Active Business Test
Each of the distributing corporation and the controlled corporation must and the controlled corporation must each be engaged in the active conduct of a trade or business immediately after the spin-off. Specifically, Section 355 requires that 1) both the distributing corporation and the controlled corporation be engaged, immediately after the distribution, in the active conduct of a trade or business, 2) each such post-distribution business must have been actively conducted throughout a five-year period ending on the date of the distribution, and 3) each such post-distribution business must not have been acquired, directly or indirectly, by a purchase or other transaction in which gain or loss was recognized during the five year period.
To be engaged in the conduct of a “trade or business,” each corporation must engage in a specific group of activities for the purpose of earning income or profit and the activities included in such a group must include every operation that forms a part of, or a step in, the process of earning income or profit. The determination is made on the basis of all the facts and circumstances. The Treasury Regulations exclude two types of activities from qualifying as an active trade or business: 1) holding stock, securities, land or other property for investment purposes; and 2) owning and operating real or personal property used in a trade or business, unless the owner performs significant services with respect to the operation and management of the property. See Treas. Reg. Section 1.355-3(b)(4)(iv).
So much to think about. Hope we followed the guidelines below to a tee. lol. Good times. Hula Hula Cuckoo Penny
Internal Revenue Code Section 355(b)(2)(B) provides that the active business of the distributing and controlled corporations must have been conducted for at least five years prior to the spin-off. The fact that a business has undergone changes in the five-year period is immaterial, so long as the changes are not fundamental enough to constitute the acquisition or adoption of a new business that does not satisfy the five-year period requirement. See Treas. Reg. Section 1.355-3(b)(3).
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