University of Miami Business Law Review

Document Type



Section 355 of the Internal Revenue Code allows corporations to “spin-off” parent-controlled businesses tax-free. Traditionally an important tool for divestitures and restructurings with U.S. tax consequences, recent trends suggest section 355 is also of interest to firms facing US antitrust consequences. Statements and maneuvering by some such companies indicate firms are considering spinning-off businesses to avert liability and ‘break up’ on their own terms. Despite widespread renewed interest in using antitrust laws to break up large corporations, the antitrust implications of corporate spin-offs have thus far escaped scholarly notice and scrutiny.

This Note posits that it is a mistake to treat corporate spin-offs as the de facto corollary to government-supervised structural separations. Tax-free spin-offs are not the self-mediated equivalent to structural remedies for at least three reasons: (1) section 355 allows dominant firms to engineer future market conditions and concentrate power in ways government-supervised separations simply do not; (2) parent companies may spin-off fictitious competitors to artificially inflate competition and deflate power in a given market; and (3) the parent-controlled process invites parent firms to structure progeny firms in patently self-serving ways. The harm continues because the parent company never redistributes monopoly power. Section 355’s authorization of voluntary tax-free spin-offs without regard to anticompetitive effect is in tension with antitrust policy. Yet, no legal mechanisms currently exist to stop or prevent firms from using spin-offs to evade antitrust liability.

In response, this Note proposes a doctrinal shift in the way antitrust courts and plaintiffs approach section 355 spin-offs, beginning with the proper test for market power and anticompetitive effect. As to prevention, regulators should adopt strategies to understand, detect, and stop anticompetitive spin-offs. Legislation is needed to align section 355 with the goals for competitive markets. Nonetheless, the path forward must distinguish between anticompetitive spin-offs and competition on the merits.