- Desire to increase stock value can satisfy
IRC § 355 business purpose requirement
- Can be a valid corporate
business purpose
distinguishable from a mere shareholder objective
Approves
spin-offs where an anticipated increase in stock value is expected to enhance a corporations equity-based compensation program, or facilitate future use of stock as acquisition consideration
- Does not require any new equity-based
compensation grants, nor a showing that any specific acquisition will be
undertaken
- Increase
in stock value must not just be attributable to the tax benefits of the
spin-off
- Spin-off
can't be used to facilitate any particular shareholders disposition of
stock
Ruling
will facilitate spin-offs by public companies
- Part
of IRS effort to reduce the number of private rulings while expanding public guidance on spin-offs
- In many cases, will ease IRC § 355 business purpose requirement
- More spin-offs will now use a tax opinion
rather than an IRS private letter
ruling
Rev Rul 2003-74
- Addresses use of fit and focus argument
to meet IRC § 355 business purpose requirement
- That
you have better management with two executive teams
- Can have some overlap in directors following the spin-off
Rev Rul 2003-74
- Addresses better capital allocation argument as a means
to meet IRC § 355 business purpose requirement
- Can have a transitional services agreement and
working capital loan
Rev
Proc 2003-48
SEC_CODE_REF_0090001192884
- IRS will no longer issue private letter rulings on whether spin-off:
◊ Satisfies corporate business purpose test
◊ Is not a device
for distributing profits to shareholders
◊ Whether acquisitions before or after spin-off are part
of a "plan"
Covers spin-offs and other transactions
s
