Rev. Rul. 75-160

Corporation A has a wholly owned subsidiary, Corporation B, engaged in the manufacture and sale of furniture. Corporation B had two wholly owned subsidiaries, Corporation C and Corporation D. Corporations B, C, and D have used substantially all their assets in the active operation of an income producing business for more than five years. Corporation C manufactures food products. Corporation D sells food products. Corporation C and Corporation D are integrated, that is, Corporation C manufactures food products only for Corporation D and Corporation D sells only those food products manufactured by Corporation C. For valid business purposes generated by factors beyond the control of Corporation A, a corporate realignment was effected. Corporation B distributed all of the stock of Corporation C and Corporation D to its sole shareholder, Corporation A, thereby making all of the corporations involved in the realignment wholly owned first tier subsidiaries of Corporation A. Corporation B, Corporation C and Corporation D will continue to operate their respective business. Corporation A has no plans to dispose of any of its stock in these corporations. Based on all the facts and circumstances, the distribution by Corporation B was not a device to distribute earnings and profits within the meaning of section 355(a)(1)(B) of the Internal Revenue Code of 1954.

Pending the issuance of revised regulations, the Internal Revenue Service will dispose of cases involving the active trade or business requirements of section 355(b) of the Code in accordance with the following court decisions: Rafferty v. Commissioner, 452 F.2d 767 (1st Cir. 1971), cert. denied 408 U.S. 922 (1972); United States v. Marett, 325 F.2d 28 (5th Cir. 1963); and Commissioner v. Coady, 289 F.2d 490 (6th Cir. 1961), affirming 33 T.C. 771 (1960). Thus, for purposes of section 355(b), Corporations B, C, and D are each engaged in the active conduct of a trade or business.

¹ Also released as TIR-1361, dated April 10, 1975.