IRS announces ruling position on treatment of debt in a spinoff

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October 2018


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.

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Julie Allen

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

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