Trinova Corporation and Subsidiaries - Page 32

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          of shares under section 368(a)(1)(D) that qualifies for                     
          nonrecognition under section 355.  The initial drop-down of                 
          assets into a subsidiary in exchange for its shares is essential            
          to enable the intended divestiture to be accomplished by a share            
          for share exchange that entitles the second step to                         
          nonrecognition of gain to both parties.  The connection that                
          binds the two steps, as in J.E. Seagram Corp. v. Commissioner,              
          104 T.C. 75, 91-99 (1995), is manifested in the plan of                     
          reorganization, which embodies the intent to achieve the end                
          result.7  Although the first step in the case at hand has an                
          independent business purpose in the sense that it would not have            
          been fruitless in all events to take that step--after all, a                
          corporation engaged in more than one business almost invariably             
          has a business purpose for dropping a business into a subsidiary,           
          if only to protect the assets of its other businesses from the              
          liabilities and risks that are encapsulated by the drop-down--the           
          independent business purpose of the first step in the case at               
          hand is trumped by the more important business purpose of                   
          completing the divestiture by means of a tax-free exchange, which           
          relegates the first step to a subordinate implementing role.                

          7    Contrary to the views of those who would read the intent,              
          end result, integrated transaction version of the step-                     
          transaction doctrine out of the judicial arsenal, see, e.g.,                
          Ginsburg & Levin, Mergers, Acquisitions and Buyouts, secs.                  
          208.4.5, 608.1, 608.3.1, 610.9, 1002.1.4 (July 1996); Bowen, The            
          End Result Test, 49 Taxes 722 (1994), there is an appropriate               
          role for this "weak" version of the step-transaction doctrine in            
          situations such as the case at hand.                                        




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