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IRS Issues Statement Regarding Private Letter Rulings on Certain Corporate Transactions

Client Updates

On October 13, 2017, the Internal Revenue Service (“IRS”) issued a statement to inform taxpayers and their advisers of changes relating to requests for private letter rulings on certain corporate transactions (the “Statement”). According to the Statement, the IRS is reconsidering its views regarding certain issues as to which it has provided favorable rulings in the past. The IRS is studying these issues and may issue new guidance.

In addition, the Statement provides certain guidelines for the processing of ruling requests pending the outcome of this study, including the following:

  • In connection with a worthless stock loss, the IRS will no longer rule on whether the character of gross receipts received by a consolidated group member in an intercompany transaction may be redetermined by reference to the character of the source funds possessed by the counterparty to the intercompany transaction.
  • The IRS will increase its scrutiny and analysis of substantially delayed distributions in connection with a Section 355 distribution.
  • The IRS will increase its scrutiny and analysis of “drop-spin-liquidate” and similar transactions (e.g., where a corporation distributes the stock of a subsidiary in a transaction potentially subject to Section 355, and the distributing corporation or the subsidiary liquidates into a corporate parent). However, the IRS will continue to rule in accordance with prior practice on such transactions under certain circumstances.
  • The IRS will increase its scrutiny and analysis of potential reorganizations that result in transfers of a portion of a subsidiary’s assets to its corporate shareholder, if the transfer does not qualify under section 332 or section 355 but is intended to be tax-free.

The Statement indicates that private letter rulings issued previously on these matters are not affected.


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