On July 14, 2016, the Treasury Department and the IRS issued proposed regulations under Section 355 on spin-off transactions (the “Proposed Regulations”) that provide guidance with respect to the spin-off device prohibition (the “Device Requirement”) and the 5-year active trade or business requirement of Section 355(b) (the “ATB Requirement”). The Proposed Regulations contain substantive rules with respect to spin-off areas that Treasury and the IRS previously announced were under study and for which private letter rulings would not be issued. Most significantly, the Proposed Regulations add new rules examining the ratio of non-business assets to business assets and add a new test pursuant to which a transaction would be a per se device. In addition, the Proposed Regulations would require that the qualifying active trade or business represent at least 5% of the distributing and controlled corporations’ assets. The Proposed Regulations are intended to discourage highly-structured transactions that are sometimes pursued by activist shareholders in addressing corporate reorganizations such as in the case of Yahoo Inc. So-called “cash-rich split-off” transactions should not be affected by the Proposed Regulations other than the new 5% active trade or business rule. The Proposed Regulations will be effective for spin-offs occurring on or after the date that the Proposed Regulations are published as final regulations, although certain previously planned spin-offs will be grandfathered.