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.
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