WASHINGTON (CN) - The Internal Revenue Service has issued temporary regulations changing the allocation of stock basis when a subsidiary's stock is sold by the parent company to a third party to create a new company.
Under the rule, sale of a subsidiary's stock will be treated as if the old subsidiary transferred substantially all of its assets to the new company in exchange for new stock in the new corporation.
This election is available only if a direct transfer of the old subsidiary's assets to the new company would qualify as a reorganization. The parent company's gain from the sale of its subsidiary's stock to the new company is not taken into account when the subsidiary is liquidated but instead is taken into account regarding the new company's stock.
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