A Peek Behind the Curtain: IRS Musings on Spinoff Ruling Procedures

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Speaking at several tax conferences this month, several senior IRS officials, including the Associate Chief Counsel, Corporate, discussed the nuances of the device requirement for spinoffs and signaled a willingness to relax its debt exchange representations required for spinoff private letter rulings. In particular, they discussed how the device factor can apply differently to cross-border transactions compared to equivalent domestic transactions due to Section 367. They offered little hope for an exception to device for section 367(a) gain, even when the hallmark of device, cash ending up in shareholder hands, is not present. Official IRS guidance on device may be forthcoming in the prioritized final device regulations, which are eagerly anticipated due to the breadth of the 2016 proposed device regulations and new policy considerations raised by the 2017 Tax Act. More helpfully, IRS officials also indicated a willingness to relax the representation that Distributing will "purge" the Section 361 consideration received from Controlled within 180 days of the spinoff to a period between 6 and 18 months. Similarly, IRS officials conceded that current representations regarding borrowing by Distributing after the spinoff may be overbroad and could be replaced with narrower representations designed to prevent only abusive debt exchanges.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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