In Revenue Procedure 2017-52 (published September 21, 2017), the IRS introduced a pilot program that significantly expands the scope of the Service's private letter ruling (PLR) policy under Section 355.

Under Revenue Procedure 2017-52, a taxpayer may request a ruling that addresses the general federal income tax consequences of a transaction intended to qualify under Section 355. The new guidance provides procedures for requesting such rulings and clarifies previously published procedures for requesting rulings on significant issues in spin-off transactions.

Thus, it is expected that a taxpayer may obtain a PLR that rules a distribution of stock of a controlled subsidiary qualifies under Section 355, along with rulings regarding the collateral consequences of the transaction, subject to certain caveats. This approach is similar to the approach the Service generally applied in issuing Section 355 PLRs between 2003 and 2013 under prior Revenue Procedure 2003-48. Under the new regime, however, taxpayers may continue to request that the Service only rule on one or more "significant issues" presented by the transaction.

The new procedure only applies to Section 355 spin-offs (or "Covered Transactions"). Most other corporate non-recognition transactions are only eligible for significant-issue PLRs.

Revenue Procedure 2017-52 applies to all ruling requests postmarked or, if not mailed, received by the Service after September 21, 2017.

Overview of Revenue Procedure 2017-52

As noted, Revenue Procedure 2017-52 establishes an 18-month pilot program under which the Service may issue a "Transactional Ruling" addressing the general federal income tax consequences of a spin-off. A Transactional Ruling may include the tax consequences under Sections 312, 355, 357, 358, 361, 362(b), 362(e), 368(a)(1)(D), 368(b), 1032(a), 1223(1) and 1223(2), and the relevant consolidated return regulations.

Revenue Procedure 2017-52 does not alter the Service's no-rule policy limiting the extent to which rulings may be issued on inherently factual questions under the device prohibition of Section 355(a)(1)(B) and the business purpose requirement of Reg. Section 1.355-2(b), and whether a distribution is pursuant to a plan under Section 355(e).

A taxpayer requesting a Transactional Ruling must follow the standard procedures in Revenue Procedure 2017-1 for letter ruling requests. In addition, Revenue Procedure 2017-52 describes the factual information and legal analysis that should be included in a request for a Transaction Ruling under Section 355. Notably, the revenue procedure provides a list of standard representations similar to those generally found in Section 355 PLRs under Revenue Procedure 2003-48, modified to reflect changes in the Service's ruling positions. The ruling request must include a statement providing that, except as otherwise set forth in the submission, the taxpayer makes all such representations. If any of the representations do not apply, or if the taxpayer cannot make a particular representation, the taxpayer must explain why the representation does not apply or why the taxpayer is unable to make the representation. In the latter case, the taxpayer must explain why the requested ruling may nevertheless be granted.

Other notable provisions in the revenue procedure include:

— A number of new information requirements regarding the active businesses

— A requirement that a request for a Transactional Ruling must describe any losses that will be recognized either in the Covered Transaction itself or in any related transaction

— A standard representation, in the case of an intra-group spin-off, that the spin-off will not result in a step-up in the basis of the controlled corporation stock (see Section 358(g))

Revenue Procedure 2017-52 provides that it has no effect on the current list of areas under the jurisdiction of the Associate Chief Counsel (International) relating to matters on which the Service will not issue letter rulings.

If a taxpayer has already submitted a request for a significant issue ruling that was postmarked or received by the Service by September 21, 2017, the taxpayer may convert the pending request to a request for a Transactional Ruling by submitting the information that Revenue Procedure 2017-52 requires to the Service by November 20, 2017.

The pilot program will expire on March 21, 2019, at which time the Service will evaluate its effectiveness and sustainability and consider whether the program should be extended.

Observations

Revenue Procedure 2017-52 is the latest in a string of administrative guidance published by the Service addressing letter ruling policy under Section 355. Whether it is advisable to pursue a full Transactional Ruling under Section 355, or a ruling on a particular Section 355 issue, or to proceed without a ruling at all will depend on the taxpayer's specific circumstances, including the substantive issues involved. In any case, Revenue Procedure 2017-52 could turn out to be a welcome development for taxpayers that require greater certainty.

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