The Internal Revenue Service and the US Department of the Treasury recently released proposed regulations and a revenue procedure, which provide guidance on certain requirements for tax-free distributions under Section 355 of the Internal Revenue Code. The proposed regulations (REG-134016-15) released on July 14, 2016 clarify the application of the device prohibition and the active trade or business requirement of Section 355. Rev. Proc. 2016-40, released on July 15, 2016, provides two safe harbors indicating when the control requirement under Section 355(a)(1)(A) will be deemed satisfied. Both items are intended to provide clarification on the requirements of Section 355 and address concerns the IRS has previously identified.
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