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SECTION 1. RULING REQUESTS INVOLVING RETENTION OF STOCK OR OPTIONS BY DISTRIBUTING

Internal Revenue Bulletin 1996-19 · 2026-10-03 edition · updated 2026-10-04 · United States

.01 The Service will issue favorable rulings regarding the application of § 355(a)(1)(D)(ii), relating to the retention by Distributing of stock or options in Controlled, to transactions in which Controlled stock will be widely held if Distributing establishes that the following requirements are satisfied:

(1) A sufficient business purpose exists for the retention of the stock, options, and any stock acquired on the exercise of the options.

(2) None of Distributing’s directors or officers will serve as directors or officers of Controlled as long as Distributing retains the stock, options, or any stock acquired on the exercise of the options. Under appropriate facts and circumstances, the Service may issue a favorable ruling in cases in which the directors or officers of Distributing will serve as directors or officers of Controlled. For example, the Service may issue a favorable ruling if a director or officer of Distributing serves as a director or officer of Controlled solely to accommodate Controlled’s business needs.

(3) The retained stock, options, and any stock acquired upon exercise of the options will be disposed of as soon as a disposition is warranted consistent with the business purpose specified in section 1.01(1) of this Appendix B, but in any event, not later than 5 years after the distribution.

(4) Distributing will vote the retained stock and any stock acquired on exercise of the options in proportion to the votes cast by Controlled’s other shareholders. For example, if after the distribution the other shareholders of Controlled vote 70 percent in favor of a matter and 30 percent against, Distributing would be required to vote the stock 70 percent in favor and 30 percent against the matter. .02 In other cases, the Service may issue favorable rulings, based upon all relevant facts and circumstances, regarding the application of § 355(a)(1)(D)(ii). For example, the Service will rule favorably if the transaction is covered by Rev. Rul. 75– 321, 1975–2 C.B. 123.

APPENDIX C

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▸Contents — Internal Revenue Bulletin 1996-19
Internal Revenue Bulletin 1996-19

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