The IRS on May 6, 2019 issued a request for information in connection with its ongoing study on whether, and to what extent, corporations may utilize the tax-free spinoff rules of Section 355 to separate established businesses from newer entrepreneurial ventures that have not collected income but have engaged in substantial research and development (R&D) and other activities. Specifically, the IRS requests information regarding the activities of these types of entrepreneurial ventures to facilitate its study. The request for information encourages the public to contact the IRS to submit written information or to schedule such a discussion with respect to these R&D ventures.
The IRS information request demonstrates that Treasury and the IRS continue to study the emergence of these entrepreneurial ventures, particularly in the pharmaceutical and technology sectors, and the impact that such ventures have with respect to tax-free spinoffs. The ongoing study may lead to guidance permitting certain entrepreneurial ventures, in the absence of revenue, to satisfy the ATOB requirement.
Taxpayers contemplating separations of businesses that have not yet generated any income but that have engaged in entrepreneurial activities may wish to submit written information or to schedule a discussion with respect to these R&D ventures to assist the IRS in its study.
National Tax Services and Mergers & Acquisitions Tax Leader, PwC US