¹An exception applies if the transfer involves either (1) the trade or business with which the liability is associated or (2) substantially all the assets with which the liability is associated.

²Rev. Rul. 95-74, 1995-2 CB 36.

³Notice 2001-17, IRB 2001-9, 730.

⁴Regs. Sec. 1.355-6 (TD 8913, 12/19/00); see Ann. 2001-26, IRB 2001-11, 896 (correcting TD 8913).

⁵REG-116733-98 (8/24/99).

⁶REG-107566-00 (1/2/01).

⁷TD 8960 (7/26/01); Prop. Regs. Sec. 1.355-7 was adopted as Temp. Regs. Sec. 1.355-7T.

⁸The temporary regulations delete and reserve a seventh example contained in the second set of proposed regulations. That example, which was not well received in comment letters, had treated as part of one plan under Sec. 355(e) a distribution and an acquisition that occurred approximately 18 months apart.

⁹TD 8940 (2/13/01).

¹⁰TD 8858 (1/5/00).

¹¹The precise mechanics of the residual method are beyond the scope of this article; see Regs. Sec. 1.338-6. Under that provision, amounts generally are allocated among seven classes; the full FMV of assets in a particular class is allocated to that class before any allocation is made to the next asset class. If the amount allocable to a class is less than the FMV of all assets in the class, the amount allocable to the class is to be allocated among the various assets in the class in proportion to their relative FMVs.

¹²TD 8964 (9/26/01).

¹³Rite Aid Corp., 255 F3d 1357 (2001), rev'g 46 Fed.Cl. 500 (2000).

¹⁴Citing Am. Standard, Inc., 602 F2d 256, 261 (Ct. Cl. 1979).

¹⁵United Dominion Industries, Inc., 121 S.Ct. 1934 (2001), rev'g and remd'g 259 F3d 193 (4th Cir. 2000).

¹⁶Frontier Chevrolet Co., 116 TC No. 23 (2001).

¹⁷Compare Burien Nissan, Inc., TC Memo 2001-116, in which the Tax Court concluded that amounts paid under a noncompete covenant in a stock sale had to be amortized under Sec. 197.

¹⁸Rev. Rul. 2001-24, IRB 2001-22, 1290.

¹⁹See Regs. Sec. 1.368-2(k) (drops of target stock following a Sec. 368(a)(2)(E) reorganization).

²⁰Rev. Rul. 2001-25, IRB 2001-22, 1291.

²¹Rev. Rul. 88-48, 1988-1 CB 117, concluded that the "substantially all" requirement was met in a C reorganization when the target sold 50% of its historic assets and transferred the sales proceeds and its other properties to the acquiring corporation.

²²Rev. Rul. 2001-26, IRB 2001-23, 1297.

²³Rev. Rul. 2001-29, IRB 2001-26, 1348, obsolet'g Rev. Rul. 73-236, 1973-1 CB 183 (holding that a real estate investment trust could not be engaged in an active business).

²⁴Notice 2001-16, IRB 2001-9, 730.

²⁵IRS Letter Ruling 200103054 (10/23/00), supplementing IRS Letter Rulings 9950032 (9/13/99) and 200030007 (4/24/00).

²⁶See also IRS Letter Ruling 200119048 (2/12/01) (the Service ruled that a delay in both the distribution and the public offering would not affect its earlier rulings that a spinoff would be tax-free under Secs. 355 and 368(a)(1)(D)).

²⁷IRS Letter Ruling 200121069 (2/28/01), supplementing IRS Letter Ruling 200043044 (8/1/00).

²⁸Under Rev. Proc. 96-43, 1996-2 CB 330, the Service generally will decline to rule that a taxpayer has satisfied the Sec. 355(b) active-trade-or-business requirement unless the gross assets of the distributing and controlled corporations, respectively, relied on to meet such requirement have an FMV at least five percent of the total FMV of the respective corporation's gross assets.

²⁹IRS Letter Ruling 200113019 (12/27/00).

³⁰The changes to the statute were made by the Taxpayer Relief Act of 1997 (TRA '97) and the Internal Revenue Service Restructuring and Reform Act of 1998 (IRSRRA '98). Prior to that time, the step-transaction doctrine applied to transactions in which assets were contributed to Controlled, and Controlled was spun off, then acquired. For example, Rev. Rul. 70-225, 1970-1 CB 80, provided that the contribution of assets by a distributing corporation to a newly formed corporation (Newco), a spinoff of Newco to the distributing corporation shareholders, and a third party's acquisition of Newco in a purported B reorganization would not be respected. Instead, the transaction would be recharacterized as a transfer of the assets by the distributing corporation directly to the unrelated corporation in exchange for its stock, followed by a distribution of the unrelated corporation's stock to the distributing corporation's shareholders in a transaction that did not qualify for tax-free treatment under Sec. 355. Thus, Newco was disregarded. Reflecting the changes made by the TRA '97 and the IRSRRA '98, Rev. Rul. 98-44, 1998-2 CB 315, obsoleted Rev. Rul. 70-225, thereby permitting a newly formed controlled corporation to engage in the types of transactions described in Rev. Rul. 70-225.

³¹FSA 200120011 (2/7/01).

³²FSA 200113016 (3/30/01).

³³FSA 200041009 (6/30/00). In the ruling, two shareholders directly or indirectly owned more than 50% of the S stock and directly owned all of the C stock. They sold their C stock to the S corporation. The Service concluded that, because the shareholders controlled both corporations, their sale of the C stock should be treated as a Sec. 304 redemption of the S stock. Additionally, because the shareholders continued to control the S corporation after the transaction, the redemption did not qualify as a Sec. 302 sale or exchange.

³⁴FSA 200110004 (11/14/00).