The IRS, in finalizing proposed Regulations in the tax-free reorganization area, has continued the process of liberalizing "continuity" requirements. In the latest Regulations, the IRS has given its blessing to certain post-reorganization transfers that can be made without jeopardizing required continuity of interest rules.
More particularly, the Regulations allow transfers of stock or assets to shareholders, so long as not all of the stock acquired is so transferred, and the transfer is of such a magnitude as to constitute a liquidation of the distributing corporation. Other transfers of assets or stock are also permitted so long as none of the affected corporations are terminated by such transfers. To use these rules, the continuity of business enterprise rules must also be followed.
Treas. Reg. §1.368-2(k)(1)(i)
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