On March 21, the IRS released Rev. Rul. 2019-09, suspending two 1957 revenue rulings that address the active trade or business requirement under Section 355. The IRS analysis underlying the suspended rulings focused, in significant part, on the lack of income generated by the activities under consideration.
The Treasury and IRS study may lead to guidance permitting entrepreneurial ventures, in the absence of revenue, to satisfy the trade or business component of the ATOB Requirement. Currently, Rev. Rul. 2019-09 formalizes the IRS's prior announcement on September 25, 2018 that, due to a significant rise in entrepreneurial ventures, Treasury and the IRS are considering guidance to address whether entrepreneurial ventures can satisfy the ATOB Requirement. Taxpayers contemplating separations of businesses that have not yet generated any income but have engaged in entrepreneurial activities should either seek a private letter ruling from the IRS on this issue or await further guidance from Treasury and the IRS.
National Tax Services Market Leader and Mergers and Acquisitions Tax Leader, PwC US