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IRS No-Ruling Policy on Spin-Offs and Reorganizations May Be Changing

Ocean tide photoIn 2013, the Internal Revenue Service (“IRS”) announced that it would not issue Private Letter Rulings on “spin-off” transactions intended to qualify as tax-free under IRS § 355. As a result of the IRS no-ruling position, taxpayers have not been able to obtain certainty relative to the tax consequences of these types of transactions. Rather, the best they can do is obtain some comfort through an opinion of their tax advisors. The cost of tax opinions, however, can be significant.

There may be good news coming down the pike. The IRS is considering changing its no-ruling position relative to certain “spin-off” transactions. We are told that these transactions will be limited to spin-offs of trades or businesses that are “small” in comparison to the assets retained by the corporate taxpayer. What is “small” will no doubt be the subject of debate.

Presumably, the government will attempt to carefully define “small” for this purpose. The fact that the Service is considering some movement on this front is a positive development. A representative of the IRS announced on May 19, 2015 at a D.C. Bar Association meeting that he anticipates the IRS will issue guidance on this very issue within the next few months. Keep an eye out for this announcement!

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Larry J. Brant

Larry J. Brant is a Shareholder and the Chair of the Tax & Benefits practice group at Foster Garvey, a law firm based out of the Pacific Northwest, with offices in Seattle, Washington; Portland, Oregon; Washington, D.C.; New York, New York, Spokane, Washington; Tulsa, Oklahoma; and Beijing, China. Mr. Brant is licensed to practice in Oregon and Washington. His practice focuses on tax, tax controversy and transactions. Mr. Brant is a past Chair of the Oregon State Bar Taxation Section. He was the long-term Chair of the Oregon Tax Institute, and is currently a member of the Board of Directors of the Portland Tax Forum. Mr. Brant has served as an adjunct professor, teaching corporate taxation, at Northwestern School of Law, Lewis and Clark College. He is an Expert Contributor to Thomson Reuters Checkpoint Catalyst. Mr. Brant is a Fellow in the American College of Tax Counsel. He publishes articles on numerous income tax issues, including Taxation of S Corporations, Reasonable Compensation, Circular 230, Worker Classification, IRC § 1031 Exchanges, Choice of Entity, Entity Tax Classification, and State and Local Taxation. Mr. Brant is a frequent lecturer at local, regional and national tax and business conferences for CPAs and attorneys. He was the 2015 Recipient of the Oregon State Bar Tax Section Award of Merit.

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