Tax News

CCH (cch.taxgroup.com) reports:

The IRS has issued transition relief regarding the application of Code Sec. 355(b)(2)(C) and (D)
to certain trade or business acquisitions between members of affiliated groups under Reg. §1.355-3(b)(4)(iii) for purposes of the Code Sec. 355 active business or trade requirement. The relief is provided in light of the enactment of Code Sec. 355(b)(3) by the Tax Increase Prevention and Reconciliation Act of 2005 (P.L. 109-222), and its subsequent amendment by the Tax Relief and Health Care Act of 2006 (P.L. 109-432).
In May 2007, the IRS issued proposed regulations, including amendments to Reg. §1.355-3(b)(4)(iii), to reflect Code Sec. 355(b)(3) and its effect on other active trade or business rules (NPRM REG-123365-03, I.R.B. 2007-23, 1357; TAXDAY, 2007/05/07, I.3). The proposed rules generally provide that Code Sec. 355(b)(3) modifies the application of Code Secs. 355(b)(2)(C) and (D)
because it essentially treats a stock acquisition that results in the controlled corporation becoming a subsidiary member of the distributing corporation's separate affiliated group (SAG) as an asset acquisition for purposes of Code Sec.355(b). Thus, such a stock acquisition is subject to Code Sec. 355(b)(2)(C) regardless of whether it results in an acquisition of control that would otherwise be subject to Code Sec. 355(b)(2)(D). This also means that such a stock acquisition could violate Code Sec. 355(b)(2)(C) notwithstanding the fact that it would not violate Code Sec. 355(b)(2)(D) because there was no acquisition of control.
Because taxpayers may not have anticipated that such acquisitions of additional stock of the controlled corporation would adversely impact the controlled corporation's ability to satisfy the Code Sec. 355(b) active trade or business requirement, the IRS will not treat the distributing corporation's (or its SAG's) acquisition of additional stock of the controlled corporation as a violation of
Code Sec. 355(b)(2)(C) with respect to the controlled corporation, provided the transaction satisfies the requirements of Code Sec. 355(b)(2)(D), as in effect before the enactment of Code Sec. 355(b)(3). The relief applies to distributions effected on or before the date the proposed regulations (NPRM REG-123365-03) are published as temporary or final regulations.
Notice 2007-60, 2007FED ¶46,574
Other References:
Code Sec. 355
CCH Reference - 2007FED ¶16,466.55
Tax Research Consultant
CCH Reference - TRC REORG: 30,106
CCH Reference - TRC REORG: 30,106.05
CCH Reference - TRC REORG: 30,106.10
CCH Reference - TRC REORG: 30,106.15
CCH Reference - TRC REORG: 30,106.20