Jodi J. Schwartz and Joshua M. Holmes are partners at Wachtell Lipton Rosen & Katz. This post is based on a Wachtell Lipton firm memorandum by Ms. Schwartz, Mr. Holmes, and David B. Sturgeon.
The Treasury Department and the Internal Revenue Service have announced (in Notice 2015-59) that they are studying issues related to the qualification of certain corporate distributions as tax-free under Section 355 of the Internal Revenue Code in situations involving substantial investment assets, reliance on relatively small active businesses, and REIT conversions. The IRS concurrently issued related guidance (Rev. Proc. 2015-43), adding such transactions to its ever-expanding list of areas on which it will not issue private letter rulings. While this expansion of the IRS’s “no-rule” areas is not a statement of substantive law, these announcements may have a chilling effect on certain pending and proposed transactions.