#### § 1.355-0 Outline of sections.

In order to facilitate the use of §§ 1.355-1 through 1.355-8, this section lists the major paragraphs in those sections as follows:

## § 1.355-1 Distribution of stock and securities of a controlled corporation.

(a) Effective date of certain sections.

(b) Application of section.

## § 1.355-2 Limitations.

(a) Property distributed.

(b) Independent business purpose.

(1) Independent business purpose requirement.

(2) Corporate business purpose.

(3) Business purpose for distribution.

(4) Business purpose as evidence of nondevice.

(5) Examples.

(c) Continuity of interest requirement.

(1) Requirement.

(2) Examples.

(d) Device for distribution of earnings and profits.

(1) In general.

(2) Device factors.

(i) In general.

(ii) Pro rata distribution.

(iii) Subsequent sale or exchange of stock.

(A) In general.

(B) Sale or exchange negotiated or agreed upon before the distribution.

(C) Sale or exchange not negotiated or agreed upon before the distribution.

(D) Negotiated or agreed upon before the distribution.

(E) Exchange in pursuance of a plan of reorganization.

(iv) Nature and use of assets.

(A) In general.

(B) Assets not used in a trade or business meeting the requirement of section 355(b).

(C) Related function.

(3) Nondevice factors.

(i) In general.

(ii) Corporate business purpose.

(iii) Distributing corporation publicly traded and widely held.

(iv) Distribution to domestic corporate shareholders.

(4) Examples.

(5) Transactions ordinarily not considered as a device.

(i) In general.

(ii) Absence of earnings and profits.

(iii) Section 303(a) transactions.

(iv) Section 302(a) transactions.

(v) Examples.

(e) Stock and securities distributed.

(1) In general.

(2) Additional rules.

(f) Principal amount of securities.

(1) Securities received.

(2) Only stock received.

(g) Recently acquired controlled stock under section 355(a)(3)(B).

(1) Other property.

(2) Exceptions.

(3) DSAG.

(4) Taxable transaction.

(5) Examples.

(h) Active conduct of a trade or business.

(i) Effective/applicability date.

## § 1.355-3 Active conduct of a trade or business.

(a) General requirements.

(1) Application of section 355.

(2) Examples.

(b) Active conduct of a trade or business defined.

(1) In general.

(2) Active conduct or a trade or business immediately after distribution.

(i) In general.

(ii) Trade or business.

(iii) Active conduct.

(iv) Limitations.

(3) Active conduct for five-year period preceding distribution.

(4) Special rules for acquisition of a trade or business (Prior to the Revenue Act of 1987 and Technical and Miscellaneous Revenue Act of 1988).

(i) In general.

(ii) Example.

(iii) Gain or loss recognized in certain transactions.

(iv) Affiliated group.

(5) Special rules for acquisition of a trade or business (After the Revenue Act of 1987 and Technical and Miscellaneous Revenue Act of 1988).

(c) Examples.

## § 1.355-4 Non pro rata distributions, etc.

## § 1.355-5 Records to be kept and information to be filed.

(a) Distributing corporation.

(1) In general.

(2) Special rule when an asset transfer precedes a stock distribution.

(b) Significant distributee.

(c) Definitions.

(1) Significant distributee.

(2) Publicly traded stock.

(d) Substantiation information.

(e) Effective/applicability date.

## § 1.355-6 Recognition of gain on certain distributions of stock or securities in controlled corporation.

(a) Conventions.

(1) Examples.

(2) Five-year period.

(3) Distributing securities.

(4) Marketable securities.

(b) General rules and purposes of section 355(d).

(1) Disqualified distributions in general.

(2) Disqualified stock.

(i) In general.

(ii) Purchase.

(iii) Exceptions.

(A) Purchase eliminated.

(B) Deemed purchase eliminated.

(C) Elimination of basis.

(*1*) General rule.

(*2*) Special rule for transferred and exchanged basis property.

(*3*) Special rule for Split-offs and Split-ups.

(D) Special rule if basis allocated between two corporations.

(3) Certain distributions not disqualified distributions because purposes of section 355(d) not violated.

(i) In general.

(ii) Disqualified person.

(iii) Purchased basis.

(iv) Increase in interest because payment of cash in lieu of fractional shares.

(v) Other exceptions.

(vi) Examples.

(4) Anti-avoidance rule.

(i) In general.

(ii) Example.

(c) Whether a person holds a 50 percent or greater interest.

(1) In general.

(2) Valuation.

(3) Effect of options, warrants, convertible obligations, and other similar interests.

(i) Application.

(ii) General rule.

(iii) Options deemed newly issued and substituted options.

(A) Exchange, adjustment, or alteration of existing option.

(B) Certain compensatory options.

(C) Substituted options.

(iv) Effect of treating an option as exercised.

(A) In general.

(B) Stock purchase agreement or similar arrangement.

(v) Instruments treated as options.

(vi) Instruments generally not treated as options.

(A) Escrow, pledge, or other security agreements.

(B) Compensatory options.

(*1*) General rule.

(*2*) Exception.

(C) Certain stock conversion features.

(D) Options exercisable only upon death, disability, mental incompetency, or separation from service.

(E) Rights of first refusal.

(F) Other enumerated instruments.

(vii) Reasonably certain that the option will be exercised.

(A) In general.

(B) Stock purchase agreement or similar arrangement.

(viii) Examples.

(4) Plan or arrangement.

(i) In general.

(ii) Understanding.

(iii) Examples.

(iv) Exception.

(A) Subsequent disposition.

(B) Example.

(d) Purchase.

(1) In general.

(i) Definition of purchase under section 355(d)(5)(A).

(ii) Section 355 distributions.

(iii) Example.

(2) Exceptions to definition of purchase under section 355(d)(5)(A).

(i) Acquisition of stock in a transaction which includes other property or money.

(A) Transferors and shareholders of transferor or distributing corporations.

(*1*) In general.

(*2*) Exception.

(B) Transferee corporations.

(*1*) In general.

(*2*) Exception.

(C) Examples.

(ii) Acquisition of stock in a distribution to which section 305(a) applies.

(iii) Section 1036(a) exchange.

(iv) Section 338 elections.

(A) In general.

(B) Example.

(v) Partnership distributions.

(A) Section 732(b).

(B) Section 734(b).

(3) Certain section 351 exchanges treated as purchases.

(i) In general.

(A) Treatment of stock received by transferor.

(B) Multiple classes of stock.

(ii) Cash item, marketable stock.

(iii) Exception for certain acquisitions.

(A) In general.

(B) Example.

(iv) Exception for assets transferred as part of an active trade or business.

(A) In general.

(B) Active conduct of a trade or business.

(C) Reasonable needs of the trade or business.

(D) Consideration of all facts and circumstances.

(E) Successive transfers.

(v) Exception for transfer between members of the same affiliated group.

(A) In general.

(B) Examples.

(4) Triangular asset reorganizations.

(i) Definition.

(ii) Treatment.

(iii) Example.

(5) Reverse triangular reorganizations other than triangular asset reorganizations.

(i) In general.

(ii) Letter ruling and closing agreement.

(iii) Example.

(6) Treatment of group structure changes.

(i) In general.

(ii) Adjustments to basis of higher-tier members.

(iii) Example.

(7) Special rules for triangular asset reorganizations, other reverse triangular reorganizations, and group structure changes.

(e) Deemed purchase and timing rules.

(1) Attribution and aggregation.

(i) In general.

(ii) Purchase of additional interest.

(iii) Purchase between persons treated as one person.

(iv) Purchase by a person already treated as holding stock under section 355(d)(8)(A).

(v) Examples.

(2) Transferred basis rule.

(3) Exchanged basis rule.

(i) In general.

(ii) Example.

(4) Certain section 355 or section 305 distributions.

(i) Section 355.

(ii) Section 305.

(5) Substantial diminution of risk.

(i) In general.

(ii) Property to which suspension applies.

(iii) Risk of loss substantially diminished.

(iv) Special class of stock.

(f) Duty to determine stockholders.

(1) In general.

(2) Deemed knowledge of contents of securities filings.

(3) Presumptions as to securities filings.

(4) Presumption as to less-than-five-percent shareholders.

(5) Examples.

(g) Effective date.

## § 1.355-7 Recognition of gain on certain distributions of stock or securities in connection with an acquisition.

(a) In general.

(b) Plan.

(1) In general.

(2) Certain post-distribution acquisitions.

(3) Plan factors.

(4) Non-plan factors.

(c) Operating rules.

(1) Internal discussions and discussions with outside advisors evidence of business purpose.

(2) Takeover defense.

(3) Effect of distribution on trading in stock.

(4) Consequences of section 355(e) disregarded for certain purposes.

(5) Multiple acquisitions.

(d) Safe harbors.

(1) Safe Harbor I.

(2) Safe Harbor II.

(i) In general.

(ii) Special rule.

(3) Safe Harbor III.

(4) Safe Harbor IV.

(i) In general.

(ii) Special rules.

(5) Safe Harbor V.

(i) In general.

(ii) Special rules.

(6) Safe Harbor VI.

(7) Safe Harbor VII.

(i) In general.

(ii) Special rules.

(8) Safe Harbor VIII.

(i) In general.

(ii) Special rule.

(9) Safe Harbor IX.

(i) In general.

(ii) Special rule.

(e) Options, warrants, convertible obligations, and other similar interests.

(1) Treatment of options.

(i) General rule.

(ii) Agreement, understanding, or arrangement to write, transfer, or modify an option.

(iii) Substantial negotiations related to options.

(2) Stock acquired pursuant to options.

(3) Instruments treated as options.

(4) Instruments generally not treated as options.

(i) Escrow, pledge, or other security agreements.

(ii) Options exercisable only upon death, disability, mental incompetency, or separation from service.

(iii) Rights of first refusal.

(iv) Other enumerated instruments.

(f) Multiple controlled corporations.

(g) Valuation.

(h) Definitions.

(1) Agreement, understanding, arrangement, or substantial negotiations.

(2) Controlled corporation.

(3) Controlling shareholder.

(4) Coordinating group.

(5) Disclosure event.

(6) Discussions.

(7) Established market.

(8) Five-percent shareholder.

(9) Implicit permission.

(10) Public announcement.

(11) Public offering.

(12) Similar acquisition (not involving a public offering).

(13) Similar acquisition involving a public offering.

(i) One public offering.

(ii) More than one public offering.

(iii) Potential acquisition involving a public offering.

(14) Ten-percent shareholder.

(i) [Reserved]

(j) Examples.

(k) Effective dates.

## § 1.355-8 Definition of predecessor and successor and limitations on gain recognition under section 355(e) and section 355(f).

(a) In general.

(1) Scope.

(2) Overview.

(i) Purposes and conceptual overview.

(ii) References to and definitions of terms used in this section.

(iii) Special rules and examples.

(3) Purposes of section; Predecessor of Distributing overview.

(i) Purposes.

(ii) Predecessor of Distributing overview.

(A) Relevant Property transferred to Controlled.

(B) Relevant Property includes Controlled Stock.

(4) References.

(i) References to Distributing or Controlled.

(ii) References to Plan or Distribution.

(iii) Plan Period.

(5) List of definitions.

(b) Predecessor of Distributing.

(1) Definition.

(i) In general.

(ii) Pre-Distribution requirements.

(A) Relevant Property requirement.

(B) Reflection of basis requirement.

(iii) Post-Distribution requirement.

(2) Additional definitions and rules related to paragraph (b)(1) of this section.

(i) References to Distributing and Controlled.

(ii) Potential Predecessor.

(A) Potential Predecessor definition.

(B) Expanded Affiliated Group definition.

(iii) Successors of Potential Predecessors.

(iv) Relevant Property; Relevant Equity.

(A) In general.

(B) Property held by Distributing.

(C) F reorganizations.

(v) Stock of Distributing as Relevant Property.

(A) In general.

(B) Certain reorganizations.

(vi) Substitute Asset.

(A) In general.

(B) Controlled stock received by Distributing.

(*1*) In general.

(*2*) Exception.

(C) Treatment as Relevant Property.

(vii) Separated Property.

(viii) Underlying Property.

(ix) Multiple Predecessors of Distributing.

(x) Deemed exchanges.

(c) Additional definitions.

(1) Predecessor of Controlled.

(2) Successors.

(i) In general.

(ii) Determination of Successor status.

(3) Section 381 Transaction.

(d) Special acquisition rules.

(1) Deemed acquisitions of stock in Section 381 Transactions.

(i) Rule.

(ii) Example.

(2) Deemed acquisitions of stock after Section 381 Transactions.

(3) Separate counting for Distributing and each Predecessor of Distributing.

(e) Special rules for limiting gain recognition.

(1) Overview.

(i) Gain limitation.

(ii) Multiple Planned 50-percent Acquisitions.

(iii) Statutory Recognition Amount limit; Section 336(e).

(2) Planned 50-percent Acquisition of a Predecessor of Distributing.

(i) In general.

(ii) Operating rules.

(A) Separated Property other than Controlled stock.

(B) Controlled stock that is Separated Property.

(C) Anti-duplication rule.

(3) Planned 50-percent Acquisition of Distributing.

(4) Gain recognition limited to Statutory Recognition Amount.

(5) Section 336(e) election.

(f) Predecessor or Successor as a member of the affiliated group.

(g) Inapplicability of section 355(f) to certain intra-group Distributions.

(1) In general.

(2) Alternative application of section 355(f).

(h) Examples.

(i) Applicability date.

[T.D. 8238, 54 FR 289, Jan. 5, 1989, as amended by T.D. 8913, 65 FR 79722, Dec. 20, 2000; T.D. 8960, 66 FR 40591, Aug. 3, 2001; T.D. 8988, 67 FR 20636, Apr. 26, 2002; 67 FR 38200, June 3, 2002; T.D. 9198, 70 FR 20283, Apr. 19, 2005; T.D. 9264, 71 FR 30597, May 30, 2006; T.D. 9329, 72 FR 32799, June 14, 2007; T.D. 9435, 73 FR 75950, Dec. 15, 2008; T.D. 9548, 76 FR 65111, Oct. 20, 2011; T.D. 9805, 81 FR 91747, Dec. 19, 2016; T.D. 9888, 84 FR 69316, Dec. 18, 2019]