- 14 -
2(b), Income Tax Regs.; and (3) the prearranged sale of Clinpath
stock on the same date as the distribution of Clinpath stock to
petitioner’s shareholders violated the continuity of proprietary
interest requirement of section 1.355-2(c), Income Tax Regs.
Petitioner, on the other hand, argues that the transaction met
all the requirements of section 355 and related regulations. We
examine the parties’ arguments below.
A. Nondevice Requirement of Section 355(a)(1)(B)
A transaction fails to qualify under section 355 if that
transaction is used principally as a device for the distribution
of the earnings and profits of the distributing corporation, the
controlled corporation, or both. Sec. 355(a)(1)(B); see also
sec. 1.355-2(d)(1), Income Tax Regs. We analyze whether a
transaction was used principally as a device for distributing
earnings and profits by examining all the facts and
circumstances, including, but not limited to, the presence of the
device factors listed in section 1.355-2(d)(2), Income Tax Regs.,
and the presence of the nondevice factors listed in section
1.355-2(d)(3), Income Tax Regs.
Petitioner essentially concedes that there is evidence of
device as described in section 1.355-2(d)(2), Income Tax Regs.;
however, it argues that a lack of substantial earnings and
profits, sec. 1.355-2(d)(5), Income Tax Regs., and a corporate
Page: Previous 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 NextLast modified: May 25, 2011