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As stated, petitioner contends that the distribution was a
tax-free spinoff as part of a section 354 reorganization.
Section 354 provides that no gain or loss is recognized if under
a plan of reorganization, stock or securities in a corporation
that is a party to a reorganization are exchanged solely for
stock or securities in such a corporation or in another
corporation that is a party to the reorganization. Section
7701(a)(3) defines the term “corporation” to include
associations, joint-stock companies and insurance companies.
Distributions to individual taxpayers, such as petitioner, are
not covered by section 354. Although petitioner referred to the
distribution as a spinoff, he did not contend that it qualified
as a distribution under section 355.
What is relevant is that the Notice of Application and
Joint Arrangement Circular Arrangement Involving BCE, Inc. and
Nortel Networks Corporation (Circular), dated February 29, 2000,
addresses U.S. shareholders, such as petitioner, and explains
that
For a BCE Common Shareholder that is a United States
taxpayer, the receipt of New Nortel Common Shares will be a
taxable distribution for United States federal income tax
purposes, resulting in a taxable dividend approximately
equal to the fair market value of the New Nortel Common
Shares received. United States holders, in particular, are
urged to consult their own tax advisors.
The Circular further stated that “The Arrangement is
expected to result in significant taxable income to U.S. Holders
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