New Temporary Section 355(e) Regulations – A Vast Improvement

By Mark J. Silverman and Lisa M. Zarlenga

Originally published August 2001

In 1997, Congress enacted the Taxpayer Relief Act of 1997, which added section 355(e) to the Internal Revenue Code. Under section 355(e), the so-called anti-Morris Trust provision, a distributing corporation will recognize gain if one or more persons acquire, directly or indirectly, 50 percent or more of the stock (measured by vote or value) of the distributing or any controlled corporation as "part of a plan (or series of related transactions)" (referred to herein as a "plan") that was in place at the time of the distribution. Section 355(e) also creates a rebuttable presumption that any acquisition occurring two years before or after a section 355 distribution is part of such a plan (the "two-year presumption") "unless it is established that the distribution and the acquisition are not pursuant to a plan or series of related transactions." Section 355(e) further authorizes Treasury and