The IRS has updated procedures (Revenue Procedure 2026-21) for taxpayers requesting a private letter ruling (PLR), permitting taxpayers to request a ruling on part of an integrated transaction described in IRC Sections 332, 351, 355, 368 or 1036, or on one or more particular legal issues arising from such a transaction (a significant issue ruling).

Background

Before 2024, the IRS would provide only significant issue rulings on transactions under IRC Sections 332, 351, 368 and 1036. For corporate spin-off transactions under IRC Section 355, however, a taxpayer could choose to request either a significant issue ruling or a ruling addressing the general federal income tax consequences of the entire transaction (a transactional ruling) under Revenue Procedure 2017-52 (see Tax Alert 2017-1559).

In 2024, Revenue Procedures 2024-1 and 2024-3 permitted transactional rulings for transactions under IRC Sections 332, 351, 355, 368 and 1036, including "comfort rulings," or rulings on an issue that is clearly and adequately addressed by current guidance. At the same time, these revenue procedures ended the practice of issuing significant issue rulings for those transactions and for corporate spin-offs (with a limited exception if part of a transaction fell under an area in which the IRS would not otherwise rule).

Reinstating the significant issue ruling program

Revenue Procedure 2026-21 reestablishes a program allowing taxpayers to request, and the IRS to issue, significant issue rulings, while leaving in place the option for taxpayers to seek a transactional ruling under IRC Sections 332, 351, 355, 368 or 1036. A request for a significant issue ruling must include one or more issues that are "significant" (while transactional rulings permit comfort rulings) and must be limited to issues that are solely under the jurisdiction of the Associate Chief Counsel (Corporate).

Definition of a significant issue

A significant issue is defined as a germane and specific issue of law for which a ruling would not be a comfort ruling and whose conclusion is not essentially free from doubt. An issue is "germane" if its resolution is necessary to determine an element of the tax treatment of the transaction and "specific" if it represents the narrowest articulation of that issue. Changes in circumstances arising after a transaction ordinarily do not give rise to a significant issue.

Scope of rulings

Under the new program, the IRS may issue rulings on:

• Part of an integrated transaction without ruling on the larger transaction
• A specific legal issue under a covered IRC section or related regulations without addressing all aspects of that section or the regulations
• Certain tax consequences, such as nonrecognition or basis, to the extent a significant issue is presented under another IRC section, if the transaction is described in the covered IRC sections

For example, the IRS may rule on a significant issue presented under IRC Section 355(e) by an acquisition following a corporate spin-off without addressing all the IRC Section 355 requirements. As another example, the IRS may rule on the application of IRC Section 358 to determine a transferor's basis in an incorporation transaction, without addressing all the IRC Section 351 requirements.

The IRS reserves the right to rule on additional issues related to the transaction, including issuing an adverse ruling, if doing so is determined to be in the interest of sound tax administration.

Procedural requirements

Taxpayers requesting a significant issue ruling must comply with the general PLR procedures in Revenue Procedure 2026-1, as modified, and applicable no-rule policies in Revenue Procedure 2026-3. Requests must include:

• A narrative description of the transaction that puts the significant issue in context
• Identification of the issue
• An analysis of relevant authorities explaining why the issue is unresolved and significant
• Applicable factual information and representations
• A precise statement of the ruling requested
• Confirmation that no rulings outside the jurisdiction of Associate Chief Counsel (Corporate) are requested

Before requesting a significant issue ruling, taxpayers should follow specified procedures applicable to pre-submission conferences to discuss whether the IRS will issue such a ruling.

Effective date

The significant issue ruling program applies to PLR requests postmarked or, if not mailed, received by the IRS after May 5, 2026.

Implications

The flexibility for taxpayers to choose whether to request a significant issue ruling or a transactional ruling is a welcome development in the IRS ruling program. A significant issue ruling may be preferred by taxpayers who hope to accelerate the timeline for a ruling request or to concentrate their PLR request on an area that cannot otherwise be addressed in a tax advisor opinion (e.g., because of lack of relevant guidance). A significant issue ruling may also be useful where the facts relevant to the discrete issue are known, but other parts of the transaction remain in flux (in which case a transactional ruling may not be available).

Taxpayers should be aware, however, that the IRS may decide to rule on issues (including adversely) that are not presented as part of the significant issue ruling request. Ultimately, whether to seek a significant issue ruling, a transactional ruling, or no ruling, will depend on the taxpayer's specific circumstances, the substantive issues involved, and the way that the IRS administers the program.