Tax Issues in a Reorganization Plan involving PartsPlus, InvestCorp, and Subsidiaries

Solution and Research

Task:

PartsPlus operates an auto parts distributorship. InvestCorp owns 80 percent of the stock of a holding company (HC). HC owns 80 percent of the stock of ten subsidiaries, Sub 1 through Sub 10. Sub 1 through Sub 10 each separately operate a full service gas station.

Pursuant to a plan of reorganization, PartsPlus merges into InvestCorp and the PartsPlus shareholders receive solely InvestCorp stock. As part of the plan of reorganization, InvestCorp transfers PartsPlus' assets to HC, which in turn transfers some of the PartsPlus assets to each of the ten subsidiaries.

No one subsidiary receives a significant portion of PartsPlus' historic business assets. Each of the subsidiaries will use the PartsPlus assets in the operation of its full service gas station. No individual subsidiary will be an auto parts distributor.

Please research this tax issue and find a solution.  As part of your submission, which will be submitted through this assignment link, include the following:

Your answer.
The specific authority that supports your answer.
Key words from each of the searches that you performed via Lexis-Nexis through the process of getting to your answer.
Any authoritative documents you referenced prior to finding your answer.
You do not have to reiterate the facts of the case, as we will assume they are known by all.  You also do not have to structure your submission as a formalized memorandum or letter.  However, I do want you to include sufficient details regarding the four previous bullet points.

You will have to look beyond the Internal Revenue Code sections to find substantial authority to solve this issue.  Remember from module 1 If you cannot find enough support via the Code, then look to the Regulations, Court Cases and IRS Rulings.