Supplemental split-off ruling clarifies the overlapping-shareholder comparison

Plain-English summary

The IRS supplemented and modified an earlier ruling involving a split-off distribution followed by a combination with another company. The change explains how the distributing corporation must compare an exchanging shareholder's ownership percentages when applying the Overlap Rule and Net Decrease Methodology. If ownership in the controlled corporation immediately after the split-off is available, that percentage is compared with ownership in the combination partner immediately after the combination. If it is unavailable, ownership in the distributing corporation immediately before the split-off is used instead, consistently with the method for non-exchanging shareholders. The IRS stated that this clarification did not affect the rulings in the earlier letter.

Ruling snapshot

• Question: How should an exchanging shareholder's ownership percentages be compared under the earlier split-off ruling's Overlap Rule and Net Decrease Methodology?
• Outcome: approved, supplemental modification with no change to the prior rulings
• Key authorities: IRC §§ 355 and 368

Full text (IRS public release)

 Internal Revenue Service                             Department of the Treasury
                                                      Washington, DC 20224

 Number: 202249014                                    Third Party Communication: None
 Release Date: 12/9/2022                              Date of Communication: Not Applicable
 Index Number: 355.01-00, 368.04-00
                                                      Person To Contact:
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 -------------------------------------                Refer Reply To:
 ----------------------------------------             CC:CORP:B05
                                                      PLR-114941-22
                                                      Date:
                                                      September 06, 2022




Dear ------------------:

This letter supplements and modifies PLR-122518-21, issued May 10, 2022 (Previous
Letter). The legend of the Previous Letter is incorporated without change.

Paragraph (iii)(b) on page 15 of the Previous Letter is modified as follows:

    (b) If the Overlapping Shareholder participates in the Exchange Offer (the
    “Exchanging Shareholder”), Distributing will compare such shareholder’s ownership
    percentage in Controlled immediately after the Split-off Distribution to the extent
    available, with such shareholder’s ownership percentage in RMT Partner
    immediately after the Combination in applying the Overlap Rule and the Net
    Decrease Methodology. If information regarding an Exchanging Shareholder’s
    ownership percentage in Controlled immediately after the Split-off Distribution is not
    available, Distributing will compare such shareholder’s ownership percentage in
    Distributing immediately before the Split-off Distribution with such shareholder’s
    ownership percentage in RMT Partner immediately after the Combination in applying
    the Overlap Rule and the Net Decrease Methodology, consistent with the
    methodology applicable to Non-Exchanging Shareholders described above.

The above modification does not affect the rulings in the Previous Letter.

                                            Caveats

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax treatment of the Proposed Transactions under other provisions of the Code or
regulations or the tax treatment of any condition existing at the time of, or effects
resulting from the Proposed Transactions that are not specifically covered by the above
rulings.

PLR-114941-22                                          2

                                             Procedural Statements

The ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

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 on and control number
(PLR-114941-22) of the letter ruling.

Pursuant to a power of attorney on file with this office, a copy of this letter is being sent
to your authorized representatives.


                                                    Sincerely,


                                                    _Gerald B. Fleming____________
                                                    Gerald B. Fleming
                                                    Senior Technician Reviewer, Branch 2
                                                    Office of Associate Chief Counsel (Corporate)



cc:
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