- 39 -
T.C. 483 (1948).21
Arnold, on behalf of himself as well as petitioner, began
negotiations with H�agen-Dazs with respect to the sale of distribution
rights in January 1988. On May 4, 1988, MIC adopted corporate
resolutions authorizing the creation of a wholly owned subsidiary to
be called SIC. Over the following weeks, Arnold, Mr. Hewit, and
representatives of H�agen-Dazs continued to negotiate the price and
terms of a sale of distribution rights by MIC to H�agen-Dazs. On May
31, 1988, SIC was organized as a wholly owned subsidiary of MIC. On
June 6, 1988, in response to the H�agen-Dazs first draft of purchase
agreement, which provided for the sale of all distribution rights, Mr.
Hewit informed H�agen-Dazs that Martin and MIC would not be parties to
the sale transaction. In a letter sent to Mr. Hewit dated June 14,
21 Although Commissioner v. Court Holding Co., supra, deals
with corporations that distribute assets to their shareholders in
complete liquidation, the Commissioner has recently applied its
conduit theory to sec. 355 distributions. In Rev. Rul. 96-30,
1996-1 C.B. 36, D, a publicly traded corporation, distributes the
stock of C, its wholly owned subsidiary, to its shareholders in a
spin-off. C then enters into negotiations with Y, an unrelated
corporation, and is merged into Y, after a vote to do so by C’s
shareholders, under a plan that meets all the requirements of
sec. 368(a)(1)(A). Rev. Rul. 96-30, supra, specifically cites
the complete lack of negotiations regarding the acquisition of C
by Y before the spin-off as the determining factor in respecting
the form of the transactions under Commissioner v. Court Holding
Co., supra, in addition to the shareholder vote cited in Rev.
Rul. 75-406, 1975-2 C.B. 125. Although respondent did not cite
Rev. Rul. 96-30, supra, on brief, see supra note 16.
While Rev. Rul. 96-30, supra, indicates that a complete lack
of negotiations before the spin-off will prevent the recasting of
transactions under Court Holding, situations where there have
been some, or even substantial, negotiations are not addressed.
Nor does Rev. Rul. 96-30, supra, deal with a non pro rata
distribution such as a split-off, as in the case at hand.
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