Item Page Reference
Determine the Facts 1
Locate the Applicable Authorities 1
Evaluate Authorities 1
Analyze the Facts in Terms of Applicable Authorities 2
Communicate Conclusions and Recommendations to Others 3
Memorandum-to-the-File 11
Client Letter 12
Determine the Facts
Parent Corporation has owned 60% of Subsidiary Corporation’s single class of stock for a number of years. Tyrone owns the remaining 40% of the Subsidiary stock. On August 10, of the current year, Parent purchases Tyrone’s Subsidiary stock for cash. On September 15, Subsidiary adopts a plan of liquidation. Subsidiary then makes a single liquidating distribution on October 1. The activities of Subsidiary continue as a separate division of Parent.
Locate the Applicable Authorities
IRC: 332 (b), 1504 (a) (see attached)
Rev Rul 70-106, 1970-1 CB 70
Rev Rul 75-521, 1975-2 CB 120
Evaluate Authorities
The issue in our Parent-Subsidiary-Tyrone situation is whether the requirements of Section 332 and Section 1504 are satisfied. Two recent revenue rulings offer additional guidance on the level of stock. Because we do not have to look further than the IRC and Rev Rul, we can have confidence in our tax assessment.
Analyze the Facts in Terms of Applicable Authorities
Section 332 requires Parent to meet stock requirements on the date of the liquidation plan and further requires Parent to own the required level of stock until receipt of the liquidation. Additionally, the stock requirements set forth in 1504 dictate that the level of stock must also be 80% of the combined voting power, as well as 80% of the total value of stock. Because Subsidiary only has 1 class of stock, this requirement is easily satisfied.
Our concern is because 60% of the stock was held prior to the August 10th purchase of Tyrone, Subsidiary’s minority stockholder. However, there is no indication Parent or Tyrone