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February 27, 2012
State Tax Notes Article Explores State and Local Aspects of Corporate Spinoffs
FALLS CHURCH, VA -- Corporations that are considering spinning off one or more of their businesses would be well advised to survey the laws of all states in order to assess the state tax implications, a leading state tax attorney writes in this week's State Tax Notes.

"A spinoff that meets the federal requirements for tax-free treatment will generally be treated as tax free for state purposes as well," writes Peter L. Faber, a partner with McDermott, Will & Emery LLP. "There are some areas of nonconformity, however, and although it can be time consuming, a survey of the laws of all the states is often in order for businesses considering spinoffs."

In his piece, "State and Local Tax Aspects of Corporate Spinoffs," Faber explains, "[I]n a state that does not base its definition of taxable income on federal taxable income, the risk that a spinoff may be taxable may be . . . serious.

In California, for instance, "each corporation must be engaged in an ATOB [active trade or business] for a spinoff to be tax free . . . even though that is not required for the spinoff to be tax free for federal tax purposes."

State Tax Notes is published by the nonprofit Tax Analysts.

Read Faber's article.

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