The Treasury's position was based on the fact that prior to the enactment of the predecessor of section 332 in 1935, the liquidation of a subsidiary into its parent did not constitute a tax-free exchange.

In reversing, the Second Circuit found that: a. As S's business was continued by P, there really was not a taxable liquidation; and As the stockholders of old P would have received all of the stock of New P after the consolidation, the fact that there was no actual exchange was not relevant: there was a constructive exchange of stock.

The liquidating subsidiary also does not recognize gain or loss on any distributions to a parent corporation.[1] Recognition of Gain or Loss In the absence of a specific statutory provision for nonrecognition, a parent corporation realizes gain or loss upon the liquidation of its subsidiary in the same manner that an individual stockholder does (§ 23.01).

—deemed to have acquired target assets in large part tor its stock in target rather than for its own stock. The Bausch & Lomb result has been criticized by commentators and is easily avoided through a number of planning techniques. 9 Nevertheless, it is difficult to argue with the logic of the proposition that the transaction in question was largely a liquidating distribution …

This general rule was followed even where the subsidiary was merged into its parent under a State merger statute

Most basically, it is a longstanding rule that a corporation and its shareholders are separate entities, including "in respect of tax problems."

See 4 The Public Papers and Ad-dresses of Franklin D. Roosevelt 276 (S. Rosenman ed. 1938)(President Roosevelt's message to Congress on Tax Revision given on June 19, 1935). 3.

The element in the 18 Prior to the 1935 legislation, ppstream merger was a transaction in which gain or loss was recognized in all cases.

Is it possible that it would be a reorganization but that Bausch and Lomb would still have taxable gain? Why?

[PDF] Federal Income Taxation of Business Enterprises 4th Ed.

[CITATION] Federal income taxation of corporate transactions

[CITATION] Tax strategies for corporate acquisitions, dispositions, spin-offs, joint …

[CITATION] Federal Income Taxation of Corporate Liquidations