Examples of significant issues
The following are examples of the types of issues that may qualify for a significant issue ruling. This list is non-exclusive.
- Section 355(e) plan issues: Whether a corporate spinoff and a subsequent acquisition are part of a ‘plan,’ which could cause the spinoff to be taxable to the distributing corporation
- Continuity of business enterprise (COBE): Whether the acquiring corporation in a reorganization continues the target’s historic business or uses a significant portion of the target’s assets, as required under Reg. section 1.368-1(d)
- Post-reorganization asset transfers: Whether transfers of assets after a reorganization jeopardize the tax-free treatment of the deal under Reg. section 1.368-2(k)
- Continuity of interest (COI): Whether the target company’s shareholders receive enough stock (as opposed to cash) to satisfy the continuity of interest requirement under Reg. section 1.368-1(e)
- Basis to transferors in section 351 exchanges: How a transferor’s tax basis in stock received in a section 351 exchange should be calculated under section 358, even if the exchange itself is straightforward
- Active trade or business: Whether the distributing and controlled corporations in a spinoff each satisfy the active trade or business requirement under section 355(b)
- Device and business purpose: Whether a spinoff is principally used as a ‘device’ to distribute corporate earnings tax-free, or whether the transaction has a sufficient corporate business purpose under section 355
- Reorganization definitional requirements: Whether a transaction satisfies the specific technical requirements to qualify as a tax-free reorganization under section 368
What does this mean for your transactions?
The reinstatement of significant issue rulings is a welcome development for companies considering corporate spinoffs, reorganizations and similar transactions. Key takeaways include:
- Faster, more targeted guidance: Taxpayers can now obtain IRS guidance on a specific uncertain issue without the time and expense of seeking a ruling on the entire transaction.
- Existing programs remain available: Full transactional rulings and comfort rulings continue to be available for taxpayers who prefer broader IRS confirmation of their transaction’s tax treatment.
- IRS discretion preserved: The IRS reserves the right to rule on other aspects of the transaction (including ruling adversely) if it believes doing so is in the interest of sound tax administration.
- Pre-submission conferences recommended: The IRS recommends that taxpayers request a conference with the Office of Associate Chief Counsel (Corporate) before preparing a ruling request to confirm that the issue qualifies for the program.
It is not always clear at the outset whether the IRS will entertain a ruling request on a particular issue. As a practical matter, taxpayers can use the pre-submission conference process to discuss the issue with the Office of Associate Chief Counsel (Corporate) and gauge whether it is appropriate for a significant issue ruling before investing in a full submission. These discussions can be framed at a high level and without identifying the taxpayer by name.
Effective date
The program applies to all letter ruling requests postmarked or received by the IRS after May 5, 2026.
How RSM US can help
RSM’s mergers and acquisitions (M&A) tax services team regularly assists companies with evaluating whether planned transactions present significant issues suitable for a ruling request, preparing and submitting letter ruling requests and navigating the pre-submission conference process with the IRS.
It is unclear which issues the IRS would be willing to consider under the revenue procedure for a ruling request as a general matter. Nonetheless, the IRS often provides opportunities for anonymous conversations with service providers (e.g., accounting firms, law firms) to evaluate the likelihood and availability for a ruling request based on facts and issues at play. If you are considering a corporate spinoff, reorganization or other nonrecognition transaction, please contact your RSM advisor to discuss how this new program may benefit your company.
