118 T.C. No. 5
UNITED STATES TAX COURT
SOUTH TULSA PATHOLOGY LABORATORY, INC., Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 18557-98. Filed January 28, 2002.
P agreed to sell a portion of its business
(clinical business) to N, a third party, pursuant to a
prearranged sale that was structured as a spinoff. P’s
basis in the clinical business’s assets was $105,015.
On Oct. 29, 1993, P transferred the clinical business
to a newly incorporated entity, S, in exchange for all
of S’s stock, pursuant to sec. 368(a)(1)(D), I.R.C.,
and, on Oct. 30, 1993, P distributed the stock to P’s
shareholders in a transaction it claimed satisfied the
requirements of sec. 355, I.R.C. On the same day as
the distribution of S’s stock to P’s shareholders, S’s
shareholders sold all of S’s stock to N for $5,530,000.
P had accumulated E & P as of the beginning of its
taxable year and failed to prove that P and S did not
have current E & P as of Oct. 30, 1993. Although P
conceded that the spinoff followed immediately by the
prearranged stock sale constituted evidence that the
transaction was a device to distribute E & P within the
meaning of sec. 355(a)(1)(B), I.R.C., and sec. 1.355-
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