John Marshall Harlan II

“ Whether the actual dividend occurs at the moment when valuable rights are distributed or at the moment when their value is realized through sale or exercise, it is clear that when a corporation sells corporate property to stockholders or their assigness at less than its fair market value, thus diminishing the net worth of the corporation, it is engaging in a 'distribution of property' as that term is used in § 316. ”

“ By September 29, 1961, the Internal Revenue Service had ruled that shareholders who sold rights would realize ordinary income in the amount of the sales price, and that shareholders who exercised rights would realize ordinary income in the amount of the difference between $16 paid in and the fair market value, measured as of the date of exercise, of the Northwest common received. The prospectus accompanying the distributed rights informed Pacific shareholders of this ruling. ”

“ Congress has abundant power to provide that a corporation wishing to spin off a subsidiary must, however bona fide its intentions, conform the details of a distribution to a particular set of rules.
The Commissioner contends that the 1961 distribution of Northwest stock failed to qualify under § 355 in several respects. [7] We need, however, reach only one. Section 355 (a) (1) (D) requires that, in order to qualify for nonrecognition of gain or loss to shareholders, the distribution must be such that. ”