IRS PLR: Active Trade or Business Requirement Met Despite Lack of Income in Certain Years (IRC §355)

The absence of income collection in certain years does not prevent one of a reorganizing corporation’s (“Distributing”) businesses from constituting a “trade or business” (Treasury Regulations Section 1.355-3(b)(2)(ii)) for purposes of determining whether a proposed distribution satisfies the active trade or business requirement of tax code Section 355, the IRS ruled. In a transaction desired to qualify as a corporate reorganization under Section 368(a)(1)(D), Distributing plans to form a controlled entity, contribute another business line to it, and distribute all of the Controlled stock to Distributing shareholders, in order to separate the two businesses. ...