IRS and Treasury Partially Withdraw 2016 Proposed Rules on Tax-Free Spin-Offs, Dropping the Per Se Device Test and Two Anti-Abuse Rules
Washington — The Treasury Department and the Internal Revenue Service (IRS) on October 21 published a notice in the Federal Register partially withdrawing their 2016 proposed regulations under Section 355 of the Internal Revenue Code on tax-free spin-off transactions (REG-134016-15), shelving three elements that had been pending for a decade.
Withdrawn are a 'per se' device test — under which a distribution could have been treated as a device to extract corporate earnings solely because either company held too large a share of nonbusiness assets, regardless of a genuine business purpose — and two related anti-abuse rules tied to that test and to the minimum active-trade-or-business requirement. The notice states that the withdrawal does not affect the potential application of other rules or judicial doctrines, such as the substance-over-form and step-transaction doctrines, and that Treasury and the IRS continue to study the issues addressed in the 2016 proposals.
Other parts of the 2016 proposals remain outstanding, including the 20 percent nonbusiness-asset consideration, a narrower business-purpose factor and a requirement that at least 5 percent of each company's assets satisfy the active trade or business test. According to Bloomberg Tax and other professional outlets, the agencies withdrew the rules after stakeholders were generally critical of them. Companies planning spin-offs therefore face one less proposed hard threshold, though a well-documented business purpose remains central to review.
Published by GSM · USA (original Chinese edition)
Photo: 图：位于华盛顿 Federal Triangle 的国税局 IRS 总部大楼。照片：Carol M. Highsmith，公有领域，经Wikimedia Commons。The Internal Revenue Service headquarters building in the Federal Triangle, Washington. Photo: Carol M. Highsmith, public domain, via Wikimedia Commons.
