SECTION 3. PROCEDURE

.01 Rev. Proc. 2015–3 is supplemented by adding new paragraphs (57) and (58) to section 4.01 to read as follows:

(57) Section 355.—Distribution of Stock and Securities of a Controlled Corporation.—Any issue relating to the qualification, under § 355 and related provisions, of a distribution, or another distribution which is part of the same plan or series of related transactions, if property owned by any distributing corporation or any controlled corporation becomes the property of a regulated investment company (RIC), within the meaning of § 851, or a real estate investment trust (REIT), within the meaning of § 856, in a “conversion transaction” (as defined in § 1.337(d)–7(a)(2)(ii)) with respect to which no deemed sale election described in § 1.337(d)–7(c) is made, and the conversion transaction and the distribution are parts of a plan or series of related transactions. This paragraph (57) shall not apply if, immediately after the date of the distribution, both the distributing corporation and the controlled corporation will be RICs, or both of such corporations will be REITs, and there is no plan or intention on the date of the distribution for either the distributing corporation or the controlled corporation to cease to be a RIC or a REIT.

(58) Section 355.—Distribution of Stock and Securities of a Controlled Corporation.—Any issue relating to the qualification, under § 355 and related provisions, of a distribution, or another distribution which is part of the same plan or series of related transactions, if, immediately after any such distribution, the fair market value of the gross assets of the trade(s) or business(es) on which the distributing corporation or the controlled corporation relies to satisfy the active trade or business requirement of § 355(b) is less than five percent of the total fair market value of the gross assets of such corporation.

For purposes of determining the fair market value of the gross assets of such corporation and of the gross assets of such trade(s) or business(es), (i) all members of a separate affiliated group, within the meaning of § 355(b)(3)(B), shall be treated as one corporation; and (ii) if the distributing corporation or the controlled

corporation relies on an active trade or business of a partnership for purposes of § 355(b), such corporation shall be treated as owning its ratable share of the gross assets of the partnership.

This paragraph (58) shall not apply if (i) all the stock of the controlled corporation that is distributed in the distribution is distributed to one or more members of the affiliated group, as defined in § 243(b)(2)(A), of which the distributing corporation is a member; and (ii) such distribution is not part of a plan or series of related transactions pursuant to which stock of any corporation will be distributed outside such affiliated group in a distribution described in this paragraph (58), in paragraph (57) of section 4.01 of this revenue procedure, or in paragraph (26) of section 5.01 of this revenue procedure.

.02 Rev. Proc. 2015–3 is supplemented by adding new paragraph (26) to section 5.01 to read as follows: (26) Section 355.—Distribution of Stock and Securities of a Controlled Corporation.—Any issue relating to the qualification, under § 355 and related provisions, of a distribution, or another distribution which is part of the same plan or series of related transactions, if, immediately after any such distribution, all of the following conditions exist: (i) the fair market value of the investment assets of the distributing corporation or the controlled corporation is two-thirds or more of the total fair market value of its gross assets; (ii) the fair market value of the gross assets of the trade(s) or business(es) on which the distributing corporation or the controlled corporation relies to satisfy the active trade or business requirement of § 355(b) is less than 10 percent of the fair market value of its investment assets; and (iii) the ratio of the fair market value of the investment assets to the fair market value of the assets other than investment assets of the distributing corporation or the controlled corporation is three times or more of such ratio for the other corporation ( i.e., the controlled corporation or the distributing corporation, respectively).

For purposes of determining the fair market value of the distributing corporation’s and the controlled corporation’s investment assets, assets other than investment assets, assets of the trade or business, and total assets, all members of such corporation’s

October 5, 2015 468 Bulletin No. 2015–40

acquired with a principal purpose of avoiding this paragraph (26).

This paragraph (26) shall not apply if (i) all the stock of the controlled corporation that is distributed in the distribution is distributed to one or more members of the affiliated group, as defined in § 243(b)(2)(A), of which the distributing corporation is a member; and (ii) such distribution is not part of a plan or series of related transactions pursuant to which stock of any corporation will be distributed outside such affiliated group in a distribution described in this paragraph (26), or in paragraph (57) or (58) of section 4.01 of this revenue procedure.