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Ralph Lauren Corporation Message Board

sss150 2 posts  |  Last Activity: Jan 11, 2015 10:32 AM Member since: Jan 16, 1999
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  • sss150 by sss150 Jan 11, 2015 10:32 AM Flag

    Structure[edit]

    A Reverse Morris Trust is used when a parent company has a subsidiary (sub-company) that it wants to sell in a tax-efficient manner. The parent company completes a spin-off of a subsidiary to the parent company's shareholders. Under Internal Revenue Code section 355, this could be tax-free if certain criteria are met. The former subsidiary (now owned by the parent company's shareholders, but separate from the parent company) then merges with a target company to create a merged company. Under Internal Revenue Code section 368 (a)(1)(A), this could be largely tax-free if the former subsidiary is considered the "buyer" of the target company. The former subsidiary is the "buyer" if its shareholders (also the original parent company's shareholders) own more than 50% of the merged company. Thus, the former subsidiary will usually have a bigger market capitalization than the target company. The target company's managers rarely run the merged company.

    History[edit]

    The original Morris Trust structure was the result of a favorable ruling in IRS v. Morris Trust in 1966. The original Morris Trust structure is similar to the above Reverse Morris Trust structure, however instead of a former subsidiary merging with a target company, the parent company would merge with target company.

    Following several leveraged Morris Trust transactions similar to the original Morris Trust transaction, but involving cash and bank loans rather than mere stock, Congress enacted Internal Revenue Code Section 355(e) in 1997. This imposes additional taxation on the distribution in the spin-off step whenever 50% interest in a spun off company is transferred tax-free in the two years following a spin-off.

  • I see three ways: a) Yahoo pay the tax b) a second company part of Yahoo pay the tax ( ????)
    c) If Yahoo give the profit to the shareholders we need to pay de tax and Yahoo no keep the money. I'm sure MM don't like option " c "
    Any body see a different option about Yahoo TAX ?

RL
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