‘Backward’ Reverse Morris Trust (Merger Precedes Spinoff) Passes Muster

Ordinarily, a “reverse Morris Trust” (RMT) transaction follows a familiar pattern: A distributing corporation engaged in the active conduct of a trade or business spins off the stock of a controlled corporation, similarly engaged, and the latter then merges with an unrelated corporation, with the shareholders of the distributing corporation (to whom the stock of the controlled corporation was distributed) receiving more than 50 percent of the stock, by vote and value, of the merger partner.

Such an RMT doesn’t run afoul of tax code Section 355(e)(2)(A), even though the spinoff and the merger are admittedly “part of a plan,” ...