Douglas P. McLaulin, Jr. et al. - Page 12




                                               - 12 -                                                  
                  Because we agree with respondent’s first ground, we do not                           
            address respondent’s second ground.                                                        
            II.  Active Business Requirement                                                           
                  A.  Pertinent Provisions of the Internal Revenue Code                                
                  One of the specific requirements for section 355                                     
            nonrecognition treatment on the pro rata distribution of the                               
            shares of a controlled corporation (a so-called spinoff) is that                           
            "the requirements of subsection (b) [of section 355] (relating to                          
            active businesses) are satisfied".  Sec. 355(a)(1)(C).  Section                            
            355(b)(1)(A) provides that both the distributing and the                                   
            controlled corporation must be "engaged immediately after the                              
            distribution in the active conduct of a trade or business".                                
            Section 355(b)(2) defines the circumstances under which "a                                 
            corporation shall be treated as engaged in the active conduct of                           
            a trade or business".  Section 355(b)(2)(B) provides that the                              
            trade or business must have been "actively conducted throughout                            
            the 5-year period ending on the date of the distribution" (the                             
            5-year period).  Section 355(b)(2)(D) provides, in pertinent                               
            part, that control6 of the corporation engaged in the active                               
            conduct of a trade or business on the date of acquisition of                               
            control must not have been acquired within the 5-year period or,                           
            if acquired within such period, it must have been acquired "only                           


                  6     For purposes of sec. 355, control is defined in terms                          
            of 80 percent of both voting control and share ownership.  See                             
            sec. 368(c).                                                                               




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