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IRS supplements prior spinoff ruling following taxpayer delay

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Tax Hot TopicsIn a private letter ruling (PLR 201505013), the IRS supplemented its previous ruling in PLR 201437013 and addressed issues related to a delay in the expected consummation of a spinoff. In the facts of the original ruling, the controlled corporation (Controlled) undertook a public offering of a portion of its shares. After the offering, the distributing corporation (Distributing) retained ownership of enough stock in Controlled to constitute “control” and to enable Distributing to engage in a tax-free spinoff of Controlled.

In relevant facts to the supplemental ruling, Distributing’s plan to distribute its stock of Controlled was delayed. It appears that the request for the supplemental ruling occurred in part because the anticipated exercise of certain stock options of Controlled would cause Distributing’s interest in Controlled to drop below the 80% threshold necessary to maintain “control” for the anticipated spinoff. To resolve this problem, Distributing acquired additional shares of Controlled stock on the public market and directly from Controlled.

The supplemental PLR contemplated that Distributing would still distribute enough shares of Controlled to constitute “control” and that such shares would consist of both the older Controlled shares already held by Distributing and certain newly acquired Controlled shares. The newly acquired Controlled shares would be distributed as soon as the SEC Rule 144 transfer restrictions on such shares expired. The IRS confirmed in its supplemental ruling that Distributing’s proposed transactions would not alter the conclusions in the original ruling regarding the proposed spinoff.

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Andy Cordonnier
T +1 202 521 1502
E andy.cordonnier@us.gt.com

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