In the 1990s, Treasury issued proposed regulations under Regulation Section 1.337(d)-3 commonly known as the “May Company” regulations.  These proposed regulations dealt with situations in which a partnership owned stock of a corporate partner, and were designed to shut down transactions where corporations used partnerships to avoid section 311(b).  Section 311(b) requires a corporation to recognize any built-in gain in property that it distributes to its shareholders.  Unfortunately, the proposed regulations were confusing and overly broad.

This week, a Treasury official stated that new May Company regulations are expected to be released soon, and that the focus under the new proposed regulations will be much narrower.  The focus will now be on transactions that would result in a corporate contractions.