A Little of This, A Little of That: Cherry- Picking Gains and Losses in Transactions

Transcription

1 A Little of This, A Little of That: Cherry- Picking Gains and Losses in Transactions Moderator: Panelists: Michael Mollerus, Davis Polk LLP Lisa Fuller, Chief, Branch 5, Office of Associate Chief Counsel (Corporate), IRS Eileen Marshall, Wilson Sonsini Goodrich & Rosati PC Christopher Peters, Willkie Farr & Gallagher LLP Andrea Ramezan-Jackson, Latham & Watkins LLP May 7, 2016 Founder will contribute the following assets to Newco: Founder Others Real estate, Inventory $150x cash $250x stock Newco IP Founder wants to exchange real property and inventory for cash, IP for stock of Newco (one share). Plan is to recognize loss on real property, no gain on inventory, and deferral on IP. Any problem with that? Assets 2 1

2 351(b) requires gain recognition to the extent of the boot, but does not permit loss recognition. Rev. Rul holds that each asset must be treated as transferred separately in exchange for a portion of each category of consideration received, in proportion to relative FMV of assets. Prop. Reg (b) says the same thing. 267 prohibits loss recognition between individual and corporation more than 50% owned, directly or indirectly, by or for such individual. 3 Rev. Rul Individual A contributed cash of $20x in exchange for $20x worth of Corp Y stock, and Corp X (unrelated to A) contributed the following assets in exchange for $100x worth of Corp Y stock plus $10x in cash: Corp X Assets 1, 2, 3 and cash Corp Y Assets 1, 2, 3 and cash A 4 2

3 Rev. Rul holds that basis of transferred assets is allocated among shares received in proportion to FMV of such shares, which will have split [basis and] holding periods. No specific identification. Prop. Reg (g)(1) says the same thing. Prop. Reg (g)(2) would extend tracing approach that is permitted for reorgs to 351 transfers of stock in which no liabilities are assumed. Why this distinction? Is it because these types of 351 transactions are more like reorgs? Proposed basis regs remain on business plan. 5 Sole proprietor A contributed the following assets to Corp Y in exchange for stock worth $60x and securities with FMV and principal amount of $40x. Land/building, machinery A $40x securities $60x stock A/Rs Corp Y RE, machinery, A/Rs Idea was to allocate assets with high basis and long-term holding Rev. Rul period to securities. Kind of like our founder 6 3

4 7 Back to our founder, who was hoping to exchange real property for cash and recognize loss, inventory for cash and recognize no gain or loss, and IP for stock and defer gain recognition. Here s what really happens: Real estate, Inventory, IP Founder Newco $150x cash $250x stock Assets 8 4

5 9 Can our founder solve a problem by first transferring the real estate and inventory to an unrelated person in exchange for cash? Possible for government to recast? Founder $250x stock Newco Assets Real estate, Inventory $150x cash Unrelated Person $150 IP Real estate, inventory 10 5

6 Single Transferor Multiple Related Transferees Can our founder solve a problem by transferring the IP to one corporation and the real estate and inventory to another? Typical transactional pattern is management rollover in taxable acquisition. Anything wrong with that? Low business purpose bar? Economic substance? 267 with respect to loss on real estate. 11 Single Transferor Multiple Related Transferees Rev. Rul X, Y and P were unrelated corporations. X merged into S in a 368(a)(1)(A)/(a)(2)(D) reorg in which X shareholders received shares of P stock. Y transferred assets to P in exchange for P stock. Y and X shareholders had 368(c) control of P, but Y would not itself have had control of P. Held not a valid 351 transaction for Y because X shareholders did not transfer any property to P. Would have been valid 351 transaction for Y if X had merged into P or S where S was SMLLC. Rev. Rul ; Rev. Rul ; PLR ; Reg (b)(1). Would have been valid 351 transaction for Y if S had merged into X. Rev. Rul ; PLR ; PLR X X Shareholders Merger P stock P S Y Assets 12 6

7 Multiple Related Transferors Single Transferee If high basis real estate and inventory are owned by one of Founder s S corps, and low basis IP is owned by another, does Founder achieve desired result? No attribution rules under 351 other than under consolidated return rules. Reg ; Rev. Rul with respect to loss on real estate. 13 Limited Government Tendency to Recast into 351 Transactions? Rev. Rul Pursuant to an agreement with unrelated public Y Corp, individual A first contributed assets of A s sole proprietorship to A s controlled corporation X Corp, and then contributed stock of X Corp to public Y Corp in exchange for Y Corp stock. Receipt of additional shares of X Corp stock in exchange for assets of sole proprietorship was transitory and without substance, undertaken solely to transfer assets to Y Corp, which did not qualify under 351 because A was not in 368(c) control of Y Corp. Y stock received by A equal to FMV of sole proprietorship assets is treated as taxable sale/exchange under Exchange by A of outstanding stock of X, solely for voting common stock of Y, other than the Y stock received in payment for sole proprietorship assets, is a reorganization under 368(a)(1)(B). Y stock 2 X Corp stock Public Y Corp X Corp A Assets of sole proprietorship X Corp 1 Additional shares of X Corp stock 14 7

8 Limited Government Tendency to Recast into 351 Transactions? Rev. Rul W Corp and unrelated X Corp, through its subsidiary Y Corp, are engaged in business A. Pursuant to binding agreement with X, W transfers its business A assets to newly formed Z Corp in exchange for Z stock. Then W transfers the Z stock to Y in exchange for Y stock and X contributes cash to Y for additional shares of Y stock. Y transfers its business A assets + cash to Z. Rev. Rul distinguished on the ground that here there was an alternative transaction structure that would have qualified under 351 (transfer of business A assets by W and cash by X to Y in exchange for Y stock, with drop-down to Z). What about Rev. Rul ? 1 Business A assets W Corp ZCorp W Corp Z Corp stock Y Corp stock Y Corp ZCorp X Corp X Corp Y Corp Business A assets 3 and business A assets 2 15 Limited Government Tendency to Recast into 351 Transactions? Rev. Rul Situation 1. Partnership X transferred its assets and liabilities to R Corp in exchange for R Corp stock, then liquidated. Situation 2. Partnership Y distributed its assets and liabilities in liquidation. Former Y partners contributed assets and liabilities to S Corp in exchange for S Corp stock. Situation 3. Partners of Partnership Z transferred their interests to T Corp in exchange for T Corp stock. Each transaction respected in accordance with its form. Rev. Rul revoked. 16 8

9 Limited Government Tendency to Recast into 351 Transactions? Various cases, rulings and other authorities that find control immediately after test to be violated because of sideways transfers of stock: e.g., Intermountain Lumber, 65 T.C (1976); e.g., Rev. Rul ; Rev. Rul ; Rev. Rul ; Reg (b)(3)(iii), Ex. 1; Reg (k), Ex Part Taxable Part 721 Exchange: Back to our Founder from Slide 1. Assume the same facts. But, this time Founder is transferring her assets to a Newco taxed as a partnership. Founder wants to exchange real property and inventory for cash, IP for a partnership interest in Newco Plan is to recognize loss on real property, no gain on inventory, and deferral on IP. Any problem with that? Section 707(b) Founder must own less than 50% of Newco What if, instead of contributing the real estate and inventory to Newco for cash, the Founder sells those asset to Others for cash and they contribute those assets to Newco? Any problem with that? Real estate, Inventory Founder $150x cash $250x Pshp Interest Newco Assets Others Pshp Interests IP 18 9

10 Part Taxable Part 721 Exchange: 707(a)(2) provides that if a partner transfers property to a partnership and there is a related transfer of money or other property to such partner and the transfers are properly characterized as a sale, then such transfers shall be treated as a sale. 721 generally provides that no gain or loss shall be recognized to a partnership or to any of its partners in the case of a contribution of property to the partnership in exchange for an interest in the partnership. There is no analog to the 351(b) boot rule in the partnership context. 19 Part Taxable Part 721 Exchange: Former Prop. Reg (d) provided that if a partner transfers multiple items of property to a partnership pursuant to a plan, the amount realized from any transfer of money or other consideration made by the partnership pursuant to the plan that is treated as part of a sale is allocated among each item of property transferred pursuant to that plan based on the relative fair market values of the properties. However, the final disguised sale regulations (T.D. 8439) deleted this rule. So, is cherry picking permitted in a partnership setting? Do you need a business purpose? If so, how strong? Is the intent of the parties important? Is the answer different in a Rev. Rul transaction? 20 10

11 Part Taxable Part 721 Exchange: Authorities which appear to support cherry picking in certain contexts include: Collins v. Commissioner, 48 T.C. 45 (1962) Brown v. Commissioner, 27 T.C. 27 (1956) TAMs and However, each of these TAMs was subsequently reissued without the language suggesting that cherry picking may be permitted. See TAMs and Part Taxable Part 721 Exchange: What about the partnership interests received? Tax Basis 722 generally provides that a partner s basis in a partnership interest received in exchange for property is determined by reference to the tax basis of the property transferred to the partnership in the 721 transaction (i.e., a carry-over basis). Rev. Rul generally provides for a unitary basis in the partnership interest received. If a portion is transferred later on, the basis is allocated between the portion retained and the portion transferred based on relative fair market values at the time of disposition. This is quite different from the corporate context discussed above, where each share of stock has a separate basis. Holding Period 1223 and the regulations thereunder generally provide for a split holding period in the partnership interest received depending on the nature of the property transferred:, non-capital, non- 1231(b) assets (e.g., inventory) holding period begins on date the partnership interest is acquired. Capital assets or 1231(b) assets holding period is tacked, short-term or long-term, depending on holding period of asset transferred. Except for PTPs, upon a subsequent sale or exchange, any gain or loss is divided between short-term and long-term periods in the same proportions that the holding period of the entire interest is divided

12 Part Taxable Part 721 Exchange: Multiple Transferors or Transferees Is the cherry picking analysis for our Founder different if she transfers the IP to one partnership and the real estate and inventory to another? What if there is significant overlap among the partners in the two partnerships? Is there an amount of overlap (or a type of fact pattern) which would throw our Founder back into the single transferor/single transferee analysis? What about multiple related transferors and a single transferee? Is the thinking here any different than with multiple transferees? What about a part 351/ 368, part 721 structure, like the one shown on the next page? 23 Part 721/Part 351 Transaction Public Target 2 Transferors Public Target 2 Holdings / Holdings Public Target 1 Holdings / Public Target 1 Transferors Electing Public Target 2 Transferors Public Target 2 Exchangeable Partnership Interests & Holdings Public Target 2 Holdings Partnership Public Target 1 12

13 Current Law Base example - 368(a)(1)(A) statutory merger where Joe exchanges 2 blocks of Target common shares for Acquirer common stock and cash. Joe previously acquired each block at different times (Block 1 first and Block 2 later) for different prices, but each block currently has the same value. At the outset, assume no dividend equivalent exchange. How is stock and cash consideration allocated? 25 Current Law Rev. Rul , Lakeside Irr. Co v. Comm r, 128 F.2d 418 (5 th Cir. 1942), Curtis v. United States, 336 F.2d 714 (6 th Cir. 1964), Tseytin v. Comm r, T.C. Memo Each block of stock transferred which has a different basis must be treated separately Cannot total the bases of the various blocks of stock and subtract this total from the total value received in the exchange Loss on one block of stock may not offset or reduce a gain recognized on another block of stock 26 13

14 Current Law Reg (b) where terms of exchange do not specify allocation Acquirer stock Basis FMV Gain (loss) realized Received Received Gain (loss) recognized Block (boot within gain) Block TOTAL Reg (a)(2)(vii) where shareholder cannot identify which particular Acquirer share is received in exchange for which Target share, shareholder may designate which Acquirer share is received in exchange for a particular Target share for purposes of determining tax consequences of any subsequent transaction provided shareholder makes the designation on or before the first date on which the basis of which its Acquirer shares become relevant. where no timely identification Reg (c) rule applies Assuming adequate identification, Joe holds Acquirer shares received for Block 1 at a basis of 30 ( ) and Acquirer shares received for Block 2 at a basis of 50 ( ). If no timely designation before basis is relevant, on a subsequent sale of Acquirer shares, Joe would be treated as having sold Block 1 prior to Block Current Law Reg (b) where terms of exchange do specify allocation and such terms are economically reasonable Acquirer stock Basis FMV Gain (loss) realized Received Received Gain (loss) recognized Block Block TOTAL Note that Reg (b) refers to allocations to particular shares or classes of stock or securities. Also, although we have assumed no dividend equivalency in this example, note that Reg (a) makes no distinction between dividend equivalent and non-dividend equivalent exchanges. Reg (a)(ii) For purposes of determining basis, if a shareholder adequately identifies acquirer shares received in exchange for target shares, that identification controls provided it is economically reasonable. Joe receives the P shares with a basis of

15 Current Law Rev. Rul Pursuant to a 368(a)(1)(A) statutory merger shareholders exchanged Target shares as follows: Shareholder A exchanged Target common for Acquirer common Shareholder B exchanged Target preferred for cash Shareholder C exchanged Target common for Acquirer common and Target preferred for 29 Current Law Shareholder A only common for common 354 applies Shareholder B only preferred for cash 302 applies Shareholder C common for common and preferred for cash single exchange such that 356 applies each class is considered separately in determining consequences» no gain or loss on common for common» gain (but not loss) recognized on preferred for cash 30 15

16 Current Law Back to Joe, what if his basis in Block 2 was 110, creating a realized loss? Basis FMV Gain (loss) realized Received Received Gain (loss) recognized Block Block (no loss allowed) TOTAL Rev. Rul Joe is treated as having made a single exchange described in 356(a)(1) with the result that the loss nonrecognition rule of 356(c) applies to the exchange of Block 2 solely for cash What happens to Joe s 10 excess basis? 31 Current Law Dividend equivalency rule of 356(a)(2) if a reorganization exchange has the effect of a distribution of a dividend, then shareholder s gain under 356(a)(1) will be treated as a dividend to the extent of shareholder s ratable share of undistributed accumulated E&P Testing for dividend equivalency Clark v. Comm r: dividend equivalency for boot received in a reorganization is determined by examining the exchange as a whole What is the exchange where multiple classes of stock are exchanged? Clark involved only one class of stock. As if target shareholders received only stock consideration in the reorganization and then, immediately after the reorganization, the acquirer stock deemed received is redeemed in a transaction governed by 302 in exchange for the boot received. Once dividend equivalency is determined, 356 and not 302 applies for determination of consequences recognition of losses not allowed under 356(c) As mentioned earlier, economically reasonable allocations of consideration to shares and classes permitted under Reg (a) for dividend equivalent exchanges 32 16

17 Current Law If Joe s exchange is dividend equivalent and Joe s ratable share of accumulated E&P is $20, then $20 of gain in the example where he did not specify an allocation will be treated as a dividend and remaining $40 of gain will be treated as gain from the exchange of the stock Acquirer stock Basis FMV Gain (loss) realized Received Received Gain (loss) recognized Block (boot within gain) Block TOTAL If Joe s exchange is dividend equivalent and Joe s ratable share of accumulated E&P is $20, then all of the gain (which is only $10) in the example where he did specify an allocation will be treated as a dividend Acquirer stock Basis FMV Gain (loss) realized Received Received Gain (loss) recognized Block Block TOTAL Proposed Regulations Non-Dividend Equivalent Exchanges Economically reasonable allocation to particular shares or classes of stock and securities (same as current law) Prop. Reg (d)(1); (b) Target stock exchanged solely for boot is treated as a redemption governed by 302 and not by 356 where shareholder (such as Shareholder C in Rev. Rul ) also receives acquirer stock in exchange for other stock (change from current law) Prop. Reg (d)(2); (e) Ex. 5 would allow recognition of losses that were not allowed under 356(c) 34 17

18 2009 Proposed Regulations Back to Joe, in a non-dividend equivalent exchange where he allocated solely cash to Block 2 and as a result had a realized loss Under proposed regs, Joe would be permitted to realize the $10 loss since the exchange of Block 2 solely for cash would be governed under 302 and not 356 Acquirer stock Basis FMV Gain (loss) realized Received Received Gain (loss) recognized Block Block TOTAL Proposed Regulations Dividend Equivalent Exchanges Economically reasonable allocations of consideration between different classes of stock or securities would be respected (same as current law) Prop. Reg (d)(1); (b) Allocations of consideration to specific shares within a single class are not respected (change from current law) Prop. Reg (d)(1) each share within a class would be treated as exchanged for a pro rata portion of each type of consideration paid for that class Target stock exchanged solely for boot governed by 302(d) and not by 356(a)(2) (change from current law) Prop. Reg (d)(2) would allow recognition of losses that were not allowed under 356(c) but no gain limitation All exchanges made by exchanging shareholder, whether governed by 354, 356 or 302, are taken into account in determining dividend equivalency (consistent with Clark) Prop. Reg (d)(1) 36 18

19 2009 Proposed Regulations Back to Joe, assuming a dividend equivalent exchange, if Block 1 and Block 2 are the same class of common stock, Joe s allocation of consideration within that class would not be respected. Rather, consideration would be allocated the same way as if Joe had not specified the allocation (i.e., pro rata) If Block 1 and Block 2 were different classes of common stock, Joe s allocation would be respected and the exchange of Block 2 solely for cash would be governed under 302(d) and not 356, creating a dividend and a deferred loss: Acquirer stock E&P 20 Basis FMV Gain (loss) realized Received Received Gain (loss) recognized Dividend 301(c)(1) Reduction of Basis 301(c)(2) Unrecovered Basis/Deferred Loss Block Block TOTAL In Joe s example where he otherwise has a realized loss on the exchange of Block 2, in a dividend equivalent exchange under the proposed regulations, Joe would have a dividend and a deferred loss: Acquirer stock E&P 20 Basis FMV Gain (loss) realized Received Received Gain (loss) recognized Dividend 301(c)(1) Reduction of Basis 301(c)(2) Unrecovered Basis/Deferred Loss Block Block TOTAL Part 368 Reorganization Part Taxable UBTI/ECI Investors Acquirer, a publicly traded corporation, wants to acquire the Business from PE Fund, which Business is held through a dual silo ownership structure, consisting of a partnership (partnership silo) and a US consolidated tax group (corporate silo). Each silo owns 50% of total value of the Business. Acquirer would acquire all of the Operating Partnership interests held by Fund AIV 1 and all of the stock in Holding Corp owned by Fund AIV 2. Consideration for total Business would be $2B consisting of: $700M Acquirer stock $1.3B cash Direct Investors Fund AIV 1 Blocker Operating Partnership Direct and UBTI/ECI Investors Fund AIV 2 Holding Corp Operating Subsidiaries 38 19

20 Part 368 Reorganization Part Taxable Can consideration be allocated among partnership and corporate silos so as to achieve a tax-free reorganization for the sale of the corporate silo? Acquirer $700 $1,300 Total Consideration $2,000 Specific Allocation - 368(a)(1)(A) Reorganization FMV Received Received TOTAL Partnership Silo $1,000 $0 $1,000 $1,000 Corporate Silo $1,000 $700 $300 $1,000 $2,000 Pro Rata Allocation - No 368 Reorganization FMV Received Received TOTAL Partnership Silo $1,000 $350 $650 $1,000 Corporate Silo $1,000 $350 $650 $1,000 $2,000 Should overall transaction be treated as a sale of a trade or business governed by 1060 allocation principals (or Rev. Rul principles), such that allocation of consideration should be pro rata resulting in no reorganization transaction for sale of corporate silo? Does it matter if selling entity of each silo is a different entity and/or that economics are somewhat different for each silo (e.g., partnership silo has a blocker), even though indirect beneficial ownership is held by same LPs for each silo? Would it help if Acquirer used a subsidiary to buy partnership silo for cash? Proposed Reg (a) terms of the exchange shall control for purposes of determining whether transaction qualifies as a reorganization provided terms are economically reasonable Transactions In popular parlance, corporate separations involving 355 distributions are often described as tax-free spin-off transactions Final step(s) involve the distribution (by way of dividend, exchange offer and/or debt-for-equity exchange) of the stock of a controlled company that is intended to qualify for nonrecognition of gain under 355 and/or 361(c) It is not uncommon for corporations, prior to the spin-off, to engage in preparatory restructuring transactions o Many times these transactions are also intended to avoid the recognition of gain (e.g., internal D/355 spin-offs) o But, in other cases (typically in the foreign context), these transactions result in the recognition of gain under 1001 or dividend income under 304 (e.g., cross-chain sales of assets or stock) o And, sometimes, they can result in the recognition of loss under

21 PLR D owns, in addition to other subs, C-1, engaged in the C business D wants to separate the C business D has a substantial built-in loss in the stock of C-1 D undertakes the following steps (simplified): o D and Investor X form Company 2 for cash, with D receiving common stock and Investor X receiving voting preferred stock o D contributes the stock of C-1 to Company 2 for additional common stock and nonvoting preferred stock (the C-1 Exchange ) o Pursuant to a pre-existing binding commitment entered into before the contribution, D immediately sells the nonvoting preferred stock to Investor Y (the Prearranged Sale ) o D contributes all of the common stock of Company 2 to newly-formed Controlled for Controlled common stock (the Company 2 Contribution ), and distributes more than 80% of the Controlled common stock to D shareholders (the Distribution ) in a transaction intended to qualify under 368(a)(1)(D) and 355 o D expects to recognize a substantial tax loss (the C-1 Loss ) on the C-1 Exchange 3 Company 2 Common stock 4 Controlled Shareholders D 2 Company 2 NV Preferred $ and C-1 $ Common + NV Preferred Company 2 Investor Y $ Investor X Controlled Subs C-1 41 Relevant representations PLR (cont d) o The Distribution would be pursued by D regardless of whether the C-1 Loss would be recognized by virtue of the Distribution and the related transactions o D would be entitled to recognize the C-1 Loss on a taxable sale of the C-1 stock to an unrelated third party o D and Company 2 will cease to be members of the same controlled group as defined in 267(f)(1) upon consummation of the Distribution o The distribution of Business C to shareholders of D is not being engaged in or structured with a principal purpose to avoid the provisions of 267(f) (including, for example, by avoiding treatment as an intercompany sale or distorting the timing of losses or deductions) within the meaning of Reg (f)-1(h) o The C-1 Exchange is not an acquisition described in 269(a)(1) or 269(a)(2), the principal purpose of which is evasion or avoidance of federal income tax within the meaning of 269(a) Relevant rulings o D will recognize the C-1 Loss on the C-1 Exchange, provided it is followed by the Prearranged Sale ( 1001(a) and Rev. Rul ) o Immediately before the Distribution, D will take into account the loss recognized on the C-1 Exchange ( 267(f)(2)(B) and Reg (f)-1(c)) See also PLR (in the context of a tax-free spin-off transaction, trigging a built-in loss in a subsidiary s assets through busted 351 and 338(h)(10) election) 42 21

22 Cross-chain Domestic Sale D owns, in addition to other subs, the stock of S1 and S2, both of which are engaged in Business A, which D intends to separate from its other businesses D has a built-in loss in the stock of S1 D undertakes the following steps: o D sells all of the stock of S1 to S2 for cash (the S1 Sale ), which D retains o D contributes the stock of S2 to newly-formed Controlled in exchange for Controlled stock and cash (the Controlled ) o D distributes all of the stock of Controlled to D s shareholders, and does a purging distribution of the Controlled to D s shareholders and/or creditors in transactions intended to qualify under 368(a)(1)(D) and 355 o D expects to recognize a loss on the S1 Sale Controlled S1 Shareholders D $ 3 $ $ 2 S2 S2 S1 Controlled 43 Cross-Chain Domestic Sale (cont d) Assume D makes all of the same representations as in PLR Under Reg (b), 304 does not apply to a cross-chain sale between members of a consolidated group o Note that, unlike Reg (c) relating to the nonapplicability of 357(c) in intercompany transactions, Reg (b) does not contain any requirement relating to the continued status of the selling and buying corporations as members of the same consolidated group Risk of recharacterization? o Source of the cash Can t be D (circular cash flow) What about Controlled (e.g., what if S2 issues a note to D as the consideration in the S1 Sale, and the note is repaid with cash borrowed by Controlled and contributed/loaned to S2)? Suppose D sells S1 to S2 in satisfaction of intercompany debt owed by D to S2? o Recharacterized as contribution of S1 and S2 to Controlled for Controlled stock plus total cash, followed by sale of S1 by Controlled to S2 for cash? o Recharacterized as 351 contribution to S2 for cash plus nominal S2 share (similar to treatment of allcash D reorganization)? Note that, unlike with respect to the Controlled, D doesn t have to purge the cash received from S2 in the S1 Sale any problem with that? 44 22

23 Discussion - Recognition of Losses in Spin-off Transactions Transactions described above give the parties the best of both worlds o Recognition of loss at the corporate level avoids nonrecognition rules of both 355 and 311(a) with respect to the stock/assets with a built-in loss o Corporation still obtains nonrecognition of gain under 361 and 355 with respect to other stock/assets contributed to controlled o Shareholders still get the benefit of 355 on receipt of the controlled stock Any problem with that? o 361 and 355 prescribe rules for specific transactions o No penumbra effect o Other loss deferral and anti-abuse rules still applicable (e.g., 269, 267(f)) o What about 7701(o)? 45 23