3) According to §355(a)(1)(c), both the distributing corporation and the controlled corporation must be engaged immediately after the distribution in an actively conducted trade or business which has been so conducted throughout the five-year period ending on the date of the distribution. That business must also not have been acquired within the five-year predistribution period in a taxable transaction.
The §355(a)(1)(c) regulation specifies that both the distributing and controlled corporations must be actively engaged in an ongoing trade or business immediately after the distribution, which has been active for the past five years leading up to the date of the distribution. This business cannot have been acquired through a taxable transaction within the previous five years.