New Fast-Track IRS Guidance for Spin-Offs and Other Corporate Transactions

New pilot program may result in corporate tax rulings within 12 weeks.

On January 14, 2022, the Internal Revenue Service ("IRS") released Revenue Procedure 2022-10, which establishes a "fast-track processing" pilot program for certain private letter ruling requests that are solely or primarily under the jurisdiction of the Office of the Associate Chief Counsel (Corporate). Eligible taxpayers that previously could not seek a ruling given time constraints (such as business exigencies) may now be able to utilize the pilot program to obtain one within 12 weeks (currently taxpayers often wait in excess of 6 months to receive final rulings). The pilot program's significantly quicker processing time should enhance sound administration of the corporate tax rules.

Although the new guidance does not single out any particular type of ruling, the Associate Chief Counsel (Corporate) has jurisdiction over many important areas, including: (i) tax-free spin-offs, (ii) certain corporate reorganizations and liquidations, (iii) consolidated group tax return issues, and (iv) the section 382 loss limitation rules. Ruling requests that include non-corporate issues or that are not primarily under the Corporate division's jurisdiction (such as those involving financial products, cross-border transactions, or industries with special tax rules) will need additional approvals to qualify for fast-tracking. The pilot program, therefore, incentivizes taxpayers not to seek both corporate and non-corporate rulings in the same request in order to avoid delaying, or potentially preventing, fast-tracking of the desired corporate rulings.

In addition to providing information already required to obtain a ruling, taxpayers requesting fast-tracking generally must (i) seek a pre-submission conference, (ii) provide a draft ruling and agree to provide additional information requested by the IRS within 7 days of the request, (iii) follow special procedures in submitting the ruling request, and (iv) provide sufficient justification based on the taxpayer's business needs for processing the request on such basis. Although taxpayers can request a specific period of time for processing their requested ruling, the default period is 12 weeks, and any request for faster processing will receive additional scrutiny and require a demonstrated business need.

Fast-tracking is not guaranteed. The IRS can decline or delay requests in its discretion or approve a processing time lengthier than that requested. If fast-tracking is denied, requests will be processed under the current rules. Further, during the pilot program, the IRS's general "expedited handling" process will be unavailable for ruling requests that are solely or primarily under Corporate's jurisdiction. The new guidance also excludes any ruling request filed with an application for extension of time to submit a late filing ("section 9100 relief").

The pilot program is set to continue until July 14, 2023. A taxpayer that has already submitted an eligible ruling request can request fast-tracking by contacting the IRS, providing the additional information required under the pilot program, and agreeing to follow the requirements of the new guidance.

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