C12-Chp-07-5C-Split-off-IRS Let-Rul-200339007

C12-Chp-07-5C-Split-off-IRS Let-Rul-200339007 -...

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2842d516be183e3ece00f9a6cfcff290978d5b22.doc. Page 1 of 3 IRS Letter Ruling 200339007, June 10, 2003-Split-off Distribution of stock and securities of a NewCorp corporation; Business purpose. Note: This letter ruling uses the term spin-off, but it actually describes a split-off. Also, the instructor has edited the letter ruling to make it easier to read, by assigning names to the corporations and owners. [ Code Sec. 355 ] This letter responds to a letter dated February 12, 2003, requesting rulings concerning the federal income tax consequences of a proposed transaction. The information submitted in that and subsequent correspondence is summarized below. Old Corporation is operated under the name of OldCorp OldCorp is a C corporation that uses the cash method of accounting and a calendar year. OldCorp is primarily engaged in Business A. Fifty percent of the stock of OldCorp is owned by members of Family A : Albert and Betty who are married and their son Carl. Fifty percent of the stock of OldCorp is held by members of Family B . OldCorp has no securities outstanding. Members of Family A and Family B own directly, or indirectly within the meaning of §318(a) of the Internal Revenue Code, all of the stock in OldCorp and they have been engaged in both the managerial and operational activities of OldCorp for many years. Controversy between the Families Family A desires for OldCorp to continue business operations substantially unchanged except for management of the business gradually being transferred to their son, Carl. Members of Family B believe Carl is too young to manage OldCorp's operations and want to hire a professional manager. Family B wants OldCorp to make adjustments in its business so that, while continuing in Business A, it expands into more profitable related areas. As a result of this philosophical difference between the equal shareholder groups, it is becoming increasingly difficult to maintain a consistent business strategy for OldCorp. The owners wish to divide OldCorp between Family A and Family B , in order to have two companies, each of which will have its own consistent business strategy and, thus, the potential to function more effectively.
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2842d516be183e3ece00f9a6cfcff290978d5b22.doc. Page 2 of 3 NewCorp will be Formed NewCorp, will be a new corporation formed under the laws of North Carolina. It will be a C corporation that uses the cash method of accounting and a calendar year.
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C12-Chp-07-5C-Split-off-IRS Let-Rul-200339007 -...

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