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The Restructuring and Spinoff
Prior to summer 1986, petitioner had been the common parent
of an affiliated group of corporations (the affiliated group) on
whose behalf it filed consolidated Forms 1120, U.S. Corporation
Income Tax Return. In spring 1985, petitioner’s management
developed a plan to restructure the ownership of its businesses
through an inversion and spinoff.
Under the plan, petitioner would organize a wholly owned
subsidiary, the Interlake Corporation (Interlake); Interlake
would then organize a wholly owned subsidiary (Newco Sub 1),
followed by Newco Sub 1's organization of its own wholly owned
subsidiary (Newco Sub 2). Following the organizations of these
new corporations, petitioner would transfer its assets to
Interlake and merge with Newco Sub 2, with petitioner surviving
as a wholly owned subsidiary of Newco Sub 1. In connection with
the merger of Newco Sub 2 into petitioner, each outstanding share
of petitioner’s common stock would be converted into a share of
common stock of Interlake, and the shares of Interlake that
petitioner owned prior to the merger would be canceled.
Petitioner would next organize the Interlake Companies as a
wholly owned subsidiary and transfer to it all the shares of the
subsidiaries that were then owned by petitioner, with the
exception of Alabama Metallurgical Corporation (AMC), which
remained a subsidiary of petitioner, in exchange for shares of
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