IRS Corporate Spinoff Guidance May Address More Deals

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Oct. 22 — Internal Revenue Service guidance on corporate spinoffs may address transactions in other “no-rule” areas beyond those outlined in Notice 2015-59, a top agency official said.

IRS Associate Chief Counsel (Corporate) Robert H. Wellen said it is possible the guidance may address other types of transactions on which the agency has said it won't offer individual rulings—beyond the spinoff deals outlined in the September notice.

“We're hoping the guidance will allow us to re-enter the field” on other no-rule areas, Wellen said Oct. 22 at a tax conference in New York sponsored by the Practising Law Institute.

The IRS official spoke on a panel where he said the agency has had to scale back the ruling process due to increasingly limited resources. However, he told Bloomberg BNA after his public remarks that Notice 2015-59 spelled out no-rule areas because of “substantive concerns” about the deals, not because of resource constraints.

Increasingly Tough

The IRS said in Notice 2015-59 that it is studying issues related to tax-free spinoffs where the active trade or business is relatively small or the amount of investment assets is large, and for real estate investment trusts and regulated investment companies (178 DTR G-3, 9/15/15).

Wellen said during the panel that the IRS is doing its best to respond to taxpayer concerns and communications, but in terms of issuing private letter rulings, increasingly “we just don't have the horsepower, we just don't have the capacity. Sometimes we tell the taxpayer we just can't help them.”

Guidance, audits and litigation have taken a front seat due to resource considerations, he said, but the agency still values input from practitioners on issues that need to be addressed and is trying to be transparent as its work goes forward.

He said the complex webs of transactions that form many new corporate deals continue to be a challenge to address. “My feeling is that with these 40-step transactions, just figuring out what's happening is a big undertaking.”

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