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However, the new final pre-reorganization COI regulations are substantially different fromthe temporary and proposed pre-reorganization COI regulationsissued in 1998. 25 Merriam-Webster's Collegiate Dictionary, 10th Ed., defines extraordinary as "going beyond what is usual, regular, or customary." 26 Preamble to T. Since the pre-reorganization regulations apply only to consideration received "prior to a potential reorganization," it seems that the post-reorganization regulations apply to simultaneous transactions.

This article discusses the COI requirement ingeneral, reviews the 1998 temporary and proposed pre-reorganization COI regulations and the new final pre-reorganization COI regulations, and analyzes when the new finalpre-reorganization regulations should apply to count pre-reorganizationdistributions and redemptions against the COIrequirement. Query also the continuing vitality, in light of the new regulations, of the statement in Rev.

This requirement has its origins in cases datingback to The Internal Revenue Service ("Service" or "IRS")considers the continuity of interest requirement as satisfiedif, following the transaction, historic shareholders of thetarget corporation hold stock of the acquiring corporation (as aresult of prior ownership of target stock) representing at least50% of the value of the stock of the target corporation. 19 Note that the new COI regulations do not apply to section 368(a)(1)(D) reorganizations or section 355 transactions.

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We hold that on the facts of this case, the assets so distributed constituted a dividend and we reverse the judgment of the district court. ("TSN"), which was then named "Texas State Network, Inc.," owned over 90% of the capital stock of Community Life Insurance Company ("CLIC"), an insurance company chartered under the laws of the State of Maine.

In early 1969, negotiations began for the purchase of CLIC by Union Mutual Life Insurance Company ("Union Mutual").

On May 5, 1969, TSN and the other CLIC stockholders entered into an Agreement of Stock Purchase (the "Stock Purchase Agreement") with Union Mutual for the sale of the capital stock of CLIC to Union Mutual. 835 (1927), appeal dismissed, 27 F.2d 116 (9th Cir. The Internal Revenue Service states that it does not disagree with the holdings in Coffey, Gilmore and Rosenbloom, but it takes the position that they do not apply in the circumstances of this case.

The Stock Purchase Agreement provided that there would be no material adverse change in the business or assets of CLIC prior to the closing "except that as of closing certain shares and capital notes as provided in Section `4.(i).' above will not be a part of the assets of [CLIC]." Since the purchase price of the capital stock of CLIC under the Stock Purchase Agreement was based primarily on the book value (or, in some instances, market value) of those assets owned by CLIC on the closing date, the purchase price would be automatically reduced by the elimination of such shares and notes from the assets of CLIC. The Internal Revenue Service focuses on the receipt by the selling stockholders of CLIC of investment assets, followed immediately by an infusion by Union Mutual of a like amount of investment assets into CLIC, and says that the reinfusion of assets brings the case before the court within the "conduit rationale" of Waterman.

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Thus, some post-reorganization transactions -- namelyredemptions -- may cause a reorganization to fail the COIrequirement.

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