New Spin-Off Issues Under Study, IRS Says

In Notice 2015-59, the IRS announced there are several areas that are currently under study based upon characteristics of certain Section 355 spin-offs that concern the IRS due to possible abuse.

These areas under study are (1) the nature of the assets of either the distributing or controlled corporation in a spin-off where "investment assets" of either represent a high ratio of the total assets for either entity; (2) transactions where the active trade or business assets represent a small percentage of the total assets of either the distributing or controlled corporation; (3) spin-offs involving either a regulated investment company (RIC) or real estate investment trust (REIT) election by either the distributing or controlled corporation after the spin; and, (4) the Treasury regulation provisions that provide that a non-pro rata spin-off (a split-off) is usually not indicative of a transaction not being a device for the distribution of earnings and profits.