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Generally, the greater the percentage of the stock sold
after the distribution, the stronger the evidence of device. In
addition, the shorter the period of time between the distribution
and the sale, the stronger the evidence of device. Sec. 1.355-
2(d)(2)(iii), Income Tax Regs. Here 49 percent of Chapel's stock
was sold to Mr. Deckard, and the distribution and the sale of
stock were both deemed to have taken effect as of January 1,
1992. In no event did the sale take place later than March 6,
1992, when 490 shares of Chapel stock were placed in escrow with
the First National Bank of Robinson pursuant to the Agreement and
Stock Purchase Agreement between Mr. Pulliam and Mr. Deckard.
Mr. Pulliam, through his attorney and accountants,
completely dominated, controlled, and arranged the creation of
Chapel and the transfer of all of its shares directly to himself.
By contrast, Mr. Deckard was unrepresented and did not
significantly influence the structuring of the transaction or the
preparation of the legal documents.
Nondevice Factors
Among nondevice factors is a corporate business purpose.
Sec. 1.355-2(d)(3)(ii), Income Tax Regs. Since any spin-off must
have a corporate business purpose to qualify as tax-free, this
nondevice factor will always be present to some extent in any
qualifying spin-off. Under the balancing approach adopted in the
regulations, the stronger the evidence of device, the stronger
the corporate business purpose that is necessary to prevent a
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