C12-Chp-01-7-Rev-Rul- 2003-52-Corp distributions-Estate Planning

C12-Chp-01-7-Rev-Rul- 2003-52-Corp distributions-Estate Planning

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bdf1ac869bfdc60f5bcf5b529ac85a0529766148.doc -Page 1 of 2 Corporations: Distributions: Business purpose. --, Rev. Rul. 2003-52. May 12, 2003 [ Code Sec. 355 ] Corporations: Distributions: Business purpose. -- The IRS has ruled that a corporation's distribution of stock in a newly created, controlled farming corporation to its shareholders, who were members of the same family, satisfied the business purpose requirement of Reg. §1.355-2(b) , even though the distribution furthered the personal estate planning of two shareholders and promoted family harmony. The distribution followed an equal division of the farming business between the original corporation and the newly formed corporation that ended a disagreement among the family members and allowed the shareholders of each corporation to apply a consistent business strategy that would benefit each business. Therefore, it was motivated in substantial part by a real, nontax corporate business purpose. Back reference: ¶16,466.63 . ISSUE Whether, in the situation described below, the distribution of the stock of a controlled corporation satisfies the business purpose requirement of §1.355-2(b) of the Income Tax Regulations. FACTS Corporation X is a domestic corporation that has been engaged in the farming business for more than five years. The stock of X is owned 25 percent each by Father, age 68, Mother, age 67, Son, and Daughter. Although Father and Mother participate in some major management decisions, most of the management and all of the operational activities are performed by Son, Daughter, and several farmhands. The farm operation consists of breeding and raising livestock and growing grain. Son and Daughter disagree over the future direction of X's farming business. Son wishes to expand the livestock business, but Daughter is opposed because this would require substantial borrowing by X. Daughter would prefer to sell the livestock business and concentrate on
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C12-Chp-01-7-Rev-Rul- 2003-52-Corp distributions-Estate Planning

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