The IRS today released an advance version of Rev. Proc. 2016-45 that removes two items relating to distributions of stock of controlled corporations under section 355 from the “no-rule areas” (areas on which the IRS will not issue letter rulings or determination letters).
Rev. Proc. 2016-45 [PDF 33 KB] states that the two areas that are no longer “no-rule areas” are significant legal issues relating to:
For many years, the IRS ruling procedures have precluded the issuance of a letter ruling or determination letter as to whether a distribution of stock of a controlled corporation satisfies the corporate business purpose requirement or whether it is used principally as a device.
Today’s revenue procedure states that the IRS has determined there are unresolved legal issues pertaining to the corporate business purpose requirement and to device measure that can be germane to determining the tax consequences of a distribution. The IRS thus determined that it is appropriate and in the interest of sound tax administration to provide guidance to taxpayers on significant issues in these two areas.
Rev. Proc. 2016-45 explains that the IRS will issue a letter ruling with respect to a significant issue under Reg. section 1.355-2(b) pertaining to the corporate business purpose requirement, and a significant issue under section 355(a)(1)(B) and Reg. section 1.355-2(d) pertaining to device—provided that the issue is a legal issue and is not inherently factual in nature.
Still, as with other requests for letter rulings, the IRS can decline to issue a letter ruling addressing these significant issues when appropriate in the interest of sound tax administration or on other grounds when warranted by the facts or circumstances of a particular case.
Rev. Proc. 2016-45 applies to all ruling requests that are postmarked or, if not mailed, received on or after August 26, 2016, and relate to distributions that occur after August 26, 2016.
© 2017 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.