¹ For a discussion of these and other AJCA provisions, see Tax Clinic and News Notes, this issue.

² REG-106889-04 (8/12/04).

³ See Southwest Consolidated Corp., 315 US 194 (1942).

⁴ See Rev. Ruls. 82-34, 1982-1 CB 59 and 77-415, 1977-2 CB 311.

⁵ See Rev. Proc. 77-37, 1977-1 CB 85. Case law generally tolerates a lower percentage of stock; see John A. Nelson, 296 US 374 (1935).

⁶ REG-129706-04 (8/10/04).

⁷ REG-165579-02 (3/2/04).

⁸ In general, a “qualified group” includes the corporation issuing stock in the reorganization, the acquirer (if different from the issuing corporation) and any other lower-tier subsidiary directly controlled (within the meaning of Sec. 368(c)) at each level by a group member.

⁹ See Rev. Proc. 77-37, note 5 supra, which provides the IRS safe-harbor rule on the substantially all requirement (generally, 90% of the net assets and 70% of the gross assets); and James Armour, Inc., 43 TC 295 (1964) (which defined “substantially all” as all of the acquired corporation’s business assets).

¹⁰ See Lyde R. Arrot, 136 F2d 449 (3d Cir. 1943).

¹¹ See Amelia D. Bloch, 148 F2d 452 (9th Cir. 1945).

¹² REG-116564-03 (5/3/04).

¹³ Notice 2004-58, IRB 2004-39, 520.

¹⁴ TD 9118, REG-153172-03 (3/18/04).

¹⁵ See Temp. Regs. Sec. 1.1502-20T(i).

¹⁶ For this purpose, net asset basis is the excess of the sum of the (1) subsidiary’s money, (2) basis in assets (other than stock of consolidated subsidiaries), (3) loss carryforwards that would be carried to the subsidiary’s separate return year and (4) recognized, but deferred, deductions, over the subsidiary’s liabilities taken into account for tax purposes.

¹⁷ Temp. Regs. Sec. 1.337(d)-2T also was amended to provide that any recognized BIG is reduced by selling expenses (i.e., expenses directly attributable to the disposition of the BIG asset). In addition, Temp. Regs. Sec. 1.1502-80T(c) was added concurrently with the amendments to Temp. Regs. Sec. 1.337(d)-2T, to clarify that the deferral of an otherwise allowable loss under Sec. 165 terminates immediately before the subsidiary ceases to be a group member. Such a loss generally is deferred until the subsidiary is treated as worthless under the “excess loss account” rules of Regs. Sec. 1.1502-19(c).

¹⁸ TD 9117 (3/15/04).

¹⁹ REG-167265-03 (3/15/04).

²⁰ The details of this calculation are beyond the scope of this article.

²¹ Rev. Rul. 2003-125, IRB 2003-52, 1243.

²² Rev. Rul. 2004-85, IRB 2004-33, 189.

²³ The effect of the election is to treat the QSub as a disregarded entity.

²⁴ Rev. Rul. 64-250, 1964-2 CB 33.

²⁵ Rev. Rul. 2004-23, IRB 2004-10, 585.

²⁶ See Regs. Sec. 1.355-2(b).

²⁷ Rev. Rul. 2003-110, IRB 2003-46, 1083.

²⁸ Rev. Proc. 96-30, 1996-1 CB 696; see Section 2.08, Appendix A.

²⁹ Rev. Rul. 2004-78, IRB 2004-31, 108.

³⁰ See generally, Bittker and Eustice, Federal Income Taxation of Corporations & Shareholders, 12.41[3] (Warren, Gorham & Lamont, RIA Group, 7th ed., 2004).

³¹ Rev. Rul. 2004-79, IRB 2004-31, 106.

³² See Regs. Sec. 1.108-2.

³³ Rev. Rul. 93-7, 1993-1 CB 125.

³⁴ The ruling included a second situation in which the P debt appreciated in S’s hands, having a FMV in excess of basis. It held that S recognized gain on the distribution under Sec. 311(b) equal to the excess of FMV over basis.

³⁵ Rev. Rul. 2004-83, IRB 2004-32, 157.

³⁶ The ruling cited Regs. Sec. 1.1502-80(b), which provides that Sec. 304 does not apply in the case of an intercompany transaction (i.e., a transaction between consolidated group members).

³⁷ The ruling cited several authorities supporting its conclusion, including Rev. Rul. 67-274, 1967-2 CB 141 (proposed stock-for-stock reorganization under Sec. 368(a)(1)(B), followed by a liquidation of the target, treated as a direct asset acquisition qualifying as a reorganization under Sec. 368(a)(1)(C)).

³⁸ Rev. Rul. 2004-59, IRB 2004-24, 1050.

³⁹ The ruling also cited Rev. Rul. 84-111, 1984-2 CB 88, which addresses three different methods of incorporating a partnership. One of the methods is the same as the one adopted in the ruling.