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May 10, 2024

Treasury and the IRS provide updated procedures for private letter ruling requests on spin-offs, indicate potential for substantive guidance

  • The new procedures add and replace certain representations taxpayers are required to make in connection with IRC Section 355 ruling requests and significantly increase the information and analysis taxpayers must submit.
  • The guidance demonstrates an official shift from prior IRS ruling policy on common issues in spin-offs, which may be transformed into substantive guidance.

The IRS has updated procedures (Revenue Procedure 2024-24) for taxpayers requesting a private letter ruling on an IRC Section 355 transaction (an IRC Section 355 PLR), including the representations, information, documentation, and analysis to be submitted with those requests. The updated procedures are applicable to ruling requests received by the IRS after May 31, 2024. Additionally, Revenue Procedure 2024-24 is accompanied by Notice 2024-38, which describes Treasury and the IRS's views and concerns relating to the matters addressed in Revenue Procedure 2024-24 and requests feedback by July 30, 2024. The Notice indicates that Treasury and the IRS are continuing to study the matters for purposes of developing potential published guidance.


Revenue Procedure 2017-52 sets forth the IRS's general procedures for taxpayers requesting an IRC Section 355 PLR. Among other things, a taxpayer engaging in an IRC Section 368(a)(1)(D) reorganization to which IRC Section 355 applies (a Divisive Reorganization) may request rulings that no gain or loss will be recognized to the distributing corporation (Distributing) upon:

  1. The assumption by the controlled corporation (Controlled) of Distributing's liabilities or
  2. Distributing's receipt of Controlled stock, Controlled securities or other debt obligations, and money or other property (IRC Section 361 Consideration) and its distribution of the IRC Section 361 Consideration to Distributing's creditors in satisfaction of Distributing's debt obligations.

Before the applicability of Revenue Procedure 2024-24, Revenue Procedure 2018-53 set forth the IRS's procedures for IRC Section 355 PLRs involving an assumption by Controlled of Distributing's debt or satisfaction of Distributing's debt with IRC Section 361 Consideration in a Divisive Reorganization.

Revenue Procedure 2024-24

Revenue Procedure 2024-24 modifies Revenue Procedure 2017-52 and supersedes certain representations required under the earlier revenue procedure. It also supersedes Revenue Procedure 2018-53 in its entirety. Finally, Revenue Procedure 2024-24 establishes new procedures for requesting IRC Section 355 PLRs on certain matters not previously addressed by Revenue Procedure 2017-52 or 2018-53. Together, these modifications indicate the IRS's reconsideration of, and change in administrative position on, a number of issues that are commonly relevant to spin-offs, including:

  1. Retentions and delayed dispositions of Controlled stock or securities in satisfaction of Distributing debt
  2. Potential mechanics for executing exchanges of Distributing's debt
  3. The amount and nature of Distributing's liabilities that may be assumed by Controlled
  4. The amount and nature of Distributing's debt that may be satisfied with IRC Section 361 Consideration

Retention and delayed dispositions of Controlled stock or securities

Under IRC Section 355(a)(1)(D)(ii), Distributing may distribute less than all of the Controlled stock or securities that it owns, provided that it distributes Controlled stock representing IRC Section 368(c) control of Controlled and establishes to the satisfaction of the Secretary that the retention of any remaining Controlled stock or securities by Distributing was not in pursuance of a plan having as one of its principal purposes the avoidance of US federal income tax. Distributing may dispose of the remaining Controlled stock or securities by distributing such stock or securities to its shareholders on a delayed basis or using it to repay Distributing's debt in a "debt-for-equity" or "debt-for-debt" exchange in connection with a Divisive Reorganization (a Delayed Distribution). Alternatively, Distributing may hold the retained stock or securities for an extended period of time, and later dispose of such stock or securities in a taxable disposition.

Under prior administrative policy, taxpayers could receive an IRC Section 355 PLR providing that:

  1. A Delayed Distribution executed within a specified period of time following an initial distribution of Controlled stock constituting control (the Initial Distribution) would qualify for nonrecognition treatment under IRC Section 355 or 361
  2. Distributing's continued ownership of Controlled stock or securities that are not distributed in pursuance of a plan of reorganization (a Retention) satisfied the requirements of IRC Section 355(a)(1)(D)(ii), provided that such Controlled stock or securities were disposed of within five years

Under this policy, a taxpayer could have certainty that a Delayed Distribution executed outside of the specified time frame or other disposition within five years of the initial distribution would not cause the Initial Distribution to fail to qualify under IRC Section 355 (i.e., the only uncertainty was related to recognition or nonrecognition for the Delayed Distribution or other disposition of the Controlled stock and securities, depending on how and when it was disposed of).

Revenue Procedure 2024-24 sets forth a new policy under which the IRS will no longer entertain simultaneous requests for both rulings with respect to the same Controlled stock or securities. Accordingly, if any Controlled stock or securities are to be held after the Initial Distribution, taxpayers will need to commit to the specific portion of the Controlled stock or securities that would be disposed of in a Delayed Distribution that could qualify for nonrecognition treatment under IRC Section 355 or 361, and the specific portion of the Controlled stock or securities (if any) that would be the subject of the Retention and ultimately disposed of in some other disposition (i.e., a recognition event). The Revenue Procedure requires that any Delayed Distribution be completed within 12 months of the first distribution of Controlled stock, although the taxpayer must support any delays longer than 90 days with the business reasons for the amount of Controlled stock retained and the duration of the delay. Separately, to obtain a Retention ruling, taxpayers must now submit the set of representations, information and explanations required under Revenue Procedure 2024-24. The required representations, information and explanations expand upon the prior requirements for Retention rulings (which were set forth in Revenue Procedure 96-30). In some cases, the new procedures require a "business exigency" that directly causes the need for the Retention, suggesting a higher standard than was applied under prior administrative policy.

Mechanics for executing debt-for-debt and debt-for-equity exchanges

For the past few years, the IRS issued favorable rulings on debt-for-debt and debt-for-equity exchanges executed through so-called "direct issuances" of Distributing's debt by Distributing to an intermediary, such as an investment bank. Under the direct issuance model, Distributing would use its Controlled stock or securities to repay the new debt directly issued to the intermediary and use the proceeds of the new debt to repay its historical debt within a specified time period. Revenue Procedure 2024-24 prohibits direct issuances (other than direct issuances of debt that qualifies as historical debt), thereby requiring taxpayers wishing to obtain an IRC Section 355 PLR addressing a debt-for-debt or debt-for-equity exchange to implement such exchanges through the "intermediated exchange" model. Under the "intermediated exchange" model, the intermediary purchases Distributing's debt from historical Distributing creditors, and Distributing subsequently transfers Controlled stock and/or securities to the intermediary in exchange for the Distributing's debt held by the intermediary. While the two models are economically similar transactions, the intermediated exchange model results in higher transaction costs and limits a company's ability to efficiently manage its liabilities, a business consideration that was understood to animate the IRS's prior allowance of direct issuances.

Taxpayers must provide required representations, information and explanations regarding the intermediated debt-for-debt and debt-for-equity exchanges, including:

  1. The name of each intermediary
  2. A description of the terms of all agreements with the intermediary
  3. An analysis that establishes that any agreements with the intermediary, and all activities by the intermediary, are consistent with the required representations

Although Revenue Procedure 2024-24 appears to allow for flexibility regarding the timing of when Distributing and the intermediary enter into the exchange agreement, the IRS will consider the length of time between an intermediary's acquisition of Distributing's debt and the debt-for-debt or debt-for-equity exchange as a primary factor in determining whether the form of an intermediated exchange should be recast for US federal income tax purposes. The IRS will give increased scrutiny to shorter time frames and a requirement to establish why a short time frame should not cause a recast. Contrary to past administrative practice, however, the Revenue Procedure does not clearly articulate the acceptable standards that the IRS will apply. For instance, a "short time" is not defined in the Revenue Procedure. In addition, the taxpayer must provide an analysis regarding why the form of the exchange should be respected and not recast or recharacterized under any principles of Federal income tax law.

Distributing's liabilities

Revenue Procedure 2024-24 sets forth new representations, information and analysis regarding Distributing's liabilities that may be assumed in a Divisive Reorganization or satisfied with IRC Section 361 Consideration. The taxpayer must submit the specified information with respect to each liability or group of liabilities, including a detailed description of the terms of the instruments, dates incurred, etc. Additional detail and analysis are required for any contingent liabilities to be assumed in the transaction. Further, the taxpayer must provide information and analysis to establish that an assumption will be subject to Section 357, and any transfer of IRC Section 361 Consideration to Distributing's creditors will be in connection with the reorganization.

Based on the representations required, Revenue Procedure 2024-24 appears to foreclose favorable rulings on the assumption of Distributing's liabilities and repayment of Distributing's debt incurred after the date that is 60 days before the earlier of the date the Divisive Reorganization is:

  1. Publicly announced
  2. Subject to a binding agreement entered into by Distributing or
  3. Approved by Distributing's board of directors (the Earliest Applicable Date)

This includes Distributing's debt borrowed under a revolving credit agreement, with the Revenue Procedure limiting the amount of the debt that can be repaid with IRC Section 361 Consideration to the amount incurred on the Earliest Applicable Date, and not the maximum amount that could be incurred under the revolving credit agreement. It is unclear whether this Earliest Applicable Date limitation is actually intended to apply to Controlled's assumption of ordinary course operating liabilities of Controlled's business. Additionally, Distributing's liabilities that may be assumed in a Divisive Reorganization or satisfied with IRC Section 361 Consideration are limited to Distributing's historical average debt (generally determined based on Distributing's outstanding debt as of the close of the eight fiscal quarters immediately before the Earliest Applicable Date). Unlike prior guidance, Revenue Procedure 2024-24 does not contemplate an exception for debt incurred to refinance historical debt.

Revenue Procedure 2024-24 clarifies that Distributing's debt owed to related parties may be satisfied with IRC Section 361 Consideration, provided the IRC Section 361 Consideration transferred to one or more related-party creditors is ultimately used to repay an unrelated creditor within 12 months of the first distribution of Controlled stock. Query whether this would require tracing of the IRC Section 361 Consideration or merely use of an amount equal to the IRC Section 361 Consideration.

In addition, Revenue Procedure 2024-24 modifies the Revenue Procedure 2018-53 restriction on replacement debt (e.g., reborrowing). The new Revenue Procedure appears to narrow the restriction by only applying it with respect to the amount of Distributing's debt "satisfied with [IRC] Section 361 Consideration" instead of any Distributing debt that "will be assumed or satisfied." It also, however, appears to expand the restriction by restricting Distributing or a related person from "directly or indirectly" replacing the debt with borrowing that Distributing or a related person "anticipates or is committed to, directly or indirectly" before the Initial Distribution. Although Revenue Procedure 2018-53 provided an automatic exception to this restriction for borrowing in the ordinary course of business pursuant to a revolving credit agreement, Revenue Procedure 2024-24 provides that the IRS "will consider" issuing a favorable ruling only if the taxpayer establishes that the additional borrowing:

  1. Is incurred in the ordinary course of business and would have been incurred without regard to the IRC Section 355 transaction or any related transaction
  2. Directly arises from unanticipated changed circumstances unrelated to the IRC Section 355 transaction or any related transaction

In addition, taxpayers must represent, and submit information and an analysis (such as financial projections) to substantiate that Controlled will be adequately capitalized and continue as an economically viable entity following the transaction — a proposal contained in the Biden administration's Fiscal Year 2025 "Green Book" of revenue proposals.


The changes implemented by Revenue Procedure 2024-24 significantly modify prior IRS ruling policy on retentions and delayed dispositions of Controlled stock, including the parameters for effectuating such dispositions. Revenue Procedure 2024-24 also imposes new standards on Controlled's assumption of Distributing's liabilities in a Divisive Reorganization. As compared to prior procedural guidance, it requires increased substantiation of the representations required to be submitted and offers less flexibility to deviate from the standard representations. The Revenue Procedure will require extensive analysis to be submitted to the IRS, indicating a higher burden of proof for taxpayers wishing to obtain a favorable PLR. Overall, taxpayers should expect increased effort and complexity in navigating the IRC Section 355 PLR process. While Revenue Procedure 2024-24 provides guidance regarding the procedures for IRC Section 355 PLR requests, Treasury and the IRS are continuing to study several matters related to IRC Section 355 transactions, as described in Notice 2024-38, and have indicated a desire to issue published guidance that would impact the substantive rules under IRC Section 355.

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Contact Information

For additional information concerning this Alert, please contact:

National Tax M&A Group - International Tax and Transaction Services

Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor