On Monday, the IRS released Notice 2015-59. In it, the IRS announced that the IRS will no longer issue private letter rulings on whether a distribution satisfies the requirements of Section 355 for a tax-free spin-off where (i) the spin-off involves a real estate investment trust or a regulated investment company, (ii) the active business is small compared to the other assets, or (iii) the investment assets are significantly greater than the other business assets. In the case of transactions involving REITs, the IRS stated that it was generally not concerned about transactions in which both the distributing corporation and the controlled corporation have been and will continue to be REITs or where the distributing corporation has been a REIT for a substantial period of time. The IRS further stated that it will continue to rule on such transactions.
The notice also provided that the IRS and Treasury believe that the types of transactions on which the IRS will no longer rule may not satisfy the requirements of Section 355 and are studying this issue.
This notice will likely have a significant cooling effect on companies that were considering a spin-off.
