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(D) a transfer by a corporation of all or a part
of its assets to another corporation if immediately
after the transfer the transferor, or one or more of
its shareholders (including persons who were
shareholders immediately before the transfer), or any
combination thereof, is in control of the corporation
to which the assets are transferred; but only if, in
pursuance of the plan, stock or securities of the
corporation to which the assets are transferred are
distributed in a transaction which qualifies under
section 354, 355, or 356; * * *
The above-described transaction, commonly referred to as a “D”
reorganization, is sometimes used to divide an existing
corporation on a tax-deferred basis into more than one
corporation for corporate business purposes. In order for a
divisive D reorganization to qualify for tax-deferred treatment
at the corporate level under section 361, however, there must be
a qualifying distribution of stock under section 355.
In this case, petitioner divided its existing business into
two parts by way of a spinoff. It transferred its clinical
business to a newly formed subsidiary, Clinpath, in exchange for
100 percent of Clinpath’s stock. Petitioner then immediately
distributed the Clinpath stock to its shareholders in a
transaction petitioner claims met the requirements of section
355.
If a spinoff does not qualify under section 355, it could
result in a taxable dividend to the distributing corporation’s
shareholders under section 301 to the extent of corporate
earnings and profits and in tax to the distributing corporation
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Last modified: May 25, 2011