Tax Aspects of Corporate Division

CHAPTER 3

Corporate Business Purpose

In General

The economic benefit from a spin-off or split-off is that a shareholder is able to extract appreciated assets from the corporation without the current recognition of taxable income.1 Under the general rules of taxation, both the shareholder2 and the corporation3 would have taxable income from moving corporate assets to the shareholder. The justification for this exception to the general rules is that certain transactions that make “good business sense” will not occur (or are less likely to occur) if the events create a current tax liability, as in cases such as Rockefeller4 (a spin-off to facilitate compliance with regulatory authority) or Gabriel Fabrication5 (a split-off because of managerial ...