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On December 15, 2008, the IRS issued final, temporary, and proposed regulations that generally hold that the socalled hot stock rule is inapplicable in reorganizations where a subsidiary is a member of the distributing corporation's separate affiliated group (DSAG) (T.D. 9435, REG-150670-07).
Before the issuance of these regulations, under the hot stock rule of Sec. 355 (a)(3)(B), controlled corporation stock acquired within five years of the distribution of such stock in a transaction in which gain or loss was recognized would be treated as boot. However, this treatment could conflict with the Sec. 355(b) (3)(A) rule that members of a corporation's separate affiliated group (SAG) will be treated as one corporation for...
