- 15 -
A corporation generally must recognize gain on the sale or
distribution of appreciated property, including stock of a
subsidiary. However, distributions of subsidiary stock in
divisive transactions governed by section 3554 are tax-free to
4 SECTION 355. DISTRIBUTION OF STOCK AND SECURITIES OF A
CONTROLLED CORPORATION.
(a) Effect on Distributees.-
(1) General Rule.-If-
(A) a corporation (referred to in this section as the
"distributing corporation")-
(i) distributes to a shareholder, with respect to
its stock, or
(ii) 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,
(B) 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),
(C) the requirements of subsection (b) (relating to
active businesses) are satisfied, and
(D) as part of the distribution, the distributing
corporation distributes-
(i) all of the stock and securities in the
controlled corporation held by it immediately before
the distribution, or
(ii) 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,
(continued...)
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011