The IRS announced that it is taking the relatively rare step of suspending two prior revenue rulings in Revenue Ruling 2019-09.  The ruling being suspended are Revenue Rulings 57-464 and 57-492 which relate to the active trade or business requirement of IRC §355.

Internal Revenue Manual Section 32.2.2.8 (08-11-2004) defines what suspended status is for a Revenue Ruling:

9. Suspended is used only in rare situations to show that previously published guidance will not be applied pending some future action, such as the issuance of new or amended regulations, the outcome of cases in litigation, or the outcome of a Service study.

Thus, suspension is not a revocation of the rulings.  Presumably this leaves the door open for the IRS to determine that one or both rulings will be put back in force unchanged at the end of the study.  But, more likely, the agency doesn’t want to imply that both of the situations describe cases where it will be held there clearly is an active trade or business once the study is complete.

The IRS announced a pilot program where it would accept private letter ruling requests on general federal tax consequences of transactions that aimed to be tax free distributions of corporate stock.  The transactions would be ones intended to qualify under IRC §§368(a)(1)(D) (“D” reorganizations) and 355.

The program, described in Rev. Proc. 2017-52, will run for 18 months after which the IRS will evaluate the program and whether it makes sense to terminate it, extend it or expand it.

Image copyright icetray / 123RF Stock Photo

In Rev. Rul. 2017-9 the IRS ruled on two different transactions involving three related corporations, one of which gives the IRS position on “North-South” spinoff transactions that the IRS had placed on its no rule list in 2013.  

The first situation, and the one which proves to be the most taxpayer friendly, involved three related corporations involved in a North-South spinoff.  P, the parent corporation, owns 100% of D, what will eventually be the distributing corporation in this arrangement.  D owns 100% of C, a corporation whose stock the taxpayer wishes to transfer upstream to P.

Image copyright longquattro / 123RF Stock Photo

The IRS issued a revenue procedure (Revenue Procedure 2016-40) that provides for two safe harbors for transactions of a corporation meant to result in a tax free spin-off pursuant to IRC §355.

Specifically the ruling provides that if one of the safe harbors is met, the IRS will not challenge whether a distributing corporation’s acquisition of control of a subsidiary through issuance of additional stock by the subsidiary lacked substance when there is a post distribution transaction by the formerly controlled corporation that restores the shareholders to their effective interests before the issuance of that stock.