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2(d), Income Tax Regs., P claimed it had valid
corporate business purposes for structuring the
transaction as it did which overcame the evidence of
device. Alternatively, P argued that, even if the
spinoff did not meet the requirements of secs. 355 and
368, I.R.C., the value of S’s stock for purposes of
calculating the gain P must recognize under sec.
311(b)(1), I.R.C., should be calculated based on the
value of the assets transferred to S and not on the
price paid for S’s stock by N.
1. Held: There is substantial evidence that the
spinoff was a device to distribute E & P, which is not
overcome by substantial evidence of nondevice or by
evidence that P and S lacked current and accumulated E
& P. Consequently, the spinoff does not qualify for
tax deferral under secs. 368 and 355, I.R.C., and P’s
gain must be determined in accordance with sec.
311(b)(1), I.R.C.
2. Held, further, sec. 311(b)(1), I.R.C.,
requires P to recognize gain on the distribution of S’s
stock as though the stock were sold to P’s shareholders
at its fair market value. In this case, the best
evidence of the fair market value of S’s stock on the
distribution date is the price paid for the stock by N
on that same date.
Thomas G. Potts, for petitioner.
Elizabeth Downs, for respondent.
MARVEL, Judge: Respondent determined a deficiency in
petitioner’s Federal income tax of $1,926,232 for taxable year
ended June 30, 1994.
The issues for decision are: (1) Whether, pursuant to a
plan of reorganization under section 368(a)(1)(D),1 petitioner’s
1All section references are to the Internal Revenue Code in
effect for the year in issue, and all Rule references are to the
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