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IRS announces pilot program for spin-off rulings

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IRS announces pilot program for spin-off rulings The IRS issued Rev. Proc. 2017-52, announcing its pilot program to accept letter ruling requests for transactions intended to qualify as tax-free distributions under Section 355.

Section 355 provides that, if certain requirements are met, a corporation may distribute stock, or stock and securities, of a controlled corporation tax-free to its shareholders and security holders. Section 355(a) provides for tax-free treatment to the distributee and Section 355(c) provides for tax-free treatment to the distributing corporation.

In Rev. Proc. 2013-32, the IRS announced that it would no longer rule on the general tax consequences of such distributions intended to qualify under Section 355, except that it would rule on an issue to the extent that such issue was a “significant issue.” A significant issue was defined to be an issue of law, for which: (i) the resolution is not essentially free from doubt; and (ii) is germane to determining the tax consequences of the transaction.

Under Rev. Proc. 2017-52, a taxpayer may request a ruling that addresses the general federal income tax consequences of distributions intended to qualify under Section 355. A taxpayer requesting a ruling under the pilot program in Rev. Proc. 2017-52 must follow the appropriate procedures and submit documentation, factual information, legal analysis and representations as described in the revenue procedure.

If a taxpayer requests a general “transactional ruling” under the Rev. Proc. 2017-52, and the plan includes more than one distribution intended to qualify under Section 355, the taxpayer may request a transactional ruling, a significant issue ruling or no ruling with respect to each of the other distributions.

The pilot program in Rev. Proc. 2017-52 will expire on March 21, 2019. At such time, the IRS will evaluate the effectiveness and sustainability of the program and consider whether it should be extended.

Contact Andy Cordonnier
Partner, Washington National Tax Office
T +1 202 521 1502

Jeff Borghino
Partner, Washington National Tax Office
T +1 202 521 1532

Bryan Keith
Managing Director, Washington National Tax Office
T +1 202 861 4116

Greg Fairbanks
Managing Director, Washington National Tax Office
T +1 202 521 1503


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