- 16 -
significance. The key determination by respondent in Rev. Rul.
57-144, supra, which is relevant to this case, is the
determination that a parent corporation is considered to acquire
control of its subsidiary by virtue of the subsidiary’s
redemption of the stock of another shareholder whose interest in
the subsidiary before the redemption exceeded 20 percent.
In opposition to that determination by respondent,
petitioners argue that, where control of the subsidiary is the
result of the subsidiary’s redemption of its own stock, there is
no “acquisition” of control by the parent distributing
corporation as contemplated by section 355(b)(2)(D). Again, we
disagree with that blanket assertion. As one commentator has
noted:
The literal statutory language supports the
redemption rule of Rev. Rul. 57-144, since P acquired
control of S as a result of a taxable transaction.
Although the purpose of �355(b)(2)(D) to prevent
Distributing from using its liquid assets to buy a
corporation conducting an active business would not at
first blush seem to be violated by a redemption of S
stock before a spin-off (because P is not using any of
its own assets in a way contrary to the purpose of
�355(b)(2)(D)), the fungibility of cash makes such a
redemption problematic. It may be difficult to
determine whether, in true economic effect, the cash
used in the redemption could be attributed to P--as,
for instance, if S used all of its cash normally used
for its working capital requirements for the
redemption, which P made up to S after the redemption.
* * *
Ridgway, 776-2d Tax Mgmt. (BNA), Corporate Separations at A-42,
A-43 (2000) (fn. refs. & citations omitted; emphasis added).
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011