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IRC Section 355 Corporate Spin-Off Transactions: Optimizing Tax Treatment in Divestitures

Recording of a 90-minute premium CLE/CPE video webinar with Q&A

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Conducted on Thursday, July 6, 2023

Recorded event now available

or call 1-800-926-7926

This course will provide tax counsel with a practical guide to the key tax considerations in structuring corporate spin-offs and carve-outs. The panelist will examine key legal, business and tax considerations for deal structuring, economic terms, due diligence, asset transfers, and more.

Description

Corporate divestitures or “spin-offs” remain a preferred method to free up shareholder value and restructure a company’s operations. Spin-off transactions that conform to the terms of IRC 355 qualify for tax-deferral treatment. Failure to comply with these complex rules can mean a significant tax cost if the transaction fails to qualify for deferral treatment.

Given the significant potential costs of a failed spin-off, taxpayers may seek a private letter ruling (a PLR) from the IRS, effectively blessing a spin-off prior to its completion. From 2013 to 2017, the IRS would generally only issue “significant issue” PLRs regarding spin-offs. However, the IRS has in recent years once again began issuing so-called “transactional” rulings that confirm the qualification of many (but not all) of the basic requirements under IRC Section 355.

Listen as our experienced panel discusses the tax impact of various transaction structures, provides best practices for minimizing transaction taxes, and explores various techniques to establish appropriate capital structures as well as pursue post-divestment opportunities. The panel will also discuss the interaction of the recently-enacted corporate alternative minimum tax with the spin-off rules, as well as legislative proposals in the 2023 Green Book implicating spin-offs.

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Outline

  1. Legitimate business purpose requirement to qualify for tax-free treatment
  2. Requirement of two (at least) actively conducted businesses
  3. Sales in connection with spin-offs—avoiding 355(e) prohibitions
  4. Capital structure
  5. Tax sharing/tax matters agreements

Benefits

The panelist will review these and other important issues:

  • Identifying and avoiding divestiture pitfalls
  • Proceeding with or without a PLR
  • Current state of Section 355 spin-offs and split-offs
  • IRS approach on debt allocation transactions
  • Active trade or business issues
  • Potential legislative changes regarding monetization restrictions and a potential new “capital adequacy” requirement for spin-offs

Faculty

Cardella, Michael
Michael J. Cardella
Counsel
Skadden Arps Slate Meagher & Flom

Mr. Cardella advises U.S. and international clients, both private and public, on a range of U.S. income tax matters,...  |  Read More

Yamamura, Tatsuro
Tatsuro T. Yamamura
Associate
Skadden Arps Slate Meagher & Flom

Mr. Yamamura represents large U.S. and international financial institutions and other multinational companies on a...  |  Read More

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Strafford will process CLE credit for one person on each recording. CPE credit is not available on recordings. All formats include course handouts.

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