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ARTICLE · 17 MAY 2017

IRS Issues Guidance On "North-South" Transactions

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The Ruling, under the facts set forth under Situation 1, spells out the paradigmatic case of a "north-south" transaction.

United StatesTax
Richard M Corn
Richard M Corn
David S. Miller
David S. Miller
Bowon Koh
Bowon Koh
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On May 3, the Internal Revenue Service (the IRS) issued Revenue Ruling 2017-09 (the "Ruling"), which helpfully clarifies that the separate steps of a typical "north-south" spinoff transaction will be respected, and announced that it would once again issue private letter rulings on north-south transactions.

In a north-south spinoff transaction, a shareholder contributes property to a corporation and the corporation distributes the stock of another subsidiary to the shareholder in a transaction that is intended to be a tax-free spinoff. If the contribution and distribution are treated as separate steps, then the distribution would qualify as tax-free under section 355 but if the steps are combined under the "step transaction doctrine" so that the contribution is received in exchange for the distribution, the distribution would be taxable.

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