Daily Tax Update - December 16, 2016: IRS, Treasury Issue Temporary and Proposed Regulations for Tax-Free Spin-Offs Under Sections 355(e) and 355(f)

IRS, Treasury Issue Temporary and Proposed Regulations for Tax-Free Spin-Offs Under Sections 355(e) and 355(f):  The IRS and Treasury issued temporary regulations (TD 9805) that provide guidance regarding the distribution by a distributing corporation of stock or securities of a controlled corporation without the recognition of income, gain, or loss.  The temporary regulations provide guidance on determining whether a corporation is a predecessor or successor of a distribution or controlled corporation for purposes of the exception under section 355(e) to the nonrecognition treatment afforded qualifying distributions.  The temporary regulations also provide certain limitations on the recognition of gain in certain cases involving a predecessor of a distributing corporation.  In addition, the temporary regulations contain rules regarding the extent to which section 355(f) causes a distributing corporation (and in certain cases its shareholders) to recognize income or gain on the distribution of stock or securities of a controlled corporation. 

The temporary regulations apply to distributions made after January 18, 2017, but they do not apply to distributions made under binding agreements already in effect today, already described in a ruling request to the IRS, or already described in a SEC filing.  The temporary regulations are identical to the proposed regulations also issued today. 

IRS Provides Guidance on Total Loss-Absorbing Capacity Treatment:  Revenue Procedure 2017-12 provides that the IRS will treat internal total loss-absorbing capacity (debt or capital that can absorb loss) issued by a domestic intermediary holding company of a foreign global systemically important banking institution as indebtedness for federal tax purposes. This guidance is intended to help foreign banks address certain Federal Reserve Board loan requirements.