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both the distributing corporation and to the distributee
shareholders.
There are four basic statutory requirements that must be
satisfied to have a tax-free corporate division under section
355. They are: (1) Solely stock or securities of a controlled
corporation must be distributed to shareholders with respect to
their stock in the distributing corporation or to security
holders in exchange for the distributing corporation's
securities; (2) the distribution must not be used principally as
a device for distributing earnings and profits; (3) the active
business requirement of section 355(b) must be met; and (4) all
of the controlled corporation's stock and securities held by the
distributing corporation, or enough to constitute control of the
controlled corporation, must be distributed. In addition to the
statutory requirements, a corporate business purpose requirement
and a continuity of proprietary interest requirement apply to
spin-offs. Secs. 1.355-1(b), 1.355-2(b) and (c), Income Tax
Regs.
Petitioners' Contentions
Petitioners contend that the spin-off by Homes of the Chapel
stock to Mr. Pulliam qualifies as a tax-free distribution
pursuant to section 355. They argue that there were strong
4(...continued)
then no gain or loss shall be recognized to (and no amount
shall be includable in the income of) such shareholder or
security holder on the receipt of such stock or securities.
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