2017-52, which began an 18-month pilot program to expand the IRS ruling policy on Section 355 to once again include Transactional Rulings. On September 21, 2017, the IRS issued Rev. 2016-45, in which the IRS announced it would provide Significant Issue Rulings on the device prohibition and corporate business purpose requirements, which were previously “no-rule” areas under Rev. This policy was partially reversed by Rev. 2013-32, announcing that it would no longer issue rulings on whether a transaction qualified as tax-free under Section 355 (Transactional Rulings), and that it would merely rule on “significant issues,” i.e., specific issues of law (Significant Issue Rulings). The IRS further narrowed its ruling policy when it issued Rev. 2003-48, the IRS scaled back its ruling practice by explicitly declining to rule on certain aspects of Section 355 qualification, including the device prohibition, corporate business purpose requirement, and whether a distribution is pursuant to a plan that would trigger corporate-level tax under Section 355(e). The IRS has issued a significant amount of letter rulings on the federal income tax consequences of Section 355 transactions. Given the potentially substantial difference in tax treatment, coupled with the fact-based nuances in the rules, taxpayers have historically sought rulings from the IRS as to whether a transaction may qualify as tax-free under Section 355. Moreover, even when the requirements of Section 355 appear to be met, a subsequent acquisition of either Distributing or Controlled may cause disqualification or, at a minimum, a corporate-level tax. Alternative transactions with a good business purpose also need to be considered, if they could accomplish the same objective as a Section 355 transaction. In addition, the transaction cannot be “used principally as a device” to distribute the earnings and profits (E&P) of Distributing, Controlled, or both. The requirements include examining the history and makeup of both the corporation making the stock distribution (Distributing) and the corporation whose stock is distributed (Controlled), as well as the business purpose(s) for undertaking the distribution. These requirements are very complex and entail an in-depth analysis in application. To qualify as tax-free, the transaction must meet the statutory requirements under Section 355 as well as certain judicial requirements, including a good corporate business purpose, continuity of shareholder interests, and continuity of at least two active trades or businesses that have been conducted for at least five years and that were not acquired in a taxable manner during those five years. A spinoff of stock in a corporation may take the form of a distribution, redemption, or liquidation. Section 355 provides a limited exception to the general rule that a distribution of appreciated property from a corporation is taxed at both the corporate and shareholder levels.
#IRC 355 CODE#
The pilot program has been significant for taxpayers seeking greater certainty on the tax consequences of Internal Revenue Code Section 355 transactions, as the program presents an expansion of the IRS’s willingness to rule on spinoffs other than for certain “significant issues.” A senior IRS attorney indicated at a recent District of Columbia Bar event that the IRS plans to continue this program beyond the slated expiration date, though he could not confirm when the IRS would release guidance to renew the program.ĭetails Background: Section 355 and IRS Ruling Policy On Spinoffs 2017-52, whereby the Internal Revenue Service (IRS) resumed ruling on the general tax consequences of tax-free spinoffs under Section 355, is scheduled to end on March 21, 2019. The 18-month pilot program created by Rev. The BDO Center for Healthcare Excellence & Innovation is devoted to helping healthcare organizations thrive, clinically, financially, and digitally. The BDO Center for Healthcare Excellence & Innovation BDO is continuously finding new ways to help your organization thrive. When it comes to business, innovation is changing everything. Stay abreast of legislative change, learn about emerging issues, and turn insight into action. The insights and advice you need, everywhere you do business. Innovative solutions to nonprofit organizations, helping clients position their organizations to navigate the industry in an intensely competitive environment. Learn how we are encouraging diverse voices, empowering our people and taking action to effect change.īDO is here to help your business – and you – persevere through crises, prepare for recovery, and once again thrive.īDO Center for Corporate Governance and Financial Reportingĭynamic resources for board of directors and financial executives.