Tax News

CCH (cch.taxgroup.com) reports:

  A corporation's cross-chain sales of stock in its subsidiaries to brother-sister corporations within the affiliated group qualified as redemptions in complete termination of the corporation's interest in the subsidiaries and were properly taxed as distributions in exchange for stock, rather than as dividends. In an opinion supplementing
Merrill Lynch & Co., Inc. & Subs. (Dec. 55,017, 120 TC 12, affirmed in part and remanded from the U.S. Court of Appeals for the Second Circuit (2005-1 USTC ¶50,243, 386 F3d 464), the Tax Court determined that, since the corporation owned all of the subsidiaries's stock prior to the cross-chain sales, only its ownership interest in the subsidiaries had to be considered when applying the Code Sec. 302(b)(3) test for complete termination. The continuing constructive ownership interest of the affiliated group's parent in the subsidiaries through its ownership of the acquiring brother-sister corporations did not have to be considered in determining whether there had been a complete termination. Under Code Sec. 304(a), only the ownership interest of the person who actually receives property in exchange for the stock is considered, not that of a person who indirectly or constructively holds stock but neither transferred the stock nor received the proceeds of the stock sale.

  Supplementing Tax Court decision Dec. 55,017, 120 TC 12, affirmed in part and remanded CA-2, 2005-1 USTC ¶50,243, 386 F3d 464.

Merrill Lynch & Co., Inc. & Subsidiaries, 131 TC No. 19, Dec. 57,635

Other References:

 
Code Sec. 301

  CCH Reference - 2008FED ¶15,305.10

 
Code Sec. 302

  CCH Reference - 2008FED ¶15,330.1394

  CCH Reference - 2008FED ¶15,330.1628

 
Code Sec. 304

  CCH Reference - 2008FED ¶15,378.22

 
Code Sec. 318

  CCH Reference - 2008FED ¶15,906.42

  Tax Research Consultant

  CCH Reference - TRC CCORP: 21,202

  CCH Reference - TRC CCORP: 24,058

  CCH Reference - TRC CCORP: 24,202.05