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parent’s other operating subsidiary (which was merged into the
parent after the distribution) was obtained during the 5-year
period as a result of that subsidiary’s redemption of a portion
of a more than 20-percent minority interest.
Petitioners respond that this case simply does not involve
tax avoidance of a kind that the active business requirement of
section 355(b) and, in particular, section 355(b)(2)(D) is
designed to combat. In that regard, petitioners argue that
(1) Ridge’s accumulated adjustment account under section
1368(e)(1) (in this case, Ridge’s undistributed, previously taxed
earnings) exceeded the value of the distributed Sunbelt stock so
that the distribution could not have constituted a taxable
dividend to petitioners even if it had taken the form of a cash
distribution (see sec. 1368(c)(1)), and (2) the redemption was
not an acquisition of control by Ridge for purposes of section
355(b)(2)(D). Alternatively, petitioners argue that, even if the
combined redemption-distribution is deemed to have violated the
literal terms of the statute (since gain was, in fact, recognized
to Hutto), respondent has allowed tax-free treatment for other
transactions that failed to meet the literal statutory
requirements for nonrecognition of gain. Petitioners claim that
nonrecognition of gain is equally justified in this case.
Petitioners also argue that the facts of Rev. Rul. 57-144, supra,
are distinguishable from the facts of this case, and, therefore,
it is not germane.
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