October 24, 2017

Insights Vol. 4 No. 10: Updates & Other Tidbits

October 24, 2017/ Ruchelman P.L.L.C.

This month, Sheryl Shah, Neha Rastogi, and Nina Krauthamer look briefly at certain timely issues: (i) Swiss nexus requirements to be eligible for treaty benefits, (ii) the impact of technology tax reporting and information sharing, (iii) an I.R.S. pilot program expanding the scope of letter rulings to Code §355 stock and security distributions, and (iv) recent application of the 2016 anti-inversion regulations issued by the Obama Administration under Code §7874.

June 27, 2017

I.R.S. Breaks the Silence with Rev. Rul. 2017-09, Issues Guidance on “North-South” Transactions

June 27, 2017/ Ruchelman P.L.L.C.

In Rev. Rul. 2017-09, the I.R.S. addressed “north-south” transactions. In these transactions, a shareholder transfers property to a corporation in a transaction structured to be free of tax under Code §351. At about the same time, the corporation distributes shares of its subsidiary to the shareholder in a spinoff. If the transactions are considered separate for income tax purposes, each can be effected free of gain recognition and the imposition of income tax. On the other hand, if the transactions are integrated into a single multi-step transaction, gain will be recognized and tax imposed on each step of the arrangement. The ruling announces that the I.R.S. will once again rule on the status of these transactions and provides guidance on the standard that the I.R.S. will apply. Rusudan Shervashidze and Nina Krauthamer explain the factual context and the approach of the I.R.S. in granting relief.

August 29, 2016

Proposed Regulations on Nondevice & Active Business Requirements Under Code §355

August 29, 2016/ Ruchelman P.L.L.C.

Many jurisdictions have special provisions that apply when two businesses owned by a corporation or corporate group are divided and shares of group members are distributed to shareholders. Sometimes referred to as a “demerger” in Europe and other times as a “butterfly” in Canada, in the U.S. these transactions are called Code §355 spin-offs, split-ups, and split-offs. In the U.S., several hurdles must be overcome for the transaction to be free of tax at the level of the company making the distribution and the shareholder receiving the distribution. The I.R.S. recently issued proposed regulations clarifying the application of two of these hurdles: the transaction must not be a “device” to distribute earnings, and companies conducting two or more active business must be involved. The proposed regulations were motivated by a proposal by Yahoo! to distribute shares of Alibaba. Rusudan Shervashidze and Andrew P. Mitchel analyze the proposed regulations and how they will apply to circumstances involving a spin-off of a corporation operating a small business but having a large investment asset.

April 29, 2016

What Is a Corporate Business Purpose for a Tax-Free Corporate Division?

April 29, 2016/ Ruchelman P.L.L.C.

As Insights continues to look at various provisions of the Internal Revenue Code applicable to corporate reorganizations and divisions, Elizabeth V. Zanet and Beate Erwin delve deeper into the requirements to address an eternal question relating to a tax-free spin-off.