Internal Revenue Code Section 355
Section 355 of the Internal Revenue Code (IRC ยง 355) allows a corporation to make a tax-free distribution to its shareholders of stock and securities in one or more controlled subsidiaries. If a set of statutory and judicial requirements are met, neither the distributing corporation nor its shareholders recognize gain or loss on the distribution. The three types of corporate divisions are commonly known as spin-offs, split-offs and split-ups.
The spin-off involves a distribution of property to shareholders without the surrender of any stock, which thus resembles a dividend. The split-off resembles a redemption because the shareholders have relinquished stock of the distributing corporation.
Section 355 allows a corporation with one or more businesses that have been actively conducted for five years or more to make a tax-free distribution of the stock of a controlled subsidiary provided that the transaction is being carried out for a legitimate business purpose and is not being used principally as a device to bail out earnings and profits.
Read more about Internal Revenue Code Section 355: Requirements
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