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ARTICLE · 04 DECEMBER 2013

IRS Rules On Section 355 Spinoff Involving Hook Stock

Grant Thornton LLP
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In a private letter ruling (PLR 201341004), the IRS ruled that a valid spinoff had occurred notwithstanding that some of the distribution was related to hook stock in the parent.

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In a private letter ruling (PLR 201341004), the IRS ruled that a valid spinoff had occurred notwithstanding that some of the distribution was related to hook stock in the parent. According to the facts of the letter ruling, a consolidated group's common parent (Distributing) was a public company with one class of voting common stock outstanding. A subsidiary of Distributing (Sub) established a grantor trust (Trust) that owned stock in Distributing (the hook stock).

To separate two distinct business lines, Sub moved certain business assets into a newly created corporation (Controlled) and distributed all the stock of Controlled to Distributing. Distributing then distributed that stock pro rata to its shareholders. Trust received stock in Controlled from the distribution because of the hook stock it owned in Distributing.

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