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The IRS Brings Partial Clarity To North-South Scenarios

Law360, New York (May 25, 2017, 1:23 PM EDT) -- For tax practitioners that advise clients on spin-off transactions designed to qualify as tax free under section 355 of the Internal Revenue Code, a difficult issue can arise if a shareholder transfers property to the distributing corporation shortly before (or shortly after) the spin-off.

Such transfers and distributions, commonly referred to as “north-south” transactions, raise the question of whether the transfer to the distributing corporation will be respected as a separate transaction from the distribution for tax purposes. If not, the transfers can potentially prevent the entire transaction from satisfying the requirements of section 355.

Given these high stakes (and the...

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