The IRS issued new guidance on August 26 revising its annual list of areas in which the IRS will refuse to issue taxpayer letter rulings (so-called “no-rule areas”). At the beginning of each year, the IRS publishes a list of some 125 specific areas, 12 general areas and other matters for which it will not ordinarily issue a private letter ruling (“PLR”) or determination letter to taxpayers. Among the no-rule areas are several relating to the requirements for qualifying a transaction as a tax-free spinoff under Section 355 of the Internal Revenue Code of 1986, as amended.
This welcomed announcement removes two specific issues from the no-rule area with respect to spinoff transactions:
- Whether the spinoff transaction has a corporate business purpose; and
- Whether the transaction constitutes a prohibited device for distributing earnings and profits to shareholders.
The IRS has reserved the right to not issue PLRs for questions that are inherently factual in nature, as opposed to involving legal issues. The new rule is effective for any PLR request with a post mark date or submitted after Aug.26, 2016.
Here is a link to Revenue Procedure 2016-45.