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제목 Hearings Held on Sec.355(e) Proposed Regs.
기관명 기타 작성일자 2000 . 03 . 10

Hearings Held on Sec. 355(e) Proposed Regs.
On March 2, 2000, the IRS held public hearings regarding the first set of proposed regulations under Sec. 355(e). Four firms, including PricewaterhouseCoopers, testified and recommended a number of changes to clarify the proposed regulations.

Sec. 355(e) requires corporate gain recognition when stock is distributed as part of "a plan or series of related transactions" pursuant to which at least a 50% ownership change occurs. Sec. 355(e) presumes that a plan exists if the change of control takes place two years before or after the distribution. The proposed regulations discuss what constitutes "a plan or series of related transactions" and detail two methods for rebutting the statutory presumption using a "clear and convincing evidence" standard.
  • The "general rebuttal" requires establishing that the spin-off was substantially motivated by a business purpose; the acquisition occurred more than six months after the distribution; and, there was no arrangement concerning the acquisition at the time of the distribution or within six months.
  • The "alternative rebuttal" requires establishing that either at the time of the distribution there was no intent for a 50%-or-greater acquisition to occur within two years or the distribution was not motivated by an intent to facilitate an acquisition; it would not have reasonably been anticipated that is was more likely than not that a 50%-or-greater acquisition would occur within two years as a result; and, the distribution was not motivated by an intent to decrease the likelihood of the acquisition of one or more businesses by separating those businesses from others that are likely to be acquired.

    Ken Kies of PricewaterhouseCoopers testified that these proposed regulatory rebuttals exceed both the statutory language and the legislative intent in enacting Sec. 355(e). Further, he expressed concern that the proposed regulations impose a higher burden of proof than was intended by Congress to rebut the statutory presumption. He also questioned the application of the "alternative rebuttal" and the "reasonable anticipation" test in the proposed regulations.

    Gary Wilcox, also of PricewaterhouseCoopers, requested that the proposed regulations provide interim relief for taxpayers who have received PLRs from the IRS after the enactment of Sec.355(e) and prior to the finalization of the proposed regulations, and who consummated their transactions in reliance on the PLR received.

    Alexander Zakupowsky, of Miller and Chevalier representing the Edison Electric Institute, questioned the standard of proof required by the rebuttal provisions. He contended that the taxpayer burden of proof should only exist relative to circumstances at the date of the distribution and events subsequent to the transaction should not be presumed to have determined the circumstances at the time of the distribution.

    Candace Ridgeway, representing the Jones, Day, Reavis, & Pogue, expressed concern that taxpayers could not establish, by any means available, evidence that would prove that a spin-off was not pursuant to a plan for acquisition, and suggested that another alternative rebuttal be provided.

    Robert H. Miller and Lea Anne Storum, from Cooley Godward, agreed that the regulations correctly required a higher evidentiary standard for rebutting the statutory presumption, but suggested that a general facts and circumstances test should be allowed and that the detailed rebuttals be considered safe harbor tests.

    The government panel did not indicate what suggestions might be implemented. Finalization of the proposed regulations is not expected until after other issues regarding Sec.355(e) are addressed in a second set of proposed regulations.
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    For additional information, please call Jared Gordon at (202) 414-1714 or Howard Staiman at (202) 414-1561.



    (Source : PwC Tax News Network)