Continuity as the Key to Reform of Section 355

There can be little doubt that Internal Revenue Code (Code) section 355 is overly complex; the piecemeal adjustments spanning multiple decades could serve as exemplars of the potential pitfalls of incremental reform. Revisions to section 355 have tended to be under- or over-inclusive because they are reactive to particular deals, yet they leave largely intact older structures that dealt with different deals. The result is a jumble of provisions that fail to implement a coherent, principled approach to the tax treatment of corporate divisions. In Reform of Section 355, Bret Wells urges changing Code section 355 to focus on the continuity of historic shareholders and historic assets. The proposals Wells suggests are grounded in congressional intent, specifically the rise and fall of the General Utilities doctrine and its role in the taxation of corporate divisions. This Response to Reform of Section 355 explores the continuity concept and considers the extent to which, if there were conflicting readings of congressional intent or changes to congressional intent, the use of the continuity concept to guide section 355 reform would remain a principled choice

Section 355\u27s Active Business Rule--An Outdated Inefficacy

In order to delineate the problems inherent in the active business rule, this Note first will examine the legislative history of tax-free separations, isolating the primary purpose and policy of section 355. Regulatory and judicial interpretations of section 355 will also be analyzed to determine their propriety in light of the statute\u27s purpose and to illustrate the confusion that exists in the area. This, in turn, will lead to a suggested approach for dealing with section 355 transactions in the future

Proposed Regs. Under 355 Overhaul Device Test and Single-Business Divisions

Newly issued Proposed Regulations, under Section 355, follow recent decisions allowing horizontal divisions of a single business. In addition, the proposals introduce factors for determining whether a Section 355 transaction is a device for bailing out earnings Mr. Lee analyzes these and other changes in the Proposed Regulations

The Anatomy of a Spin-Off

Section 355 of the Internal Revenue Code, which specially treats certain forms of corporate reorganization, has been the constant subject of both scholarly commentary and litigation. The experience of functioning under these spin-off provisions has resulted in clarification of the law and has also raised significant questions as to its scope. The precise limits of the section remain to some extent in a state of flux and await further exposition by the courts

Anticompetitive Corporate Spin-offs

Section 355 of the Internal Revenue Code allows corporations to “spin-off” parent-controlled businesses tax-free. Traditionally an important tool for divestitures and restructurings with U.S. tax consequences, recent trends suggest section 355 is also of interest to firms facing US antitrust consequences. Statements and maneuvering by some such companies indicate firms are considering spinning-off businesses to avert liability and ‘break up’ on their own terms. Despite widespread renewed interest in using antitrust laws to break up large corporations, the antitrust implications of corporate spin-offs have thus far escaped scholarly notice and scrutiny. This Note posits that it is a mistake to treat corporate spin-offs as the de facto corollary to government-supervised structural separations. Tax-free spin-offs are not the self-mediated equivalent to structural remedies for at least three reasons: (1) section 355 allows dominant firms to engineer future market conditions and concentrate power in ways government-supervised separations simply do not; (2) parent companies may spin-off fictitious competitors to artificially inflate competition and deflate power in a given market; and (3) the parent-controlled process invites parent firms to structure progeny firms in patently self-serving ways. The harm continues because the parent company never redistributes monopoly power. Section 355’s authorization of voluntary tax-free spin-offs without regard to anticompetitive effect is in tension with antitrust policy. Yet, no legal mechanisms currently exist to stop or prevent firms from using spin-offs to evade antitrust liability. In response, this Note proposes a doctrinal shift in the way antitrust courts and plaintiffs approach section 355 spin-offs, beginning with the proper test for market power and anticompetitive effect. As to prevention, regulators should adopt strategies to understand, detect, and stop anticompetitive spin-offs. Legislation is needed to align section 355 with the goals for competitive markets. Nonetheless, the path forward must distinguish between anticompetitive spin-offs and competition on the merits

The Art of Regulation Drafting: Structured Discretionary Justice Under Section 355

This article analyzes the 35-year evolution of the section 355 regulations from the perspectives of the jurisprudential dichotomy between general principles and detailed rules and administrative law theory as to agency discretion