Section 355 and the Suffering of Closely Held Corporations: Will Anyone Help the Little Guy?
Author: Matthew E. Rappaport.
Source: Volume 34, Number 04, Summer 2017 , pp.31-46(16)
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Abstract:
Ever since General Utilities repeal, the only way a corporation may distribute appreciated assets to shareholders on a tax-deferred basis is a spin-off qualifying under Section 355 of the Code. The development of Section 355’s statutory language and the corresponding administrative guidance has focused almost exclusively on large publicly traded corporations. Few commentators have addressed the detrimental effects the current Section 355 regime has had on closely held corporations. As this article illustrates, the government’s single-mindedness about preventing abuse by giant companies has manifested to prevent small businesses, especially those owned by family units, from taking necessary steps to optimize their organizational structure--but no reform is in sight to help these corporations use spin-offs and other divisive reorganizations to achieve congressionally-approved objectives.Keywords: IRC Sec. 355, stock distributions, spin-offs, Morris trust, Rev. Proc. 93-60
Affiliations:
1: Matthew E. Rappaport Law Firm.