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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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