Not Used Principally as a Device for Distributing Earnings and Profits
Introduction
In General
The previous chapter examined the corporation’s required business purpose for the distribution to achieve section 355 benefits. This chapter looks at the factors that are considered in determining whether the distribution was made for a nonbusiness purpose; that is, “a device for the distribution of the earnings and profits of the distributing or controlled corporation.”1 The regulations elaborate on the concept of “device” without actually defining the term.
Section 355 recognizes that a tax-free distribution of the stock of a controlled corporation presents a potential for tax avoidance by facilitating the avoidance of the dividend provisions ...
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