IRS announces ruling position on treatment of debt in a spinoff

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October 2018

Overview

The IRS on October 3 issued Revenue Procedure 2018-53, detailing its ruling position to taxpayers seeking private letter rulings (PLRs) for transactions that include the assumption or the satisfaction and retirement of certain debt of a distributing corporation as part of a reorganization under Sections 355 and 368. The revenue procedure includes information and analysis that a taxpayer depending on the facts must submit as well as a set of new representations that the taxpayer must provide (supplementing and replacing in some cases information and representations required by Rev. Proc. 2017-52) when requesting a PLR.

The takeaway

Rev. Proc. 2018-53 is long-awaited guidance for both taxpayers and practitioners. It provides more clarity to taxpayers seeking letter rulings on leveraged spinoff transactions subject to the revenue procedure, and it attempts to resolve a host of issues that have long concerned the IRS. However, the representation and information requirements may prove burdensome for taxpayers in certain transactions. In particular, the 30-day period and the 180-day period in Representation 6 seem particularly rigid given that in some transactions, standard business practices may require a longer time frame. In such cases, the burden will be on the taxpayer to prove why the delay is required.

Taxpayers considering such transactions to which Rev. Proc. 2018-53 applies (or planning such a transaction and not seeking a ruling) should review this revenue procedure carefully and consider all options before executing a Divisive Reorganization with a plan for Controlled to assume a Distributing liability or for Distributing to satisfy its outstanding debt with consideration received from Controlled.

Contact us

Julie Allen

National Tax Services Market Leader and Mergers and Acquisitions Tax Leader, PwC US

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