[Code of Federal Regulations]
[Title 26, Volume 4]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.355-1]

[Page 189-190]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 1_INCOME TAXES--Table of Contents
 
Sec. 1.355-1  Distribution of stock and securities of a controlled 
corporation.

    (a) Effective date of certain sections. Sections 1.355-1 through 
1.355-4 apply to transactions occurring after February 6, 1989. For 
transactions occurring on or before that date, see 26 CFR 1.355-1 
through 1.355-4 (revised as of April 1, 1987). Sections 1.355-1 through 
1.355-4 do not reflect the amendments to section 355 made by the Revenue 
Act of 1987 and the Technical and Miscellaneous Revenue Act of 1988.
    (b) Application of section. Section 355 provides for the separation, 
without recognition of gain or loss to (or the inclusion in income of) 
the shareholders and security holders, of one or more existing 
businesses formerly operated, directly or indirectly, by a single 
corporation (the ``distributing corporation''). It applies only to the 
separation of existing businesses that have been in active operation for 
at least five years (or a business that has been in active operation for 
at least five years into separate businesses), and which, in general, 
have been owned, directly or indirectly, for at least five years by the 
distributing corporation. A separation is achieved through the 
distribution by the distributing corporation of stock, or stock and 
securities, of one or more subsidiaries (the ``controlled 
corporations'') to its shareholders with respect to its stock or to its 
security holders in exchange for its securities. The controlled 
corporations may be preexisting or newly created subsidiaries. 
Throughout the regulations under section 355, the term distribution 
refers to a distribution by the distributing corporation of stock, or 
stock and securities, of one or more controlled corporations, unless the 
context indicates otherwise. Section 355 contemplates the continued 
operation of the business or businesses existing prior to the 
separation. See Sec. 1.355-4 for types of distributions that may 
qualify under section 355, including pro rata distributions and non pro 
rata distributions.
    (c) Stock rights. Except as provided in Sec. 1.356-6, for purposes 
of section 355, the term securities includes rights issued by the 
distributing corporation or the controlled corporation to acquire the 
stock of that corporation. For purposes of this section and section 
356(d)(2)(B), a right to acquire stock has no principal amount. For this 
purpose, rights to acquire stock has the same meaning as it does under 
sections 305 and 317(a). Other Internal Revenue Code provisions 
governing the treatment of rights to acquire stock may also apply to 
certain distributions occurring in connection with a transaction 
described in section 355. See, for example, sections 83 and 421 through 
424 and the regulations thereunder. This paragraph (c) applies to 
distributions occurring on or after March 9, 1998.
    (d) Nonqualified preferred stock. See Sec. 1.356-7(a) and (b) for 
the treatment of nonqualified preferred stock (as defined in section 
351(g)(2)) received in certain exchanges for (or in certain 
distributions with respect to) nonqualified preferred stock or preferred 
stock. See Sec. 1.356-7(c) for the treatment of the receipt of 
preferred stock in certain exchanges for (or in certain distributions 
with respect to) common or preferred

[[Page 190]]

stock described in section 351(g)(2)(C)(i)(II).

[T.D. 8238, 54 FR 289, Jan. 5, 1989, as amended by T.D. 8752, 63 FR 410, 
Jan. 6, 1998; T.D. 8882, 65 FR 31078, May 16, 2000; T.D. 8904, 65 FR 
58651, Oct. 2, 2000]