IRS issues step transaction guidance on 'north-south' transactions

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The IRS issued Rev. Rul. 2017-9 addressing (i) the treatment of shareholder contributions to a distributing corporation in connection with a Section 355 distribution, and (ii) distributions made to a distributing corporation by the controlled corporation in connection with a divisive reorganization under Sections 368(a)(1)(D) and 355. In so doing, the IRS provides an approach to evaluate whether the form or the substance of transactions undertaken as part of a plan should determine the tax consequences. In addition, the IRS deleted Section 5.02 of Rev. Proc. 2017-3 which provided that the IRS would not rule on so-called ‘north-south’ transactions. Thus, the IRS is now willing to issue rulings on such transactions in limited circumstances.

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Julie Allen

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

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