What is the name of your state? CA
A tricky situation: Imagine a small C-Corporation (which we will call X-Corp) makes products A and B. Most of product B is made under contract for Y-Corp. Now it turns out that X-Corp would like to specialize in product A, and Y-Corp would like to bring its production of B in-house.
A logical way to do this might be for X-Corp to create a subsidiary, Z-Corp. X-Corp would spin off production of one of its products to Z-Corp, and Y-Corp could acquire whichever of X-Corp or Z-Corp ends up producing product B, either stock for stock or stock for assets.
It seems that either way they work things, X-Corp would want to distribute Z-Corp's stock to X-Corp's shareholders. Once all the dust settles, X-Corp's shareholders would no longer just own X-Corp stock. They'd own some stock in Y-Corp (representing the interest they once had in X-Corp's production of product B), and they'd own some stock in either X-Corp or Z-Corp (whichever one survives to continue producing product A).
My question: I've been looking at sections 368 and 355 of the Internal Revenue Code. Is there a way to do all of this without someone ending up with a big tax bill? Y-Corp's final acquisition of whichever corporation is producing product B seems like it could be a tax-free reorganization, because Y-Corp would be acquiring that whole corporation. But how can X-Corp's stockholders get their hands on the Y-Corp stock without triggering 355(e)?What is the name of your state?
A tricky situation: Imagine a small C-Corporation (which we will call X-Corp) makes products A and B. Most of product B is made under contract for Y-Corp. Now it turns out that X-Corp would like to specialize in product A, and Y-Corp would like to bring its production of B in-house.
A logical way to do this might be for X-Corp to create a subsidiary, Z-Corp. X-Corp would spin off production of one of its products to Z-Corp, and Y-Corp could acquire whichever of X-Corp or Z-Corp ends up producing product B, either stock for stock or stock for assets.
It seems that either way they work things, X-Corp would want to distribute Z-Corp's stock to X-Corp's shareholders. Once all the dust settles, X-Corp's shareholders would no longer just own X-Corp stock. They'd own some stock in Y-Corp (representing the interest they once had in X-Corp's production of product B), and they'd own some stock in either X-Corp or Z-Corp (whichever one survives to continue producing product A).
My question: I've been looking at sections 368 and 355 of the Internal Revenue Code. Is there a way to do all of this without someone ending up with a big tax bill? Y-Corp's final acquisition of whichever corporation is producing product B seems like it could be a tax-free reorganization, because Y-Corp would be acquiring that whole corporation. But how can X-Corp's stockholders get their hands on the Y-Corp stock without triggering 355(e)?What is the name of your state?