For a spin-off to be tax-free to the shareholder it must satisfy which of the following:
A) The parent firm must have a controlling interest in the subsidiary before it is spun off.
B) After the spin-off, both the parent and the subsidiary must remain in the same line of business in which each was involved for at least 5 years before the spin-off.
C) The spin-off cannot have been used as a means of avoiding dividend taxation by converting ordinary income into capital gains.
D) The parent's shareholders must maintain significant ownership in both the parent and the subsidiary following the transactions.
E) All of the above

Question

Quizplus · Accepted Answer

For a spin-off to be tax-free to the shareholder, it must satisfy several conditions, including that the parent firm must have a controlling interest in the subsidiary before the spin-off, the spin-off cannot be used as a means of avoiding dividend taxation, and the parent's shareholders must maintain significant ownership in both entities post-transaction. Additionally, while there are requirements related to the business operations of the entities involved, the specific stipulation that both must remain in the same line of business for at least 5 years is not a standard IRS requirement for tax-free status, but the comprehensive nature of the options suggests a broad interpretation of the rules governing tax-free spin-offs.

For a Spin-Off to Be Tax-Free to the Shareholder It