Private Letter Ruling
201931007
Released August 2, 2019
Approved
Corporate spin-off qualified for nonrecognition treatment
Apply this to your situation
This page covers one taxpayer's ruling from 2019, which can't be cited as precedent. Ezel answers your situation under the current Code and IRS guidance, with citations.
Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It resolved one taxpayer's situation on its specific facts, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.
About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.
View official IRS release (PDF)
Plain-English summary
A parent corporation proposed to separate a wholly owned subsidiary by distributing all of the subsidiary's stock to the parent's shareholders. The IRS ruled that the shareholders would recognize no gain or income on receiving the controlled corporation's stock and that the distributing corporation would recognize no gain or loss. Each shareholder would allocate existing stock basis between the two corporations, and the controlled stock would carry over the holding period of the distributing stock if that stock was a capital asset. Earnings and profits would be allocated between the corporations under section 312(h). The ruling did not decide the business-purpose, device, or acquisition-plan requirements that the letter expressly excluded from review.
Ruling snapshot
- Question: What federal income tax consequences follow from distributing all stock of a controlled subsidiary to the parent corporation's shareholders?
- Outcome: approved, subject to the stated representations and caveats
- Key authorities: IRC §§ 312(h), 355, 358, 1223(1); Treas. Reg. §§ 1.312-10, 1.358-2, 1.1502-33
Full text (IRS public release)
Internal Revenue Service Department of the Treasury
Washington, DC 20224
Number: 201931007 Third Party Communication: None
Release Date: 8/2/2019 Date of Communication: Not Applicable
Index Number: 355.01-00
Person To Contact:
--------------------------------------- ---------------------, ID No. ----------------
------------------------------- Telephone Number:
--------------------------------------- ----------------------
-------------------------------- Refer Reply To:
CC:CORP:B03
PLR-135881-18
Date:
May 07, 2019
Legend
Distributing = --------------------------
----------------------------
------------------------
Controlled = --------------------------------------------
----------------------------
------------------------
State A = ----------
Sub 1 = ------------------------------------
----------------------------
------------------------
Sub 2 = -------------
----------------------------
------------------------
DRE 1 = -------------------------
----------------------------
------------------------
DRE 2 = -----------------------------
------------------------------
------------------------
DRE 3 = ----------------------------
----------------------------
------------------------
PLR-135881-18 2
DRE 4 = -------------------------------------------
----------------------------
------------------------
DRE 5 = ----------------------------------------------
----------------------------
------------------------
DRE 6 = ---------------------------
----------------------------
------------------------
DRE 7 = --------------------
----------------------------
------------------------
DRE 8 = -----------------------------
----------------------------
------------------------
Shareholder 1 = ------------------------------------------
----------------------------------
--------------------------
Shareholder 2 = -----------------------------------------------------------------------------
--------------------------------------
--------------------------
Shareholder 3 = -------------------------------------------
-----------------------------------
--------------------------
Shareholder 4 = --------------------------------------------------------------------------
-----------------------------------
--------------------------
Shareholder 5 = ------------------------------------------------
-------------------------------------
-------------------------
C Business = ----------------
PLR-135881-18 3
D Business = --------
Dear ------------------:
This letter responds to the letter dated December 6, 2018, submitted on behalf of
Distributing, its affiliates, and its shareholders, requesting rulings on certain federal
income tax consequences of a proposed transaction (the Proposed Transaction, as
defined herein). The material information submitted in that request and subsequent
correspondences is summarized below.
This letter is issued pursuant to Rev. Proc. 2017-52, 2017-41 I.R.B. 283, regarding one
or more “Covered Transactions” under section 355 of the Internal Revenue Code (the
“Code”).
The rulings contained in this letter are based on facts and representations submitted by
the taxpayer and accompanied by a penalties of perjury statement executed by an
appropriate party. This office has not verified any of the materials submitted in support
of the request for rulings. Verification of the information, representations, and other
data may be required as part of the audit process.
This office has made no determination regarding whether the Distribution (as defined
below): (i) satisfies the business purpose requirement of Treas. Reg. § 1.355-2(b); (ii) is
used principally as a device for the distribution of the earnings and profits of the
distributing corporation or the controlled corporation or both (see section 355(a)(1)(B)
and Treas. Reg. § 1.355-2(d)); or (iii) is part of a plan (or series of related transaction)
pursuant to which one or more persons will acquire directly or indirectly stock
representing a 50-percent or greater interest in the distributing corporation or the
controlled corporation, or any predecessor or successor of the distributing corporation
or the controlled corporation, within the meaning of Treas. Reg. § 1.355-8T (see
section 355(e)(2)(A)(ii) and Treas. Reg. § 1.355-7).
Summary of Facts
Distributing, a State A corporation, is owned by Shareholder 1, Shareholder 2,
Shareholder 3, Shareholder 4, and Shareholder 5 (“Distributing Shareholder” or
collectively, “Distributing Shareholders”) through a single class of voting common stock
issued and outstanding (“Distributing Common Stock”). Distributing wholly owns Sub 1,
Sub 2, DRE 5, DRE 6, DRE 7, and Controlled. Sub 1 wholly owns DRE 1 and DRE 2.
Sub 2 wholly owns DRE 8. Controlled wholly owns DRE 3 and DRE 4. Distributing is
the common parent of an affiliated group filing a consolidated federal tax return (the
“Distributing Group”). Distributing, Sub 1, Sub 2, DRE 1, DRE 2, DRE 5, DRE 6, DRE
PLR-135881-18 4
7, and DRE 8 are engaged in the D Business. Controlled, DRE 3, and DRE 4 are
engaged in the C Business.
The Proposed Transaction
For what are represented to be a valid business purpose, Distributing proposes to
separate Controlled from the Distributing Group and will distribute all of the stock of
Controlled to the Distributing Shareholders (“the Distribution”).
It is anticipated that after the Distribution, some of the Distributing Shareholders may
transfer some shares of Distributing Common Stock to their children. It is not
anticipated that the value of the stock transferred to the Distributing Shareholders’
children will exceed 50 percent of either vote or value of Distributing in the five year
period following the Distribution.
Representations
With respect to the Distribution, except as otherwise provided below, Distributing has
made all the representations provided in section 3 of the Appendix to Rev. Proc. 2017-
52, 2017-41 I.R.B. 283.
Distributing has made the following alternative representations set forth in section 3 of
the Appendix to Rev. Proc. 2017-52:
Representations 3(a), 8(a), 11(a), 15(a), 22(a), and 31(a).
Distributing does not make representation 35, which does not apply to the Distribution.
Rulings
Based solely on the information submitted and the representations set forth above, we
rule as follows:
1) No gain or loss will be recognized by (and no amount will be included in the
income of) Distributing Shareholders upon the receipt of Controlled stock in
the Distribution. Section 355(a).
2) Distributing will not recognize gain or loss on the Distribution. Section 355(c).
3) Each Distributing Shareholder’s basis in the Controlled stock and Distributing
Common Stock immediately following the Distribution will equal the basis of
the Distributing Common Stock that the shareholder held immediately before
the Distribution, allocated in the manner described in Treas. Reg. § 1.358-2.
Section 358(a) and (b).
PLR-135881-18 5
4) Each Distributing Shareholder’s holding period in the Controlled stock
received in the Distribution will include the holding period of the Distributing
Common Stock with respect to which the Distribution is made, provided the
Distributing Common Stock is held as a capital asset on the date of the
Distribution. Section 1223(1).
5) Earnings and profits of Distributing, if any, will be allocated between
Distributing and Controlled in accordance with section 312(h) and Treas. Reg.
§ 1.312-10(b) and Treas. Reg. § 1.1502-33(e).
Caveats
Except as expressly provided herein, no opinion is expressed or implied concerning the
tax treatment of the Distribution under any provision of the Code or regulations, or the
tax treatment of any conditions existing at the time of, or effects resulting from, the
Distribution that are not specifically covered by the above rulings.
Procedural Statements
This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be sued or cited as precedent.
Pursuant to a power of attorney on file with this office, copies of this letter are being sent
to your authorized representatives.
A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their returns that provides the date and control number [PLR-
135881-18] of the letter ruling.
Sincerely,
______________________
Maurice M. LaBrie
Assistant to the Branch Chief, Branch 5
Office of Associate Chief Counsel (Corporate)
cc:
Get today's answer for your situation
You just read what the IRS ruled for one taxpayer in 2019, and it can't be cited as precedent. Ezel checks the current Internal Revenue Code and IRS guidance and answers your specific situation, with citations.
Opens in Ezel Pro. Every answer cites the authority it relies on.