You will rely on section 355 for nonrecognition, but here you also must rely on section 332 to make the liquidations tax free, without any liquidation-reincorporation problem. It's very clear that you can get the results you want, but not clear why.
LTR 201123022 describes these facts, in simplified form:
Delaware Court Addresses Important Revlon Duties in Cash/Stock Mergers
In Geltzer v. Mooney (In re MacMenamin’s Grill, Ltd.), Adv. Pro. No. 09-8266 (Bankr. S.D.N.Y. April 21, 2011), the United States Bankruptcy Court for the Southern District of New York held that the safe harbor in section 546(e) of the Bankruptcy Code does not apply to a small, private leveraged buyout (LBO) transaction that posed no systemic risk to the stability of the financial markets.
The taxpayer was able to convince the court that the creditors who got the stock in the reorganization were not the prior owners. Because the events occurred in 1992, under a prior version of the continuity of proprietary interest rules, continuity of ownership was broken and a section 338(h)(10) election could be made and the basis in the assets inside the corporation stepped up to fair market value, with no tax liability because the seller was in bankruptcy with large net operating losses (NOLs).
On February 11, 2011, in a decision that represents a significant victory for institutional lenders and other proponents of capital market financing, Judge Alan S. Gold of the United States District Court for the Southern District of Florida (the District Court) issued a 113 page opinion overturning a $480 million fraudulent transfer judgment entered by the United States Bankruptcy Court for the Southern District of Florida (the Bankruptcy Court) against the so-called “Transeastern Lenders” in the TOUSA, Inc. (TOUSA) chapter 11 bankruptcy cases.i
On Friday, the Florida Office of Financial Regulation closed First Bank of Jacksonville, headquartered in Jacksonville, Florida, and appointed the FDIC as receiver.
On Friday, the Office of the Comptroller of the Currency closed The First National Bank of Barnesville, headquartered in Barnesville, Georgia, and appointed the FDIC as receiver.
On Friday, the Florida Office of Financial Regulation closed Progress Bank of Florida, headquartered in Tampa, Florida, and appointed the FDIC as receiver.
On Friday, the Georgia Department of Banking and Finance closed The Gordon Bank, headquartered in Gordon, Georgia, and appointed the FDIC as receiver.
On Friday, the Office of the Comptroller of the Currency closed First Suburban National Bank, headquartered in Maywood, Illinois, and appointed the FDIC as receiver.