Sec. 357(c) Inapplicable to Acquisitive D Reorgs.

Under Sec. 357(c)(1)(B), in the case of an exchange to which Sec. 361 applies by reason of a Sec. 368(a)(1)(D) reorganization plan, if the liabilities assumed exceed the adjusted basis of the property transferred pursuant to such exchange, such excess is a gain from the sale or exchange of a capital asset or of property that is not a capital asset, as the case may be. Under prior law, Sec. 357(c)(1)(B) applied to both divisive (Secs. 368(a)(1)(D) and 355) and acquisitive (Secs. 368(a)(1)(D) and 354) D reorganizations.

New Law

AJCA Section 898 amends Sec. 357(c)(1)(B) by limiting the provisions application to a Sec. 368(a)(1)(D) reorganization, in which stock or securities of the corporation to which the assets are transferred are distributed in a qualifying Sec. 355 transaction.

Effective Date

The amendment to Sec. 357(c)(1)(B) applies to transfers of money or other property, or liabilities assumed, for a reorganization occurring on or after Oct. 22, 2004.

Implications

As a result of the change, Sec. 357(c) will no longer apply to Sec. 368(a)(1)(D) acquisitive reorganizations (i.e., a D reorganization in which stock or securities of the corporation to which the assets are transferred are distributed in a transaction subject to Sec. 354(a) and (b)). This amendment conforms the treatment of acquisitive D reorganizations to that of other acquisitive reorganizations under Sec. 357.

From Kirsten Simpson, Washington, DC