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Federal Tax ADVISORY: Hook Stock Split Down

July 1, 2014 By Jasper L. (Jack) Cummings, Jr. and Edward Tanenbaum

LTR 201404002

Rev. Proc. 2014-3 provides that the IRS won’t issue rulings on “the treatment or effects of hook equity, including as a result of its issuance, ownership, or redemption.” It defines hook equity as “an ownership interest in a business entity (such as stock in a corporation) that is held by another business entity in which at least 50 percent of the interests (by vote or value) in such latter entity are held directly or indirectly by the former entity.” But a recent ruling involved hook stock and predated the no-rule. LTR 201404002 involved a surprising but somewhat common use of Section 355 to eliminate hook stock. It requires the invention of yet another spinoff term—this time, the split-down.

The advisory is provided on the Alston & Bird website: www.alston.com/advisories/fed-tax-july-2014/

Filed Under: Federal - Corporate Tax Planning, Federal Tax Advisory Tagged With: Corporate Tax Planning, Section 355

About Jasper L. (Jack) Cummings, Jr.

Jack Cummings is counsel in the Federal Tax Group of Alston & Bird in Raleigh and Washington, D.C. He served as IRS associate chief counsel (corporate) and chair of the Corporate Tax Committee of the ABA Section of Taxation.

[Read Bio]

About Edward Tanenbaum

Edward Tanenbaum is co-chair of the firm’s Federal & International Tax Group and a member of the firm’s Global Resources & Strategies Committee. Mr. Tanenbaum’s practice consists primarily of planning and structuring tax efficient solutions for cross-border business transactions and investments by foreign multinational corporations and high-net-worth individuals.

[Read Bio]

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