IRS Rulings Clarify Tax Treatment of Multi-Tier Restructuring Transactions

Latham & Watkins LLP

By declaring a controversial ruling obsolete, the IRS removes uncertainty surrounding the tax effects of certain corporate restructuring techniques.

A pair of revenue rulings the US Internal Revenue Service (IRS) issued this week clarify the agency’s position on certain multi-step transactions, including a “triple-drop-and-check” transaction. Breaking from an older revenue ruling, but consistent with more recent private guidance, this week’s rulings falling within the rules for tax-free exchanges under Section 351 of the Internal Revenue Code of 1986, as amended (Code), and the ensuing component (i.e., the final “drop-and-check”) within the the form of the successive contributions in these types of restructurings would be respected, unless a recast is necessary to reflect the substance of the transaction (e.g., the recast of the final component of the restructuring as a “D” reorganization).

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