Originally published October, 2003

I. INTRODUCTION

On August 30, 2000, the Department of the Treasury ("Treasury") and the Internal Revenue Service ("Service" or "IRS") issued final regulations under section 368 providing guidance on the application of the continuity of interest ("COI") requirement to pre-reorganization transactions.1 These regulations supplement final, temporary, and proposed COI regulations issued in January 1998.2 However, the new final pre-reorganization COI regulations are substantially different from the temporary and proposed pre-reorganization COI regulations issued in 1998. This article discusses the COI requirement in general, reviews the 1998 temporary and proposed pre-reorganization COI regulations and the new final pre-reorganization COI regulations, and analyzes when the new final pre-reorganization regulations should apply to count pre-reorganization distributions and redemptions against the COI requirement.

In summary, the new final pre-reorganization regulations apply the section 356 "boot" rule in determining whether a distribution or redemption prior to a reorganization counts against the COI requirement. Thus, one must determine when section 356 applies to distributions and redemptions prior to reorganizations.

This article concludes that the Service should apply a "source of funds" test in determining the application of the section 356 boot rule. Although this source of funds test does not always yield a clear answer, there is little need for the Service to adopt a more restrictive test for the following reasons:

  • Cases under the COI requirement allow target shareholders to receive up to 60% cash in a reorganization without violating the COI requirement.
  • Target shareholders may sell their target stock prior to the reorganization or sell their new acquiring corporation stock after the reorganization without violating the COI requirement.
  • Other reorganization requirements such as the continuity of business enterprise requirement and the substantially all requirement provide additional limitations on the distribution of assets.

Thus, the issue of how the COI requirement applies to pre-reorganization transactions is often of little consequence.

II. THE CONTINUITY OF INTEREST REQUIREMENT

A. Overview

In order for a transaction to qualify as a tax-free reorganization under section 368, the transaction must satisfy the COI requirement.3 Under the COI requirement, the historic shareholders of the target corporation must have a continuing interest in the target assets and target business through the acquisition of the stock of the acquiring corporation. This requirement has its origins in cases dating back to Pinellas Ice & Cold Storage v. Commissioner,4 and Helvering v. Minnesota Tea Co..5 Treasury Regulations and an IRS revenue procedure provide the general safe harbor that the COI requirement will be satisfied as long as former target shareholders hold stock in the acquiring entity representing at least 50 percent of the value of the former target stock.6 However, cases generally allow target shareholders to hold stock in the acquiring entity representing approximately 40 percent of the value of the former target stock.7

B. 1998 Final Continuity of Interest Regulations

In January 1998, Treasury finalized COI regulations that included rules relating to the effect of post-reorganization transactions by target shareholders on the COI requirement.8 The final regulations state that the purpose of the COI requirement is to "prevent transactions that resemble sales from qualifying for nonrecognition of gain or loss available in corporate reorganizations." 9 Thus, the regulations require that "a substantial part of the value of the proprietary interests in the target corporation be preserved in the reorganization."10

In determining whether a proprietary interest in the target corporation is preserved, all the facts and circumstances are considered.11 However, no proprietary interest in the target corporation is preserved if

in connection with the potential reorganization, [the proprietary interest] is acquired by the issuing corporation for consideration other than stock of the issuing corporation, or stock of the issuing corporation furnished in exchange for a proprietary interest in the target corporation in the potential reorganization is redeemed.12

Thus, some post-reorganization transactions -- namely redemptions -- may cause a reorganization to fail the COI requirement. However, post-reorganization sales of stock will not destroy continuity, as long as such sales are not to the issuing corporation or a party related to the issuing corporation. 13 Dispositions of stock of the target corporation by shareholders prior to a reorganization to persons unrelated to the target or issuing corporation are also disregarded for purposes of the COI requirement.14

C. 1998 Temporary and Proposed Pre-reorganization Continuity of Interest Regulations

In addition to the final regulations, Treasury also issued temporary and proposed regulations addressing pre-reorganization continuity in January 1998. 15 Although these regulations have essentially been rendered obsolete by the new final pre-reorganization regulations (which are discussed infra), a discussion of these temporary and proposed regulations provides insight into to the policy reasons behind the new final pre-reorganization regulations and the application of such regulations.

Under the 1998 temporary and proposed regulations, a reorganization generally fails the COI requirement if, prior to and in connection with a reorganization, a proprietary interest in the target corporation is redeemed, or prior to and in connection with a reorganization there is an extraordinary distribution made with respect to such proprietary interest.16 Whether a distribution is extraordinary is a facts and circumstances determination.17

Commentators on the temporary and proposed regulations issued in December 1996 had suggested that the source of funds used by the target corporation to redeem its shareholders should be analyzed in order to determine whether a redemption should adversely affect the COI requirement.18 The commentators argued that if the acquiring corporation did not directly or indirectly furnish the funds used by the target corporation to redeem its shareholders, COI should not be affected.19 However, the Service seemed to conclude that since, as a result of the reorganization, the target corporation and acquiring corporation are combined economically, they should be treated as one entity. Thus, cash coming from the target corporation should be treated the same as cash coming from the acquiring corporation. In addition, the Service argued that "a tracing approach would be extremely difficult to administer."20 Thus, tracing was not adopted in the temporary and proposed regulations, avoiding the "difficult process of identifying the source of payments."21

The Service invited comments on "whether the regulations should provide more specific guidance" in the area of extraordinary distributions.22 One area of particular concern to many taxpayers was whether S corporations should be treated the same as C corporations with respect to the new extraordinary distribution rules. More specifically, commentators asked that the Service make clear the effect of the new rules on S corporations that distribute their Accumulated Adjustments Account ("AAA Account") prior to a reorganization.23 Under the temporary and proposed regulations, it appears that S corporations are treated the same as C corporations, and that the distribution of an S Corporation's AAA Account prior to a reorganization could be considered an extraordinary distribution.24

In addition, commentators asked that the Service clarify exactly what the term "extraordinary" means. If the term is given its plain meaning, then any distribution that is not regularly made (i.e., almost any distribution in addition to the corporation's periodic dividends) can be an extraordinary distribution.25 For example, suppose a corporation ordinarily issues a $10 per share quarterly dividend to its shareholders in cash. If such corporation issues real estate with a fair market value of $10 per share instead of its normal quarterly cash dividend, is that an extraordinary distribution? The total amount of the dividend is the same, but the type of the dividend is different.

D. Final Pre-reorganization Continuity of Interest Regulations

1. Overview

As discussed above, commentators argued that the temporary and proposed regulations were overly broad, and that redemptions and distributions should not be taken into account for COI purposes unless the acquiring corporation "directly or indirectly furnishes the consideration for the redemption or distribution."26 In response to these comments, Treasury issued final regulations on August 30, 2000 (T.D. 8898), substantially modifying the temporary and proposed regulations. The final regulations "do not automatically take all pre-reorganization redemptions and extraordinary distributions in connection with [a] reorganization into account for COI purposes."27

Under new Treas. Reg. § 1.368-1(e)(1)(ii), the COI requirement will only be violated due to pre-reorganization redemptions of target stock or pre-reorganization distributions with respect to target stock if the amounts received by the target shareholder are treated as boot received from the acquiring corporation in the reorganization for purposes of section 356. 28

For purposes of determining whether section 356 applies, the final regulations provide that each target shareholder is deemed to have received some stock of the acquirer in exchange for such shareholder's target stock.29 This provision is necessary because if a target shareholder receives only cash as a result of a complete redemption of such shareholder's target stock prior to a reorganization, the amount received is generally treated as a redemption under section 302, not as boot under section 356, regardless of whether the redemption and the reorganization are integrated transactions.30 Thus, without the deemed issuance of stock rule, the redemption would not count against the COI requirement under any circumstance because section 302, not section 356, would apply. With the deemed issuance of stock rule, however, since the target shareholder is treated as receiving cash and stock in exchange for his target stock, section 356 can apply.31 Thus, the redemption can count against the COI requirement.

2. Section 356

The cornerstone of the new final pre-reorganization COI regulations is the application of section 356 to the amounts received by the target shareholders. Section 356 generally applies if "section 354 or 355 would apply to an exchange but for the fact that . . . the property received in the exchange consists not only of property permitted by section 354 or 355 to be received without the recognition of gain but also of other property or money."32 Thus, section 356 requires (1) that section 354 or 355 apply,33 and (2) that the boot be received "in the exchange."

a. Section 354

The first requirement under section 356 is that section 354 apply.34 Section 354(a)(1) provides that "no gain or loss shall be recognized if stock or securities of a corporation a party to a reorganization are, in pursuance of the plan of reorganization, exchanged solely for stock or securities in such corporation or in another corporation a party to the reorganization." Thus, section 354 can only apply if there is a qualifying reorganization under section 368, and there is an exchange of stock or securities of parties to the reorganization. As a result, section 356 will only apply if boot is received in a reorganization that qualifies under section 368, and there is also an exchange of stock or securities for stock or securities.35

b. Received "In The Exchange"

The second requirement under section 356 is that the boot be received "in the exchange." When is an amount received in the exchange? Is a cash distribution received by a target shareholder one day prior to a reorganization treated as received in the exchange? What about a cash distribution received 30 days prior to a reorganization? 60 days?

If amounts received as a result of a pre-reorganization distribution or redemption are treated as being received in the exchange, section 356 should apply and the distribution should be counted against the COI requirement. However, if amounts received as a result of a pre-reorganization distribution or redemption are treated as not being received in the exchange, section 356 cannot apply and the distribution should not be counted against the COI requirement. So what standards should section 356 utilize in determining when amounts received prior to an exchange should be treated as being received "in the exchange?"

(i). The Step-Transaction Doctrine: In General 36

Neither section 356, nor the legislative history or regulations thereunder, provide guidance as to when amounts received prior to an exchange should be treated as received in the exchange. Thus, one could argue that under the plain language of the statute, amounts must actually be received in the reorganization in order to be treated as received in the exchange. If this argument prevails, no pre-reorganization distributions or redemptions will be treated as received in the exchange, and thus no pre-reorganization distributions or redemptions will count against the COI requirement. Treasury and the IRS obviously did not intend this result.

The Preamble to the new final regulations states that in considering whether section 356 applies, "taxpayers should consider all facts, circumstances, and relevant legal authorities."37 Thus, taxpayers should analyze each transaction under relevant authorities, including authorities under the step-transaction doctrine. The step-transaction doctrine generally steps together two or more transactions if the particular facts and circumstances warrant.38 If the step- transaction doctrine applies to step a pre-reorganization distribution or redemption together with the reorganization, amounts received by the target shareholders as a result of the distribution or redemption should be treated as received in the exchange, resulting in the application of section 356.

(ii) The Step-Transaction Doctrine and Source of Funds: Waterman Steamship

Very little authority discusses the step-transaction doctrine in the context of section 356. 39 However, numerous authorities under the step-transaction doctrine have analyzed whether a distribution prior to a stock sale should be treated as a separate transaction (treated as a distribution under section 301), or should be stepped together with the stock sale and treated as part of such sale (treated as part of the sales price). Such authorities provide guidance as to when a pre- reorganization distribution or redemption should be treated as a separate transaction or stepped together with the reorganization.

In Waterman Steamship Corp. v. Commissioner,40 a subsidiary ("S") declared a $2.8 million dividend to its parent corporation ("T") shortly before S was acquired by a third party ("P") for approximately $700,000 (T's basis in its S stock was $700,000). Because S did not have the funds to pay the dividend, S issued a promissory note to T for the entire $2.8 million. Shortly after the acquisition, P lent $2.8 million to S, and S paid off the promissory note. Applying the step-transaction doctrine, the Fifth Circuit held that the $2.8 million dividend was part of the purchase price by P, and that T realized capital gain on the sale in the amount of the dividend. Since the Court held that the dividend was part of the purchase price, one can deduce that if instead of a sale the parties participated in an asset reorganization,41 the $2.8 million dividend to T would be treated as boot in the reorganization under section 356, and the dividend would count against the COI requirement.

The Fifth Circuit distinguished Waterman Steamship in TSN Liquidating Corp. v. United States.42 In TSN Liquidating, S distributed assets (the stock of lower-tier subsidiaries) to T shortly before S was acquired by P for cash. Immediately after the purchase, P contributed cash to S. The Fifth Circuit held that the distribution was a dividend and not part of the sales price because P negotiated to acquire and pay for the S stock exclusive of the distributed assets. The Court noted that the key distinction between its holding in TSN and its holding in Waterman Steamship is that in TSN the distributed assets were not wanted by the acquirer and were retained by the selling shareholders, whereas in Waterman Steamship the acquirer negotiated a purchase price that included all the assets of the target and none of the assets were to be retained by the selling shareholders.43 Since the Court held that the distribution in TSN was a dividend, one can deduce that if instead of a sale the parties participated in an asset reorganization,44 the dividend to T would not be treated as boot in the reorganization under section 356, and the dividend would not count against the COI requirement.

Numerous other authorities follow either the Waterman Steamship analysis in holding that a distribution and subsequent sale are treated as an integrated transaction,45 or the TSN Liquidating analysis in holding that a distribution is a separate transaction.46 The common thread that links these authorities seems to be the source of the funds paid to the target shareholders -- if the court determines that the acquirer is the source of the funds paid to the target shareholders, the court typically has stepped the transactions together. If not, the court typically has treated the transactions as separate.

(iii) The Step-Transaction Doctrine: Authorities Under Section 368(a)(1)(B)

In addition to the Waterman Steamship distribution-followed- by-sale authorities, authorities analyzing distributions and redemptions prior to reorganizations under section 368(a)(1)(B) ("B" reorganizations) also focus on the source of funds used to pay the target shareholders. In Rev. Rul. 56-184 47 (dividend prior to attempted B reorganization) and Rev. Rul. 75-360 48 (redemption prior to attempted B reorganization), the Service ruled that if the acquiring corporation is the source of the funds transferred to the target shareholder, the funds are treated as being transferred in the reorganization.

Footnotes

1 T.D. 8898 (August 30, 2000). All Code section references are to the Internal Revenue Code of 1986, as amended, and the regulations thereunder, unless otherwise noted.

2 T.D. 8760 (Jan. 23, 1998).

3 Treas. Reg. § 1.368-1(b).

4 287 U.S. 462 (1933).

5 296 U.S. 378 (1935). See also Cortland Specialty Co. v. Commissioner, 60 F.2d 937 (2d Cir. 1932).

6 Treas. Reg. § 1.368-1(e)(6), Ex. 1; Rev. Proc. 77-37, 1977- 2 C.B. 568.

7 See, e.g., John A. Nelson Co. v. Helvering, 296 U.S. 374 (1934) (38 percent stock satisfies COI requirement); Helvering v. Minnesota Tea Co., 296 U.S. 378 (1935) (41 percent stock satisfies COI requirement); Miller v. Commissioner, 84 F.2d 415 (6th Cir. 1936) (25 percent stock satisfies COI requirement).

8 See Treas. Reg. § 1.368-1(e). For an in-depth analysis of the January 1998 regulations, see Silverman and Weinstein, The Continuity of Interest and Continuity of Business Enterprise Regulations, 25 J. Corp. Tax'n 219 (Autumn 1998), also contained in these volumes.

9 Treas. Reg. § 1.368-1(e)(1).

10 Id. Under the final regulations, a "proprietary interest" in the target corporation is preserved if the interest in the target corporation is (1) exchanged for a proprietary interest in the "issuing" corporation, (2) exchanged by the acquiring corporation for a direct interest in the target corporation enterprise, or (3) otherwise continued as a proprietary interest in the target corporation. Treas. Reg. § 1.368-1(e)(1).

The "issuing" corporation is the acquiring corporation, except that in determining whether a reorganization is a triangular reorganization under Treas. Reg. § 1.358-6(b)(2), the issuing corporation is the corporation in control of the acquiring corporation. Treas. Reg. § 1.368-1(b). Any reference to the issuing or target corporation "includes a reference to any successor or predecessor of such corporation, except that the target corporation is not treated as a predecessor of the issuing corporation and the issuing corporation is not treated as a successor of the target corporation." Treas. Reg. § 1.368- 1(e)(5).

11 Treas. Reg. § 1.368-1(e)(1). See PLR 200204002 (Oct. 4, 2001) (using facts and circumstances analysis in ruling that target shareholder’s continuing interest in target corporation was minimal at best because indirect ownership was through preferred stock with voting control but little value); Chief Counsel Memorandum CC-2002-003 (Oct. 18, 2001) (same).

12 Treas. Reg. § 1.368-1(e)(1)(i).

13 Id. Two corporations are related if the corporations are members of the same affiliated group as defined in section 1504, or a purchase of the stock of one corporation by another corporation would be treated as a redemption under section 304(a)(2) (determined without regard to Treas. Reg. § 1.1502- 80(b)). Treas. Reg. § 1.368-1(e)(3).

14 Treas. Reg. § 1.368-1(e)(1). Thus, the final regulations codify the Tax Court's decision in J.E. Seagram Corp. v. Commissioner, 104 T.C. 75 (1995), where the Tax Court concluded that sales by public shareholders, prior to a reorganization, may be ignored when considering the COI requirement.

15 See Temp. Reg. § 1.368-1T.

16 Temp. Reg. § 1.368-1T(e)(1)(ii)(A). It is unclear what standards were intended to be used in determining whether a redemption or an extraordinary distribution was "in connection with a reorganization."

The temporary and proposed regulations do not apply to a distribution of stock by the target corporation under section 355(a) (or so much of section 356 as relates to section 355), except to the extent that the shareholders of the target corporation receive boot to which section 356(a) applies, or the distribution is extraordinary in amount and is a distribution of boot to which section 356(b) applies. Temp. Reg. § 1.368- 1T(e)(1)(ii)(B).

17 Preamble to T.D. 8761 (Jan. 23, 1998).

18 Id. See, e.g., Waterman Steamship Corp. v. Commissioner, 430 F.2d 1185 (5th Cir. 1970); Casner v. Commissioner, 450 F.2d 379 (5th Cir. 1971); TSN Liquidating Corp. v. United States, 624 F.2d 1328 (5th Cir. 1980); Litton Indus., Inc. v. Commissioner, 89 T.C. 1089 (1987).

19 Preamble to T.D. 8761 (Jan. 23, 1998).

20 Id.

21 Id.

22 Id.

23 Id. See Preamble to T.D. 8898 (Aug. 30, 2000); Rev. Rul. 71-266, 1971-1 C.B. 262 (ruling that distribution of S corporation's AAA Account prior to reorganization under section 368(a)(1)(C) is not distribution under section 356).

24 IRS officials informally stated that the distribution of AAA Accounts could be considered an extraordinary distribution, but requested comments as to how the extraordinary distribution rule should apply to AAA Accounts.

25 Merriam-Webster's Collegiate Dictionary, 10th Ed., defines extraordinary as "going beyond what is usual, regular, or customary."

26 Preamble to T.D. 8898 (Aug. 30, 2000).

27 Id.

28 Treas. Reg. § 1.368-1(e)(1)(ii). Interestingly, the COI regulations now seem to provide two different standards, one for pre-reorganization transactions and one for post-reorganization transactions. A post-reorganization transaction generally counts against the COI requirement if it is "in connection with the potential reorganization," while a pre-reorganization transaction generally counts against the COI requirement only if the amounts received by the target shareholder would be treated as boot under section 356. 

Query which rules apply where the distribution or redemption and the reorganization are simultaneous. Since the pre-reorganization regulations apply only to consideration received "prior to a potential reorganization," it seems that the post-reorganization regulations apply to simultaneous transactions.

Query also the continuing vitality, in light of the new regulations, of the statement in Rev. Proc. 77-37, 1977-2 C.B. 568, that "[s]ales, redemptions, and other dispositions of stock occurring prior or subsequent to the exchange which are part of the plan of reorganization will be considered in determining" whether the transaction violates the COI requirement.

29 Treas. Reg. § 1.368-1(e)(1)(ii).

30 Rev. Rul. 74-515, 1974-2 C.B. 118.

31 See Rev. Rul. 74-515, 1974-2 C.B. 118. Treasury and IRS officials have stressed that the target shareholder is treated as receiving the stock of the acquirer solely for purposes of applying the COI requirement. Thus, since the target shareholder actually received no stock of the acquirer, section 302 applies for purposes of determining the tax treatment of the redemption to the target shareholder. However, even if the target shareholder were treated as receiving some stock of the acquirer in the transaction for purposes of determining the target shareholder's tax treatment upon the redemption, section 302 principles would likely apply anyway. See Commissioner v. Clark, 489 U.S. 726 (1989) (viewing reorganization with boot as stock for stock exchange followed by post-reorganization redemption); Rev. Rul. 93-61, 1993-2 C.B. 118 (same).

Treasury and IRS officials have stated that the fact that the target shareholder is deemed to have received stock of the acquirer should have no affect on the determination of whether the redemption is a separate transaction or part of the reorganization.

32 Section 356(a)(1); Treas. Reg. §1.356-1(a).

33 Because the COI regulations do not apply to section 355 transactions or section 368(a)(1)(D) reorganizations, for purposes of this article only section 354 is relevant. See Preamble to T.D. 8760 (Jan. 23, 1998).

34 As noted above, the COI regulations do not apply to section 355 transactions.

35 As noted below, reorganizations under section 368(a)(1)(B) require that an acquirer exchange solely its voting stock (or stock of its parent) for target stock. Thus, an acquirer may not transfer any boot in connection with a reorganization under section 368(a)(1)(B). As a result, section 356 cannot apply to pre-reorganization distributions and redemptions in the context of a "B" reorganization, as any nonqualifying property transferred by an acquirer would result in a failed B reorganization.

36 Some of the authorities discussed in this article technically apply the "form vs. substance," "integrated transaction," or "sham transaction" doctrine, as opposed to the "step-transaction" doctrine. As all of these doctrines are essentially the same in the context of this article (all seeking to determine whether transactions should be combined), the term "step-transaction doctrine" in this article includes all of these doctrines.

37 Preamble to T.D. 8898 (Aug. 30, 2000). IRS officials are presently considering whether to issue guidance under section 356.

38 In general, whether two transactions will be "stepped together" under the step-transaction doctrine will depend upon the facts and circumstances of the transaction. Courts have developed a number of approaches for dealing with step- transaction issues. Most prevalent are the binding commitment test, the mutual interdependence test, and the end result test. See McDonald's Restaurants of Illinois, Inc. v. Commissioner, 688 F.2d 520 (7th Cir. 1982). See also F.S.A. 199929013 (applying all three tests in determining whether the continuity of interest requirement under section 355 was satisfied); Novacare, Inc. v. United States, 52 Fed.Cl. 165 (Fed. Cl. 2002) (applying end result test and interdependence test in determining whether post-reorganization sales in a pre-1998 merger destroyed COI). Cf. True v. United States, 190 F.3d 1165 (10th Cir. 1999)(noting that a transaction needs to satisfy only one of the tests to apply the step-transaction doctrine).

Under the binding commitment test, a series of transactions will be stepped together only if at the time that the first step is commenced there is a binding legal commitment to undertake the subsequent step(s). See, e.g., Commissioner v. Gordon, 391 U.S. 83 (1968). Under the mutual interdependence test, a series of transactions will be stepped together if the steps are so interdependent that the legal relations created by one transaction would have been fruitless without a completion of the series. See, e.g., King Enterprises, Inc. v. United States, 418 F.2d 511 (Ct. Cl. 1969). Under the end result test, a series of transactions will be stepped together whenever the evidence shows that the parties intent at the outset was to achieve the particular result, and that the separate steps were all entered into as means of achieving that result. See, e.g., Kuper v. Commissioner, 533, F.2d 152 (5th Cir. 1976).

39 See Rev. Rul. 56-184, 1956-1 C.B. 190 (referring to section 356 in ruling that a dividend followed by a B reorganization does not affect the qualification of such B reorganization, but noting that if the dividend were treated as cash received in connection with the reorganization, section 368(a)(1)(B) would not apply due to the failure of the solely for voting stock requirement).

40 430 F.2d 1185 (5th Cir. 1970).

41 As discussed below, section 356 does not apply in the context of a B reorganization.

42 624 F.2d 1328 (5th Cir. 1980).

43 Query whether the Court's analysis actually imposes a continuity of business enterprise requirement, rather than a continuity of interest requirement.

44 As discussed below, section 356 does not apply in the context of a B reorganization.

45 See, e.g., Basic, Inc. v. United States, 549 F.2d 740 (Ct. Cl. 1977) (holding that distribution of lower-tier subsidiary that is followed by acquisition of both distributing corporation and lower-tier subsidiary is part of purchase price and not a dividend); Casner v. Commissioner, 450 F.2d 379 (5th Cir. 1971) (holding that distribution of cash to individual shareholder that is followed by acquisition that was not binding at time of distribution is nonetheless part of purchase price and not a dividend). See also Zenz v. Quinlivan, 213 F.2d 914 (6th Cir. 1954) (holding that shareholder of target receives capital gain treatment on redemption of remaining shares of stock following stock sale because the combined effect of the stock sale and redemption was that her total interest in the corporation was extinguished); Rev. Rul. 84-114, 1984-2 C.B. 90 (following Zenz); Rev. Rul. 54-458, 1954-2 C.B. 167 (same); Rev. Rul. 55- 745, 1955-2 C.B. 223 (same); Rev. Rul. 75-447, 1975-2 C.B. 113 (same).

46 See, e.g., Litton Industries, Inc. v. Commissioner, 89 T.C. 1086 (1987) (holding that distribution by target to parent over six months prior to acquisition of target is a dividend, despite the fact that distribution was in the form of promissory note and acquirer paid off note); Rev. Rul. 75-493, 1975-2 C.B. 109 (rejecting analysis in Casner in ruling that distribution of cash to individual shareholder that is followed by acquisition that was not binding at time of distribution is a dividend). See also Rev. Rul. 75-406, 1975-2 C.B. 125 (ruling that spin-off prior to reorganization does not violate COI requirement); Rev. Rul. 70-434, 1970-2 C.B. 83 (ruling that spin-off prior to attempted B reorganization does not affect the qualification of transaction as a B reorganization); Gilmore v. Commissioner, 25 T.C. 1321 (1956) (holding that distribution of unwanted assets by target that is followed by acquisition is a dividend); Coffey v. Commissioner, 14 T.C. 1410 (1950) (same); Rosenbloom Finance Corp. v. Commissioner, 24 B.T.A. 763 (1931) (same).

47 1956-1 C.B. 190.

48 1975-2 C.B. 110.

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