Tax Aspects of Corporate Division

CHAPTER 1

Corporate Division: Uses and Abuses

Introduction

This book is about the tax consequence of dividing a corporation into two or more corporate entities. The division usually takes the form of a spin-off, split-off, or a split-up.

In a spin-off, a corporation distributes to its shareholders a controlling in the stock of a subsidiary. In another form of a spin-off, a corporation may transfer some of its assets to a newly formed corporation in exchange for all of the corporation’s stock, which the parent corporation distributes to its shareholders. For the shareholder, the spin-off is equivalent to a dividend in the form of stock in another corporation, and for the distributing corporation, the spin-off is economically equivalent to paying ...