Section 35-3-08-01-105 - Spin-Offs:1. A Section 355 Distribution is a distribution of voting stock (at least 80% of voting stock) to the shareholder corporation of the distributing parent corporation (i.e. a spin-off). To qualify under Section 355, the corporation must have been engaged in active business for five years preceding the spin-off and there must be a continuing active business after spin-off. The transaction cannot be used principally as a device for the distribution of earnings and profits. There must be a germane business reason beyond the avoidance of tax for the distribution.2. Section 27-7-9(j)3 provides that no gain shall be recognized on a distribution to a stockholder of a corporation if such gain would not be recognized to such stockholder for Federal income tax purposes under the provisions of Section 355 of the Federal Internal Revenue Code. The shareholder would take the same basis as the basis of the distributing corporation prior to distribution, plus any gain recognized and reported by the distributing corporation.3. The distributing corporation in a 355 Distribution must report the gain on the distribution. The gain would be the difference between the fair market value of the stock and the basis of the stock immediately prior to any adjustment in contemplation of distribution of the stock. Corporations with one hundred percent (100%) of their income reportable to Mississippi should report the gain in full to Mississippi. Multistate corporations would determine their gain according to the method of reporting the dividend income from such subsidiary to Mississippi. For example: A multistate corporation which has a unitary subsidiary that would apportion dividends from this subsidiary to Mississippi would also apportion the gain on the distribution to Mississippi. Allocated dividends would require allocation of gain from the stock of the subsidiary.4. A corporation which makes a 355 Distribution and is included in a combined return for Mississippi, as provided by Section 27-7-37 of the Mississippi Code, would also be required to report the gain on distribution whether or not the parent's shareholder is a part of the combined group before or after the distribution.5. No credit is allowed to the shareholder corporation receiving the distribution unless the shareholder must report the gain for Federal purposes. If the shareholder is required to report the gain for Federal purposes, the same requirement would exist for Mississippi purposes.35 Miss. Code. R. 3-08-01-105