Rev. Proc. 2013-32 [PDF 47 KB] states that the IRS will no longer rule on whether such corporate transactions generally qualify for tax-free treatment. However, the IRS will issue a letter ruling on “significant issues” presented with respect to the transaction.
Rev. Proc. 2013-32 applies to all ruling requests postmarked or, if not mailed, received after August 23, 2013.
New letter ruling policy
Rev. Proc. 2013-32 states that the IRS will no longer rule on:
- Whether a transaction qualifies for nonrecognition treatment under section 332, 351, 355, or 1036
- Whether a transaction constitutes a reorganization within the meaning of section 368, regardless of (1) whether the transaction presents a significant issue and (2) whether the transaction is an integral part of a larger transaction that involves other issues upon which the IRS will rule
The IRS will issue a letter ruling on one or more issues under the Code’s nonrecognition provisions, to the extent that the issue(s) are significant. The IRS stated that, for example, it will issue a letter ruling addressing significant issues presented by the application of Reg. sections 1.368-1(d) and 1.368-2(k).
Rev. Proc. 2013-32 further states that:
- It does not limit the number of significant issues that may be the subject of a single letter ruling.
- The IRS reserves the right to rule on any other issue in, or part of, the transaction (including ruling adversely) if the IRS finds it to be “in the best interests of tax administration.”
- A “significant issue” is an issue of law, the resolution of which is not essentially “free from doubt” and that is germane to determining the tax consequences of the transaction.
For example, Rev. Proc. 2013-32 states that the IRS may decline to rule on an issue under section 368 with respect to an upstream merger of a wholly owned subsidiary into its shareholder if (1) a qualification of the transaction under section 332 is essentially free from doubt, and (2) it is essentially free from doubt that the tax consequences of section 332 qualification would be the same as the tax consequences that would result if the transaction constituted a reorganization within the meaning of section 368. In such an overlap case, the taxpayer must explain why the issue is germane to determining its tax consequences.
The IRS will only rule on the tax consequences—such as nonrecognition and basis—that result from the application of the Code’s nonrecognition provisions to the extent that a significant issue is presented under the related Code section that addresses such tax consequences.
For example, a section 351 exchange that does not present any significant issues under section 351 may present a significant issue regarding the application of section 358 to the transferor in the exchange. Here, the IRS will rule only on the significant issue under section 358.
Rev. Proc. 2013-32 sets forth procedures for taxpayers to follow, including directions to telephone the IRS Office of Associate Chief Counsel (Corporate) to discuss whether the IRS would entertain a letter ruling request.