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Regs., a corporation is treated as engaged in a trade or business
immediately after the distribution if it
consists of a specific existing group of activities being
carried on for the purpose of earning income or profit from
only such group of activities, and the activities included
in such group must include every operation which forms part
of, or a step in, the process of earning income or profit
from such group. * * *
By requiring that a trade or business be actively conducted, section
355 envisions a corporation with substantial management and
operational activities directly carried on by the corporation itself.
See sec. 1.355-3(b)(2)(iii), Proposed Income Tax Regs., 42 Fed. Reg.
3870 (Jan. 21, 1977);24 see also Rev. Rul. 73-236, 1973-1 C.B. 183.
Petitioner's distribution of SIC stock does not qualify for
nonrecognition of gain under section 355(c) because SIC was not
engaged in the active conduct of a trade or business immediately after
the distribution. SIC received no operating assets from petitioner on
the transfer of intangible assets by petitioner to SIC in exchange for
SIC stock. During the 6-week period from the time of the split-off
until the sale of all of the assets of SIC to H�agen-Dazs, SIC did not
directly carry on any operational activities. SIC had neither the
assets nor the employees required to engage in the active conduct of
an ice cream distributorship.
24 The proposed regulations were finalized by T.D. 8238,
1989-1 C.B. 92. The final regulations, however, are effective
for transactions occurring after Feb. 6, 1989. In response to
several comments received by practitioners requesting guidance,
the final regulations also state that in determining whether a
corporation is actively conducting a trade or business,
activities performed by independent contractors will generally
not be taken into account. See sec. 1.355-3(b)(2)(iii), Income
Tax Regs.
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