United States

IRS adds RIC/REIT and investment rich (e.g. Yahoo) spins to no-rule list


In Rev. Proc. 2015-43, IRS officially added certain high profile section 355 transactions to its “no-rule” list. Those include certain spinoffs followed by a planned real estate investment trust (REIT) or regulated investment company (RIC) election and spinoffs where the active trade or business (ATB) assets make up a small percentage of gross assets with a much larger portion of ‘investment assets’ similar to that of Yahoo’s contemplated spinoff of Alibaba.

Along with the revenue procedure, the Treasury and IRS issued Notice 2015-59 to announce that they are studying the issue further and are concerned that recent spinoffs involving a very low-value ATB, are contrary to the intent of the repeal of General Utilities, may represent ‘devices’ through which earnings and profits are distributed tax-free and may lack the necessary business purpose. These potential abuses have resulted in what is likely a policy shift that may end up generating controversy with taxpayers that decide to proceed with spinoff transactions based upon historical precedents.

Any taxpayer contemplating a spinoff involving a low value ATB with significant nonbusiness assets should consult their tax advisor to determine the impact that this guidance may have on their ability to satisfy the requirements of section 355.


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