The IRS today released an advance version of Rev. Rul. 2017-09 providing guidance regarding the federal tax treatment of certain transactions referred to as “north-south” transactions. The ruling removes “north-south transactions” from the list of issues under study, meaning that the IRS is open to ruling on the integration of steps in such a transaction.
Read Rev. Rul. 2017-09 [PDF 41 KB]
Rev. Rul. 2017-09 addresses two factual situations. In Situation 1:
The second factual situation (Situation 2) considers the following:
The IRS ruled in Situation 1 that the the transfer by P to its subsidiary, D, of property (including a transfer of property constituting an active trade or business for the purpose of meeting the requirements of section 355(b)(1)(A)), immediately followed by the distribution by D to P of the stock of its controlled subsidiary, C, is treated as an exchange to which section 351 applies, followed by a distribution of C stock to which section 355 applies.
In Situation 2, the IRS concluded that section 361—and not section 301—applies to the transfer of money or other property by C to D made in pursuance of the plan of reorganization under sections 368(a)(1)(D) and 355.
The revenue ruling applies the standard that the tax treatment of a transaction generally follows a taxpayer’s chosen form unless:
In Situation 1, form is respected because each step provides for continued ownership in modified corporate form, the steps do not resemble a sale, and none of the interests is liquidated or otherwise redeemed. The nonrecognition treatment that follows form is not inconsistent with the intent of sections 351 and 355.
In Situation 2, the distribution of cash and property is integrated with the reorganization to be consistent with the intent that section 361 apply broadly to transfers in pursuance of the plan of reorganization.
© 2018 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.