The IRS today released an advance version of Rev. Proc. 2016-40 that provides fact patterns (safe harbors) in which the IRS will not assert that a distributing corporation lacks control of another corporation within the meaning of section 355(a)(1)(A), even though the corporations engage in a transaction described in the revenue procedure.
Rev. Proc. 2016-40 [PDF 26 KB] explains that the IRS and Treasury Department recognize that determining whether an acquisition of control has substance for federal tax purposes can be difficult and fact-intensive. The IRS has been concerned that, in some instances, taxpayers may not be able to determine whether such an acquisition has substance with sufficient certainty to proceed with transactions that otherwise satisfy the requirements of section 355. To resolve this uncertainty, Rev. Proc. 2016-40 describes transactions in which the IRS will not assert that an acquisition of control lacks substance.
Rev. Proc. 2016-40 applies to transactions in which—
Rev. Proc. 2016-40 provides the IRS will not assert that a transaction lacks substance, and that D lacked control of C immediately before the distribution, within the meaning of section 355(a)(1)(A), if the transaction is also described under one of these safe harbors (which are described in the revenue procedure):
Rev. Proc. 2016-40 is effective with respect to distributions that occur on or after August 1, 2016. However, taxpayers may apply this revenue procedure with respect to a distribution that occurs before August 1, 2016.
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