IRS to rule on tax-free stock distributions

Taxpayers will be able to request letter rulings from the IRS on transactions intended to qualify as tax-free stock distributions, under a pilot program the Service announced Thursday (Rev. Proc. 2017-52).

In 2013, the IRS stopped accepting letter ruling requests on various corporate transactions, including the tax consequences of a distribution of stock, or stock and securities, of a controlled corporation under Sec. 355. Instead, the IRS would only rule on significant issues raised by such transactions. Now the IRS has decided to introduce an 18-month pilot program under which it will issue letter rulings on the general federal income tax consequences of these transactions. The transactions covered by the guidance are transactions intended to qualify as tax-free under Secs. 368(a)(1) and 355 and distributions intended to qualify under Secs. 355(a) and (c), including spinoffs, split-offs, and split-ups.

Thursday’s guidance also provides procedures for taxpayers to use when requesting these rulings and clarifies the procedures for requesting rulings on significant tax issues raised by these transactions.

The revenue procedure does not affect the IRS’s policy limiting rulings on the device prohibition under Sec. 355(a)(1)(B) and Regs. Sec. 1.355- 2(d), the business purpose requirement under Regs. Sec. 1.355-2(b), and whether a distribution is pursuant to a plan under Sec. 355(e).

The new policy applies to letter ruling requests postmarked or (if not mailed) received by the IRS after Sept. 21, 2017. Taxpayers with pending letter ruling requests may convert them to a request qualifying under Rev. Proc. 2017-52 by following procedures in the guidance, but they must do so on or before Nov. 20, 2017.

The pilot program will expire on March 21, 2019. The IRS says it will then consider whether to extend the program, based on its assessment of the program’s effectiveness and sustainability.

—Alistair Nevius (Alistair.Nevius@aicpa-cima.com) is The Tax Adviser’s editor-in-chief.