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ARTICLE · 07 APRIL 2004

Revenue Ruling 98-27 and New Spin-off Control Provision in IRS Restructuring Bill

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In Rev. Rul. 96-30,a subsidiary was spun off tax-free pursuant to section 355 of the Internal Revenue Code and then was acquired by an unrelated corporation in a tax-free reorganization in which the subsidiary's former shareholders received 25% of the acquirer's stock.

United StatesAccounting and Audit
Mark Silverman
Mark Silverman

Originally published May 27, 1998

I. Revenue Ruling 98-27 Renders Rev. Rul. 96-30 and 75-406 Obsolete



On May 14, 1998, the Internal Revenue Service ("Service") issued Revenue Ruling 98-27, which renders obsolete Rev. Rul. 96-30, 1996-1 C.B. 36, and Rev. Rul. 75-406, 1975-2 C.B. 125, and modifies Rev. Rul. 70-225, 1970-1 C.B. 80.

In Rev. Rul. 96-30,1 a subsidiary was spun off tax-free pursuant to section 355 of the Internal Revenue Code and then was acquired by an unrelated corporation in a tax-free reorganization in which the subsidiary's former shareholders received 25% of the acquirer's stock. The Service ruled that the spin-off qualified as a tax-free section 355 transaction followed by a tax-free acquisition, provided that (i) there was a separate and independent shareholder vote after the spin-off approving the acquisition and (ii) the distributing corporation had not entered into negotiations with the acquirer before the spin-off. If either of those conditions were not

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