IRS Sets Up 18 Month Pilot Program for Issuing Certain Ruling Requests on Tax Free Distributions of Stock

The IRS announced a pilot program where it would accept private letter ruling requests on general federal tax consequences of transactions that aimed to be tax free distributions of corporate stock.  The transactions would be ones intended to qualify under IRC §§368(a)(1)(D) (“D” reorganizations) and 355.

The program, described in Rev. Proc. 2017-52, will run for 18 months after which the IRS will evaluate the program and whether it makes sense to terminate it, extend it or expand it.

The IRS had greatly reduced the rulings it would issue for such transactions in Rev. Proc. 2013-32, accepting ruling requests only for significant issues related to such transactions.  That ruling held that “a significant issue is an issue of law the resolution of which is not essentially free from doubt and that is germane to determining the tax consequences of the transaction.” [Rev. Rul. 2013-32, Section 4.02(3)]

The new ruling expands the topics outside of the “significant issue” arena to include certain other items.  To be covered by this ruling, the transaction must be a “Covered Transaction” which is defined as “(i) a transaction intended to qualify under §§ 368(a)(1)(D) and 355 or (ii) a distribution that is intended to qualify under §§ 355(a) and 355(c).” [Rev. Rul. 2017-52, Section 2.03(1)(a)]

The IRS will issue “Transactional Rulings” related to specific provisions of the law.  The procedure defines a “Transactional Ruling” as “a letter ruling that addresses the general federal income tax consequences of a Covered Transaction.”

The procedure goes on to describe areas the IRS will rule in this area as:

A Transactional Ruling may include the tax consequences of a Covered Transaction under §§ 312, 355, 357, 358, 361, 362(b), 362(e), 368(a)(1)(D), 368(b), 1032(a), 1223(1) and 1223(2), and relevant consolidated return regulations. The Service may decline to rule on tax consequences under any provision of the Code or the regulations or may include rulings under provisions other than those listed above.

The ruling does not change areas where the IRS has explicitly provided a “no ruling” policy.  As the procedure notes:

This revenue procedure does not alter the Service’s policy that limits rulings on the device prohibition under § 355(a)(1)(B) and § 1.355-2(d), the business purpose requirement under § 1.355-2(b), and whether a distribution is pursuant to a plan under § 355(e). See section 3.01(54) of Rev. Proc. 2017-3, as modified by section 5.07 of this revenue procedure, and sections 3.03(6), 3.03(7), and 3.03(16) of this revenue procedure. More generally, see Rev. Proc. 2017-3 for other no-rule areas under § 355.

The procedure describes details of the process a taxpayer who wishes to request such a ruling must use.