Section 355 of the Internal Revenue Code permits a corporation under certain circumstances to engage in a divisive, or “spinoff,” transaction without the imposition of tax at either the corporate level (to reflect the unrealized appreciation in the assets or stock being distributed) or the shareholder level (to reflect receipt of what could otherwise be an ordinary taxable dividend).
Much of the recent discussion of non-taxable spinoffs under �355 by practitioners and the Internal Revenue Service has focused on the interpretation of two relatively recent additions to �355: subsections 355(d) and 355(e). These new provisions are intended to deny a portion of the benefit of �355 to certain types of spinoffs, by requiring the recognition of gain at the corporate, though not at the shareholder, level.
