Under Code section 409(e), voting rights must be passed thru to participants with respect to a sale of "substantially all assets of a trade or business". What constitutes "substantially all"? Is it 85% of the assets? What if corporation has four divisions; each division makes up 25% of corporation's assets. Corporation sells entire business of one division. Is this the sale of "substantially all of the assets of a trade or business" of the corporation?

Hi John Nelson ---

Presumably, you're referring to IRC section 409(e)(3), which is applicable to closely-held companies.

"Substantially all" could mean 80%, 85% or 90%....no regs under section 409(e)(3) yet [but, of course, it's only been about 16 years since that language was put into 409(e)(3)....can we expect IRS to do regs so quickly?].

But sale of a division constituting 25% of assets may very well require voting pass-through if it constitutes a separate trade or business of the corporation (again, no regs)....but ONLY IF applicable corporate law (or the corporate charter or bylaws) requires a shareholder vote to approve such a sale.

This same issue arose under Section 401(k), relating to when there could be a distributable event. I seem to recall that the regulations provide that, in that particular context, 85% constitutes "substantially all" of the assets.