Introduction
The continuity of interest requirement is used to distinguish a reorganization from a sale or disposition of stock1 and, in the context of a spin-off or split-off, continuity of interest means that the shareholders in the distributing corporation must retain sufficient ownership of the controlled corporation. According to the regulations,
Section 355 requires that one or more persons who, directly or indirectly, were owners of the enterprise prior to the distribution [i.e., in a spin-off] or exchange [i.e., in a split-off] own, in the aggregate, an amount of stock establishing a continuity of interest in each of the modified corporate forms in which the enterprise is conducted after the separation. ...
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