Max Baucus: “virtually everyone supports tax simplification. But for some reason, it is awfully hard to accomplish. Today, I am…”

“virtually everyone supports tax simplification. But for some reason, it is awfully hard to accomplish. Today, I am pleased to join my friend and colleague from Mississippi, Senator Lott, in introducing tax legislation that is non-controversial and a clear tax simplification measure. Further, the bill we are filing today has been supported in the past by the Joint Tax Committee and the U.S. Treasury. Normally, corporations are taxed on distributions of property to shareholders as if sold at fair market value. However, section 355 of the tax code provides corporations with the flexibility to distribute one or more of their businesses to their shareholders, such as in a spin-off, without triggering tax consequences if the transaction meets important requirements. Through this exception in section 355, corporations may make strategic business decisions without imposing tax burdens on their shareholders, but only if both the distributing and distributed businesses continue as an active trade or business. The regulatory structure that has evolved over the years under section 355 has created very different ``active trade or business'' tests depending on whether the distributing corporation operates as a holding company or whether it holds the business assets directly. There is no rationale to support that distinction. Both the staff of the Joint Tax Committee and the Clinton Treasury Department recommended that the rules be conformed as a tax simplification measure.…”