(a) Sunoco has been engaged in the chemical and refining business for more than five years. Recently, Sunoco has expanded its chemical business significantly through the acquisition of other chemical companies. The chemicals produced by the acquired companies are substantially different from those produced by Sunoco's historic chemicals division. In 3-years, Sunoco may distribute 100% of the stock of its refining subsidiary to its shareholders in a pro-rata distribution. Thereafter, there is a possibility that the spun-off refining company and/or Sunoco will be acquired by a larger refining or chemical company. What are the tax consequences associated with the distribution of the refining company to the Sunoco shareholders?

b) Same as (a) except prior to the spin-off Sunoco's management is advised that X Co. would like to acquire control of the refining business but not the chemical business and Sunoco's management pursues the spin-off hoping that X Co. will follow through on its representations. What are the tax consequences?