends on all of the facts and circumstances.
(ii) Corporate business purpose. The corporate business purpose for the transaction is evidence of nondevice. The stronger the evidence of device (such as the presence of the device factors specified in paragraph (d)(2) of this section), the stronger the corporate business purpose required to prevent the determination that the transaction was used principally as a device. Evidence of device presented by the transfer or retention of assets not used in a trade or business that satisfies the requirements of section 355(b) can be outweighed by the existence of a corporate business purpose for those transfers or retentions. The assessment of the strength of a corporate business purpose will be based on all of the facts and circumstances, including, but not limited to, the following factors:
(A) The importance of achieving the purpose to the success of the business;
(B) The extent to which the transaction is prompted by a person not having a proprietary interest in either corporation, or by other outside factors beyond the control of the distributing corporation; and
(C) The immediacy of the conditions prompting the transaction.
(iii) Distributing corporation publicly traded and widely held. The fact that the distributing corporation is publicly traded and has no shareholder who is directly or indirectly the beneficial owner of more than five percent of any class of stock is evidence of nondevice.
(iv) Distribution to domestic corporate shareholders. The fact that the stock of the controlled corporation is distributed to one or more domestic corporations that, if section 355 did not apply, would be entitled to a deduction under section 243(a)(1) available to corporations meeting the stock ownership requirements of section 243(c), or a deduction under section 243(a)(2) or (3) or 245(b) is evidence of nondevice.
(4) Examples. The provisions of paragraph (d)(1) through (3) of this section may be illustrated by the following examples:
(5) Transactions ordinarily not considered as a device—(i) In general. This subparagraph (5) specifies three distributions that ordinarily do not present the potential for tax avoidance described in paragraph (d)(1) of this section. Accordingly, such distributions are ordinarily considered not to have been used principally as a device, notwithstanding the presence of any of the device factors described in paragraph (d)(2) of this section. A transaction described in paragraph (d)(5)(iii) or (iv) of this section is not protected by this subparagraph (5) from a determination that it was used principally as a device if it involves the distribution of the stock of more than one controlled corporation and facilitates the avoidance of the dividend provisions of the Code through the subsequent sale or exchange of stock of one corporation and the retention of the stock of another corporation.
(ii) Absence of earnings and profits. A distribution is ordinarily considered not to have been used principally as a device if—
(A) The distributing and controlled corporations have no accumulated earnings and profits at the beginning of their respective taxable years,
(B) The distributing and controlled corporations have no current earnings and profits as of the date of the distribution, and
(C) No distribution of property by the distributing corporation immediately before the separation would require recognition of gain resulting in current earnings and profits for the taxable year of the distribution.
(iii) Section 303(a) transactions. A distribution is ordinarily considered not to have been used principally as a device if, in the absence of section 355, with respect to each shareholder distributee, the distribution would be a redemption to which section 303(a) applied.
(iv) Section 302(a) transactions. A distribution is ordinarily considered not to have been used principally as a device if, in the absence of section 355, with respect to each shareholder distributee, the distribution would be a redemption to which section 302(a) applied. For purposes of the preceding sentence, section 302(c)(2)(A)(ii) and (iii) shall not apply.
(v) Examples. The provisions of this subparagraph (5) may be illustrated by the following examples:
(e) Stock and securities distributed—(1) In general. Section 355 applies to a distribution only if the distributing corporation distributes—
(i) All of the stock and securities of the controlled corporation that it owns, or
(ii) At least an amount of the stock of the controlled corporation that constitutes control as defined in section 368(c). In such a case, all, or any part, of the securities of the controlled corporation may be distributed, and paragraph (e)(2) of this section shall apply.
(2) Additional rules. Where a part of either the stock or the securities of the controlled corporation is retained under paragraph (e)(1)(ii) of this section, it must be established to the satisfaction of the Commissioner that the retention by the distributing corporation was not in pursuance of a plan having as one of its principal purposes the avoidance of Federal income tax. Ordinarily, the corporate business purpose or purposes for the distribution will require the distribution of all of the stock and securities of the controlled corporation. If the distribution of all of the stock and securities of a controlled corporation would be treated to any extent as a distribution of “other property” under section 356, this fact tends to establish that the retention of stock or securities is in pursuance of a plan having as one of its principal purposes the avoidance of Federal income tax.
(f) Principal amount of securities—(1) Securities received. Section 355 does not apply to a distribution if, with respect to any shareholder or security holder, the principal amount of securities received exceeds the principal amount of securities surrendered, or securities are received but no securities are surrendered. In such cases, see section 356.
(2) Only stock received. If only stock is received in a distribution to which section 355(a)(1)(A) applies, the principal amount of the securities surrendered, if any, and the par value or stated value of the stock surrendered, if any, are not relevant to the application of that section.
(g) Recently acquired controlled stock under section 355(a)(3)(B)—(1) Other property. Except as provided in paragraph (g)(2) of this section, for purposes of section 355(a)(1)(A), section 355(c), and so much of section 356 as relates to section 355, stock of a controlled corporation acquired by the DSAG in a taxable transaction (as defined in paragraph (g)(4) of this section) within the five-year period ending on the date of the distribution (pre-distribution period) shall not be treated as stock of the controlled corporation but shall be treated as “other property.” Transfers of controlled corporation stock that is owned by the DSAG immediately before and immediately after the transfer are disregarded and are not acquisitions for purposes of this paragraph (g)(1).
(2) Exceptions. Paragraph (g)(1) of this section does not apply to an acquisition of stock of the controlled corporation—
(i) If the controlled corporation is a DSAG member at any time after the acquisition (but prior to the distribution); or
(ii) Described in § 1.355-3(b)(4)(iii).
(3) DSAG. For purposes of this paragraph (g), a DSAG is the distributing corporation's separate affiliated group (the affiliated group which would be determined under section 1504(a) if such corporation were the common parent and section 1504(b) did not apply) that consists of the distributing corporation as the common parent and all corporations affiliated with the distributing corporation through stock ownership described in section 1504(a)(1)(B) (regardless of whether the corporations are includible corporations under section 1504(b)). For purposes of paragraph (g)(1) of this section, any reference to the DSAG is a reference to the distributing corporation if it is not the common parent of a separate affiliated group.
(4) Taxable transaction—(i) Generally. For purposes of this paragraph (g), a taxable transaction is a transaction in which gain or loss was recognized in whole or in part.
(ii) Dunn Trust and predecessor issues. [Reserved]
(5) Examples. The following examples illustrate this paragraph (g). Assume that C, D, P, and S are corporations, X is an unrelated individual, each of the transactions is unrelated to any other transaction and, but for the issue of whether C stock is treated as “other property” under section 355(a)(3)(B), the distributions satisfy all of the requirements of section 355. No inference should be drawn from any of these examples as to whether any requirements of section 355 other than section 355(a)(3)(B), as specified, are satisfied. Furthermore, the following definitions apply:
(i) Purchase is an acquisition that is a taxable transaction.
(ii) Section 368(c) stock is stock constituting control within the meaning of section 368(c).
(iii) Section 1504(a)(2) stock is stock meeting the requirements of section 1504(a)(2).
(h) Active conduct of a trade or business. Section 355 applies to a distribution only if the requirements of § 1.355-3 (relating to the active conduct of a trade or business) are satisfied.
(i) Effective/applicability date. Paragraphs (g)(1) through (g)(5) of this section apply to distributions occurring after October 20, 2011. For rules regarding distributions occurring on or before October 20, 2011, see § 1.355-2T(i), as contained in 26 CFR part 1, revised as of April 1, 2011.
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Treas. Reg. §1.355-2(a)Property distributed.
Property distributed. Section 355 applies to a distribution only if the property distributed consists solely of stock, or stock and securities, of a controlled corporation. If additional property (including an excess principal amount of securities received over securities surrendered) is received, see section 356.
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Treas. Reg. §1.355-2(b)Independent business purpose—(1) Independent business purpose requirement.
Independent business purpose—(1) Independent business purpose requirement. Section 355 applies to a transaction only if it is carried out for one or more corporate business purposes. A transaction is carried out for a corporate business purpose if it is motivated, in whole or substantial part, by one or more corporate business purposes. The potential for the avoidance of Federal taxes by the distributing or controlled corporations (or a corporation controlled by either) is relevant in determining the extent to which an existing corporate business purpose motivated the distribution. The principal reason for this business purpose requirement is to provide nonrecognition treatment only to distributions that are incident to readjustments of corporate structures required by business exigencies and that effect only readjustments of continuing interests in property under modified corporate forms. This business purpose requirement is independent of the other requirements under section 355.
(2) Corporate business purpose. A corporate business purpose is a real and substantial non Federal tax purpose germane to the business of the distributing corporation, the controlled corporation, or the affiliated group (as defined in § 1.355-3(b)(4)(iv)) to which the distributing corporation belongs. A purpose of reducing non Federal taxes is not a corporate business purpose if (i) the transaction will effect a reduction in both Federal and non Federal taxes because of similarities between Federal tax law and the tax law of the other jurisdiction and (ii) the reduction of Federal taxes is greater than or substantially coextensive with the reduction of non Federal taxes. See Examples (7) and (8) of paragraph (b)(5) of this section. A shareholder purpose (for example, the personal planning purposes of a shareholder) is not a corporate business purpose. Depending upon the facts of a particular case, however, a shareholder purpose for a transaction may be so nearly coextensive with a corporate business purpose as to preclude any distinction between them. In such a case, the transaction is carried out for one or more corporate business purposes. See Example (2) of paragraph (b)(5) of this section.
(3) Business purpose for distribution. The distribution must be carried out for one or more corporate business purposes. See Example (3) of paragraph (b)(5) of this section. If a corporate business purpose can be achieved through a nontaxable transaction that does not involve the distribution of stock of a controlled corporation and which is neither impractical nor unduly expensive, then, for purposes of paragraph (b)(1) of this section, the separation is not carried out for that corporate business purpose. See Examples (3) and (4) of paragraph (b)(5) of this section. For rules with respect to the requirement of a business purpose for a transfer of assets to a controlled corporation in connection with a reorganization described in section 368(a)(1)(D), See § 1.368-1(b).
(4) Business purpose as evidence of nondevice. The corporate business purpose or purposes for a transaction are evidence that the transaction was not used principally as a device for the distribution of earnings and profits within the meaning of section 355(a)(1)(B). See paragraph (d)(3)(ii) of this section.
(5) Examples. The provisions of this paragraph (b) may be illustrated by the following examples:
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Treas. Reg. §1.355-2(c)Continuity of interest requirement—(1) Requirement.
Continuity of interest requirement—(1) Requirement. Section 355 applies to a separation that effects only a readjustment of continuing interests in the property of the distributing and controlled corporations. In this regard section 355 requires that one or more persons who, directly or indirectly, were the owners of the enterprise prior to the distribution or exchange own, in the aggregate, an amount of stock establishing a continuity of interest in each of the modified corporate forms in which the enterprise is conducted after the separation. This continuity of interest requirement is independent of the other requirements under section 355.
(2) Examples.
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Treas. Reg. §1.355-2(d)Device for distribution of earnings and profits—(1) In general.
Device for distribution of earnings and profits—(1) In general. Section 355 does not apply to a transaction used principally as a device for the distribution of the earnings and profits of the distributing corporation, the controlled corporation, or both (a “device”). Section 355 recognizes that a tax-free distribution of the stock of a controlled corporation presents a potential for tax avoidance by facilitating the avoidance of the dividend provisions of the Code through the subsequent sale or exchange of stock of one corporation and the retention of the stock of another corporation. A device can include a transaction that effects a recovery of basis. In this paragraph (d), “exchange” includes transactions, such as redemptions, treated as exchanges under the Code. Generally, the determination of whether a transaction was used principally as a device will be made from all of the facts and circumstances, including, but not limited to, the presence of the device factors specified in paragraph (d)(2) of this section (“evidence of device”), and the presence of the nondevice factors specified in paragraph (d)(3) of this section (“evidence of nondevice”). However, if a transaction is specified in paragraph (d)(5) of this section, then it is ordinarily considered not to have been used principally as a device.
(2) Device factors—(i) In general. The presence of any of the device factors specified in this subparagraph (2) is evidence of device. The strength of this evidence depends on the facts and circumstances.
(ii) Pro rata distribution. A distribution that is pro rata or substantially pro rata among the shareholders of the distributing corporation presents the greatest potential for the avoidance of the dividend provisions of the Code and, in contrast to other types of distributions, is more likely to be used principally as a device. Accordingly, the fact that a distribution is pro rata or substantially pro rata is evidence of device.
(iii) Subsequent sale or exchange of stock—(A) In general. A sale or exchange of stock of the distributing or the controlled corporation after the distribution (a “subsequent sale or exchange”) is evidence of device. Generally, the greater the percentage of the stock sold or exchanged after the distribution, the stronger the evidence of device. In addition, the shorter the period of time between the distribution and the sale or exchange, the stronger the evidence of device.
(B) Sale or exchange negotiated or agreed upon before the distribution. A subsequent sale or exchange pursuant to an arrangement negotiated or agreed upon before the distribution is substantial evidence of device.
(C) Sale or exchange not negotiated or agreed upon before the distribution. A subsequent sale or exchange not pursuant to an arrangement negotiated or agreed upon before the distribution is evidence of device.
(D) Negotiated or agreed upon before the distribution. For purposes of this subparagraph (2), a sale or exchange is always pursuant to an arrangement negotiated or agreed upon before the distribution if enforceable rights to buy or sell existed before the distribution. If a sale or exchange was discussed by the buyer and the seller before the distribution and was reasonably to be anticipated by both parties, then the sale or exchange will ordinarily be considered to be pursuant to an arrangement negotiated or agreed upon before the distribution.
(E) Exchange in pursuance of a plan of reorganization. For purposes of this subparagraph (2), if stock is exchanged for stock in pursuance of a plan of reorganization, and either no gain or loss or only an insubstantial amount of gain is recognized on the exchange, then the exchange is not treated as a subsequent sale or exchange, but the stock received in the exchange is treated as the stock surrendered in the exchange. For this purpose, gain treated as a dividend pursuant to sections 356(a)(2) and 316 shall be disregarded.
(iv) Nature and use of assets—(A) In general. The determination of whether a transaction was used principally as a device will take into account the nature, kind, amount, and use of the assets of the distributing and the controlled corporations (and corporations controlled by them) immediately after the transaction.
(B) Assets not used in a trade or business meeting the requirement of section 355(b). The existence of assets that are not used in a trade or business that satisfies the requirements of section 355(b) is evidence of device. For this purpose, assets that are not used in a trade or business that satisfies the requirements of section 355(b) include, but are not limited to, cash and other liquid assets that are not related to the reasonable needs of a business satisfying such section. The strength of the evidence of device depends on all the facts and circumstances, including, but not limited to, the ratio for each corporation of the value of assets not used in a trade or business that satisfies the requirements of section 355(b) to the value of its business that satisfies such requirements. A difference in the ratio described in the preceding sentence for the distributing and controlled corporation is ordinarily not evidence of device if the distribution is not pro rata among the shareholders of the distributing corporation and such difference is attributable to a need to equalize the value of the stock distributed and the value of the stock or securities exchanged by the distributees.
(C) Related function. There is evidence of device if a business of either the distributing or controlled corporation (or a corporation controlled by it) is (1) a “secondary business” that continues as a secondary business for a significant period after the separation, and (2) can be sold without adversely affecting the business of the other corporation (or a corporation controlled by it). A secondary business is a business of either the distributing or controlled corporation, if its principal function is to serve the business of the other corporation (or a corporation controlled by it). A secondary business can include a business transferred to a newly-created subsidiary or a business which serves a business transferred to a newly-created subsidiary. The activities of the secondary business may consist of providing property or performing services. Thus, in Example (11) of § 1.355-3(c), evidence of device would be presented if the principal function of the coal mine (satisfying the requirements of the steel business) continued after the separation and the coal mine could be sold without adversely affecting the steel business. Similarly, in Example (10) of § 1.355-3(c), evidence of device would be presented if the principal function of the sales operation after the separation is to sell the output from the manufacturing operation and the sales operation could be sold without adversely affecting the manufacturing operation.
(3) Nondevice factors—(i) In general. The presence of any of the nondevice factors specified in this subparagraph (3) is evidence of nondevice. The strength of this evidence depends on all of the facts and circumstances.
(ii) Corporate business purpose. The corporate business purpose for the transaction is evidence of nondevice. The stronger the evidence of device (such as the presence of the device factors specified in paragraph (d)(2) of this section), the stronger the corporate business purpose required to prevent the determination that the transaction was used principally as a device. Evidence of device presented by the transfer or retention of assets not used in a trade or business that satisfies the requirements of section 355(b) can be outweighed by the existence of a corporate business purpose for those transfers or retentions. The assessment of the strength of a corporate business purpose will be based on all of the facts and circumstances, including, but not limited to, the following factors:
(A) The importance of achieving the purpose to the success of the business;
(B) The extent to which the transaction is prompted by a person not having a proprietary interest in either corporation, or by other outside factors beyond the control of the distributing corporation; and
(C) The immediacy of the conditions prompting the transaction.
(iii) Distributing corporation publicly traded and widely held. The fact that the distributing corporation is publicly traded and has no shareholder who is directly or indirectly the beneficial owner of more than five percent of any class of stock is evidence of nondevice.
(iv) Distribution to domestic corporate shareholders. The fact that the stock of the controlled corporation is distributed to one or more domestic corporations that, if section 355 did not apply, would be entitled to a deduction under section 243(a)(1) available to corporations meeting the stock ownership requirements of section 243(c), or a deduction under section 243(a)(2) or (3) or 245(b) is evidence of nondevice.
(4) Examples. The provisions of paragraph (d)(1) through (3) of this section may be illustrated by the following examples:
(5) Transactions ordinarily not considered as a device—(i) In general. This subparagraph (5) specifies three distributions that ordinarily do not present the potential for tax avoidance described in paragraph (d)(1) of this section. Accordingly, such distributions are ordinarily considered not to have been used principally as a device, notwithstanding the presence of any of the device factors described in paragraph (d)(2) of this section. A transaction described in paragraph (d)(5)(iii) or (iv) of this section is not protected by this subparagraph (5) from a determination that it was used principally as a device if it involves the distribution of the stock of more than one controlled corporation and facilitates the avoidance of the dividend provisions of the Code through the subsequent sale or exchange of stock of one corporation and the retention of the stock of another corporation.
(ii) Absence of earnings and profits. A distribution is ordinarily considered not to have been used principally as a device if—
(A) The distributing and controlled corporations have no accumulated earnings and profits at the beginning of their respective taxable years,
(B) The distributing and controlled corporations have no current earnings and profits as of the date of the distribution, and
(C) No distribution of property by the distributing corporation immediately before the separation would require recognition of gain resulting in current earnings and profits for the taxable year of the distribution.
(iii) Section 303(a) transactions. A distribution is ordinarily considered not to have been used principally as a device if, in the absence of section 355, with respect to each shareholder distributee, the distribution would be a redemption to which section 303(a) applied.
(iv) Section 302(a) transactions. A distribution is ordinarily considered not to have been used principally as a device if, in the absence of section 355, with respect to each shareholder distributee, the distribution would be a redemption to which section 302(a) applied. For purposes of the preceding sentence, section 302(c)(2)(A)(ii) and (iii) shall not apply.
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Treas. Reg. §1.355-2(e)Stock and securities distributed—(1) In general.
Stock and securities distributed—(1) In general. Section 355 applies to a distribution only if the distributing corporation distributes—
104 Citing Cases
. Memo. 2017-157, at *21)), aff’d, 995 F.3d 671 (9th Cir. 2021). This question of fact has arisen in several contexts other than section 183. See, e.g., Davis v. Commissioner, 65 T.C. 1014 (1976) (§ 162); Nielsen v. Commissioner, 61 T.C. 311 (1973) (§ 355); Lester v. Commissioner, 40 T.C. 947 (1963) (§ 355); Collins v. Commissioner, 34 T.C. 592 (1960) (§ 130, 1939 Code); Davis v. Commissioner, 29 T.C. 878 (1958) (§ 130, 1939 Code); Roselle v. Commissioner, T.C. Memo. 1981-394, 1981 Tax Ct. Memo
Moreover, the transactions addressed in the rulings petitioner cites appear to be distinguishable from its case. Priv. Ltr. Rul. 9731039 involved a section 355 distribution by Distributing to its shareholders of the stock of New Controlled.
Although the first step in requesting approval is the same for both brand name and generic 1Unless otherwise indicated, all section references are to the Internal Revenue Code (26 U.S.C.), as amended, in effect for the years at issue. Rule references are to the Tax Court Rules of Practice and Procedure. All amounts are rounded to
Although the first step in requesting approval is the same for both brand name and generic 1Unless otherwise indicated, all section references are to the Internal Revenue Code (26 U.S.C.), as amended, in effect for the years at issue. Rule references are to the Tax Court Rules of Practice and Procedure. All amounts are rounded to
Although the first step in requesting approval is the same for both brand name and generic 1Unless otherwise indicated, all section references are to the Internal Revenue Code (26 U.S.C.), as amended, in effect for the years at issue. Rule references are to the Tax Court Rules of Practice and Procedure. All amounts are rounded to
ownership ofthe purportedly assigned interest is a partnership item. See Alpha I, L.P. v. United States, 682 F.3d 1009 (Fed. Cir. 2012). ¹4Respondent may have in mind a distinction between corporate and shareholderpurposes drawn by regulations under sec. 355 regarding corporate divisions. See sec. 1.355-2(b)(2), Income Tax Regs. ("A shareholder purpose (for example, the personal planning purposes ofa shareholder) is not a corporate business purpose."). -40- [*40] however, has hardly been specifi
355, if the Judicial Conference ofthe United States (Judicial Conference)4 determines that 3In 1926 the Presidential removal provision was amended to include the phrase "after notice and opportunity for public hearing". Revenue Act of 1926 (1926 Act), ch. 27, sec. 1000, 44 Stat. at 105-106. 4The Judicial Conference ofthe United States is the n
ing did not own and could not transfer ¹8In Martin Ice Cream Co. v. Commissioner, 110 T.C. at 217-220, the Court held that the key employee had to recognize gain under sec. 311(b) when the employer redeemed stock owned by the employee after a failed sec. 355 splitoff. Bross Trucking did not redeem any stock from Mr. Bross, and the facts under the sec. 311(b) analysis in Martin Ice Cream Co. are otherwise distinguishable. - 30 - [*30] Mr. Bross's goodwill and did not transfer a workforce in place
ing did not own and could not transfer ¹8In Martin Ice Cream Co. v. Commissioner, 110 T.C. at 217-220, the Court held that the key employee had to recognize gain under sec. 311(b) when the employer redeemed stock owned by the employee after a failed sec. 355 splitoff. Bross Trucking did not redeem any stock from Mr. Bross, and the facts under the sec. 311(b) analysis in Martin Ice Cream Co. are otherwise distinguishable. - 30 - [*30] Mr. Bross's goodwill and did not transfer a workforce in place
ing did not own and could not transfer ¹8In Martin Ice Cream Co. v. Commissioner, 110 T.C. at 217-220, the Court held that the key employee had to recognize gain under sec. 311(b) when the employer redeemed stock owned by the employee after a failed sec. 355 splitoff. Bross Trucking did not redeem any stock from Mr. Bross, and the facts under the sec. 311(b) analysis in Martin Ice Cream Co. are otherwise distinguishable. - 30 - [*30] Mr. Bross's goodwill and did not transfer a workforce in place
ing did not own and could not transfer ¹8In Martin Ice Cream Co. v. Commissioner, 110 T.C. at 217-220, the Court held that the key employee had to recognize gain under sec. 311(b) when the employer redeemed stock owned by the employee after a failed sec. 355 splitoff. Bross Trucking did not redeem any stock from Mr. Bross, and the facts under the sec. 311(b) analysis in Martin Ice Cream Co. are otherwise distinguishable. - 30 - [*30] Mr. Bross's goodwill and did not transfer a workforce in place
Similarly, the Court of Claims has read Gordon's "binding commitment" requirement as limited to an interpretation of particular statutory language in section 355 concerning divisive reorganizations .
The purpose of reducing non-Federal taxes has been recognized in the context of section 355 as a valid busines s "Respondent cites Boca Investerings Pship .
355 .4-402 (LexisNexis 2008) . That section provides a cause of action by a customer against a bank that wrongfully dishonors the customer's check . The statute does not specify a theory for a bank's liability for wrongful dishonor . See also U .C .C. sec . 4-402, Official Comment 2 (2008) (recognizing dishonor may be based on contract, tort,
Reeves in a section 355 reorganization resulting in VVI and petitioner becoming brother-sister corporations.3 Mr.
Reeves in a section 355 reorganization (spinoff) resulting in petitioner, CTC, and UMI becoming brother- sister corporations.
changed solely for stock or securities in such corporation or in another corporation a party to the reorganization.” Section 356 requires recognition of gain from an exchange in which property other than that permitted under - 107 - section 354 (or section 355) (i.e., boot) is received; the gain recognized is not in excess of the sum of money or the fair market value of other property received in the exchange.
ation, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization.” Section 356 requires recognition of gain from an exchange in which property other than that permitted under section 354 (or section 355) (i.e., boot) is received; the gain recognized is not in excess of the sum of money or the fair market value of other property received in the exchange.
companies and insurance companies. Distributions to individual taxpayers, such as petitioner, are not covered by section 354. Although petitioner referred to the distribution as a spinoff, he did not contend that it qualified as a distribution under section 355. What is relevant is that the Notice of Application and Joint Arrangement Circular Arrangement Involving BCE, Inc. and Nortel Networks Corporation (Circular), dated February 29, 2000, addresses U.S. shareholders, such as petitioner, and e
harles Schwab account statement for May 1-31, 2000, which indicated petitioner’s receipt of the Nortel stock on May 9, 2000. On the statement, petitioner had drawn an arrow to the Nortel stock transaction and written “NOT AN ORDINARY 3(...continued) sec. 355. Our use of the term “spinoff” does not mean the transaction qualified for nonrecognition treatment under sec. 355(a)(1). - 4 - DIVIDEND”. Petitioner did not include the Nortel stock distribution in his gross income. In a notice of deficienc
Income Tax Return for an S Corporation, that was filed for Mina of Forest City for 1998: - 7 - Spin-Off Taxpayers elect under IRC sec 355 to spin off 100% of basis and surrender of stock in exchange for stock and basis in spin-off company, Bishoy, Inc.
xchange of stock, with petitioner transferring to V. Eihusen all of the shares of Indian Head Golf Club, Inc., in exchange for 16,740 unrestricted shares of stock in petitioner, so as to purportedly qualify that exchange for tax-free treatment under section 355. The definitive agreement also contained the obligation of petitioner and R. Eihusen to make a joint tender offer (tender offer) for all issued and outstanding shares of common stock in petitioner except for shares owned by V. Eihusen, 2(
Income Tax Return for an S Corporation, that was filed for Mina of Forest City for 1998: - 7 - Spin-Off Taxpayers elect under IRC sec 355 to spin off 100% of basis and surrender of stock in exchange for stock and basis in spin-off company, Bishoy, Inc.
dation of the distributing corporation as a distribution in part or full payment in exchange for the stock under sec. 302(a). The ruling contrasts the partial redemption distribution in situation 3 and treats it as a corporate separation governed by sec. 355 rather than as a corporate contraction qualifying as a partial liquidation within the meaning of sec. 346(a)(2). Rev. Rul. 75-223, 1975-1 C.B. 109, 110. Unlike situations 1 and 2, situation 3 does not involve a sec. 332 liquidation entailing
Held: There is substantial evidence that the spinoff was a device to distribute E & P, which is not overcome by substantial evidence of nondevice or by evidence that P and S lacked current and accumulated E & P. Consequently, the spinoff does not qualify for tax deferral under secs. 368 and 355, I.R.C., and P’s gain must be determined in accordance with sec.
The issues for decision are: (1) Whether, pursuant to a plan of reorganization under section 368(a)(1)(D), petitioner’s distribution to its shareholders of stock of a controlled corporation qualified as a nontaxable distribution under section 355; and (2) if the distribution did not qualify as a nontaxable distribution under section 355, whether the fair market value of the distributed stock for purposes of calculating petitioner’s gain under section 311(b)(1) is measured by the price paid for t
189, 216 (1998) (Court interpreted the subject phrase for purposes of section 355 by reference to the definition set forth in the regulations prescribed under section 355).
189, 216 (1998) (Court interpreted the subject phrase for purposes of section 355 by reference to the definition set forth in the regulations prescribed under section 355).
(continued...) - 9 - qualify for section 355 nonrecognition treatment, then gain will be recognized to Ridge pursuant to section 311(b).4 Moreover, the parties have stipulated that, if the distribution does not qualify for section 355 nonrecognition treatment, the deficiencies determined by respondent with respect to petitioners are correct. Respondent argues that the distribution does not 3(...continued) * * * * * * * (c) Taxability of Corporation on Distribution.-- (1) In general.--* * * no g
(continued...) - 9 - qualify for section 355 nonrecognition treatment, then gain will be recognized to Ridge pursuant to section 311(b).4 Moreover, the parties have stipulated that, if the distribution does not qualify for section 355 nonrecognition treatment, the deficiencies determined by respondent with respect to petitioners are correct. Respondent argues that the distribution does not 3(...continued) * * * * * * * (c) Taxability of Corporation on Distribution.-- (1) In general.--* * * no g
(continued...) - 9 - qualify for section 355 nonrecognition treatment, then gain will be recognized to Ridge pursuant to section 311(b).4 Moreover, the parties have stipulated that, if the distribution does not qualify for section 355 nonrecognition treatment, the deficiencies determined by respondent with respect to petitioners are correct. Respondent argues that the distribution does not 3(...continued) * * * * * * * (c) Taxability of Corporation on Distribution.-- (1) In general.--* * * no g
ts, Inc., a Florida corporation (Ridge), of all of the outstanding stock of Sunbelt Forest Products, Inc., also a Florida corporation (Sunbelt), qualifies as a tax-free “spinoff” of Sunbelt to petitioners, the sole shareholders of Ridge, pursuant to section 355. We hold that it does not. Our reasons follow. FINDINGS OF FACT Introduction Some facts have been stipulated and are so found. The stipulation of facts filed by the parties, with attached exhibits, is incorporated by reference. At the tim
We disagree with respondent's overall position, insofar as it is predicated on the assumption or conclusion that petitioner owned assets with a value of $1,430,340 that were sold to Häagen- Dazs.
355.2-401(1) (Michie 1996). Petitioners argue that under the agreement Four A granted, sold, and conveyed all of its right, - 10 - title, and interest in and to the equipment to Black Mountain. Respondent argues that there is no evidence that legal title was actually transferred to Black Mountain and points out that no bill of sale was given
355.2-401(1) (Michie 1996). Petitioners argue that under the agreement Four A granted, sold, and conveyed all of its right, - 10 - title, and interest in and to the equipment to Black Mountain. Respondent argues that there is no evidence that legal title was actually transferred to Black Mountain and points out that no bill of sale was given
rpose of transferring to Arnold all of the outstanding shares of the Subsidiary in exchange for the surrender by Arnold of all of his shares of the Corporation, in a transaction intended to qualify as a tax-free split-off under Internal Revenue Code Section 355, as amended * * * A second document, dated June 15, 1988, also entitled “Agreement”, stated that Martin and Arnold were operating separate businesses that were formerly jointly operated by MIC, and that both Arnold and Martin “wish to ass
Funeral Homes, P.C. (Homes) to petitioner Clark D. Pulliam of 1,000 shares of common stock in Pulliam Deckard Funeral Chapel, P.C. (Chapel) on January 1, 1992, constituted a distribution on which no gain or loss is recognized under the provisions of section 355. The resolution of this issue depends upon whether the spin-off of Chapel from Homes was used principally as a device for the distribution of earnings and profits of Homes in contravention of section 355(a)(1)(B). If the spin-off of Chape
es have stipulated that petitioner recognized no gain or loss upon the transaction whereby its glass business was transferred to LOF Glass, Inc., pursuant to the provisions of - 5 - section 351 or sections 354, 355, and 368(a)(1)(D) (except as required by such sections or section 357(c)), and that pursuant to section 355 neither petitioner nor Pilkington Holdings recognized any gain or loss upon the exchange of LOF Glass, Inc., shares for the LOF shares.
Respondent is not seeking to tax petitioner Praegitzer on that exchange itself, which is tax free to him under section 355 regardless of the application of section 1041.
On April 4, 1989, the Services Group entities were divided in a tax-free transaction pursuant to section 355 (the splitup).
The Agreement was executed to separate Spalding and INI pursuant to section 355.3 After the Amendment was executed, Spalding disposed of its interest in a general partnership that was engaged in providing parking services at an airport and transferred $80,051 to INI as part of the division of corporate assets.
The parties have stipulated that petitioner recognized no gain or loss upon the transaction whereby its glass business was transferred to LOF Glass, Inc., pursuant to the provisions of section 351 or sections 354, 355, and 368(a)(1)(D) (except as required by such sections or section 357(c)), and that pursuant to section 355 neither petitioner nor Pilkington Holdings recognized any gain or loss upon the exchange of LOF Glass, Inc., shares for the LOF shares.