Tax Free Corporate Split

While, in our practice, we have helped clients spin off divisions of corporations tax-free, they have always retained the same pro-rata ownership in the resulting corporations. However, we now have a situation where two shareholders, 50/50, want to split a corporation, equally, with one shareholder being the sole owner of one corporation and the other shareholder being the sole owner of the other corporation. Is and how is this possible under a tax free structured transaction?

Another option for these two shareholders, because they actually own multiple corporations together, would be to trade shares of existing companies; however, we were unable to find a tax-free provision for this type of transaction either. Is there one?

Reply to
brianp
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Not my area of expertise. However, what you want is called a Type D Divisive Reorganization that can be handles as either a spin-off, split-off or split-up. It is tax-free if there is no boot.

Check out the powerpoint presentation here:

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Type D starts on Slide 27.

Reply to
Alan

It the past you did spin-off. Now you want to do a split-off. It is common in situations of shareholder hostility.

There should be no gain unless there is debt assumption in excess of basis.

Then you have to allocate E&P to both corporations.

Reply to
Richard Di Bernardo, CPA

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