In Situation 1 of the Rev. Rul., Parent owns all the stock of Distributing, which owns all the stock of Controlled. On Date 1, Parent purports to contribute $25x of property of Controlled in a Section 351 exchange. On Date 2, Distributing spins off the stock of Controlled worth $100x to the Parent.
The IRS provided a taxpayer-favorable ruling to not integrate the transactions and respect the Section 351 transfer and Section 355 spinoff as separate transactions. If the transactions had been integrated, there would be a Section 1001 exchange of $25x of property for $25x of stock and then a taxable distribution of the remaining $75x of stock (as Distributing is no longer distributing Section 368(c) control).
In Situation 2 of Rev. Rul. 2017-9, on Date 1 Controlled distributes a total of $25 x of property up to Distributing in what would independently appear to be a Section 301 distribution, but which is expressly stated to have been done in "pursuance of the plan of reorganization." On Date 2, Distributing contributes an asset worth $100x to Controlled and spins off Controlled in what would appear to be a reorganization under Section 368(a)(1)(D) with a Section 355 spinoff.
With respect to Situation 2, the IRS ruled that Section 361(b) is "the exclusive measure of dividend income provided by Congress where cash is distributed to shareholders as an incident of a reorganization (citing Estates of Bell v. Commissioner, T.C.M 1971-285). The distribution by Controlled to Distributing in Situation 2 was made in pursuance of a reorganization. Therefore, the distribution should be treated as "boot" subject to recognition of gain.
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